Business context and reporting period
Johnson Outdoors Inc. designs, manufactures and markets outdoor recreation products across Fishing (Minn Kota, Humminbird, Cannon), Camping (Eureka!, Jetboil), Watercraft Recreation (Old Town, Ocean Kayak) and Diving (SCUBAPRO). This Form 10-K covers the 52-week fiscal year ended September 29, 2017; fiscal 2017 fourth-quarter figures are also summarized below. Unless stated otherwise, financial amounts are in millions of dollars.
Financial performance and position
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net sales | $490.6 | $433.7 |
| Gross profit / margin | $210.9 / 43.0% | $176.5 / 40.7% |
| Operating profit / margin | $45.6 / 9.3% | $22.9 / 5.3% |
| Income before taxes | $48.2 | $23.7 |
| Net income | $35.2 | $13.5 |
| Diluted EPS | $3.51 | $1.34 |
| Operating cash flow | $46.4 | $43.4 |
| Capital expenditures | $11.6 | $11.7 |
Annual sales increased 13%; gross margin improved 2.3 percentage points and operating profit nearly doubled. The effective tax rate fell to 27.1% from 42.9%. FY 2017 current assets were $240.8 million and current liabilities $84.1 million, giving working capital of $156.8 million and a 2.9:1 current ratio. Cash and cash equivalents were $63.8 million, with $46.6 million in short-term investments. Total debt was zero at year-end, versus $7.4 million in FY 2016. Shareholders’ equity was $243.0 million.
Fourth-quarter FY 2017 sales were $91.8 million versus $74.9 million a year earlier; operating loss was $0.1 million versus $4.9 million, and net income was $0.6 million versus a $2.1 million loss. The company’s business is seasonal, with sales and profits generally concentrated in the second and third fiscal quarters.
Material changes versus the prior comparable period
- Fishing sales rose 19% to $328.1 million and segment operating profit increased to $58.7 million, reflecting strong new Minn Kota and Humminbird products and favorable product mix.
- Diving sales rose 11% to $76.7 million and segment operating profit was $1.8 million, compared with a $9.4 million loss in FY 2016. The comparison benefited from the absence of the prior-year $6.2 million Diving goodwill impairment.
- Camping sales declined 5% to $37.9 million, as lower consumer-tent sales and key-account bankruptcies outweighed Jetboil growth. Watercraft Recreation sales fell 4% to $48.3 million amid softness in paddling and key-account bankruptcies.
- Cash and cash equivalents declined $23.5 million, despite higher operating cash flow, largely because the company invested $46.6 million in short-term investments and repaid $7.1 million of term loans. Inventory increased $10.8 million year over year.
- The board increased the quarterly dividend declared in September 2017 to $0.10 per Class A share and $0.0909 per Class B share. FY 2017 cash dividends paid were $3.6 million.
Outlook, risks, contingencies and unusual items
The filing provides no quantified revenue or earnings guidance. Management highlighted product innovation, marketing and digital investment, and operational efficiencies; it also noted process improvements helped offset higher labor rates. A new unsecured revolving credit facility entered into on November 15, 2017 provides up to $75 million, with a $50 million accordion option, through November 15, 2022, subject to leverage and interest-coverage covenants.
Key risks include discretionary consumer demand and economic conditions, seasonal sales, competition and retailer consolidation, adverse weather, product acceptance and recalls, supplier concentration and material costs, foreign currency movements, and the ability to manage inventory and working capital. Approximately 17% of FY 2017 revenue was denominated in currencies other than the U.S. dollar; no foreign currency forward contracts were outstanding at year-end. Two customers that combined during FY 2017 represented approximately $80.8 million of consolidated revenue, increasing customer-concentration exposure.
FY 2017 tax expense included a $4.5 million tax benefit related to foreign tax credits generated by repatriating $22.3 million. The company reported $112.6 million of undistributed foreign-subsidiary earnings for which it had not provided additional U.S. income taxes; potential tax on future repatriation was not estimable. Unrecognized tax benefits were $5.5 million, and the company was under income tax examination in Italy. Management said pending legal matters were not expected to have a material adverse effect; no material litigation was identified in the filing. The company also disclosed $24.2 million of operating lease obligations and $89.9 million of open purchase orders, primarily due within one year.
Important facts for investors to verify
- Whether Fishing’s exceptional product-driven growth and margin gains are sustainable, and how customer consolidation may affect pricing, volume and receivables.
- Whether weaker Camping and Watercraft Recreation demand improves, particularly given reported key-account bankruptcies.
- How much of FY 2017 earnings growth reflects recurring operating performance versus the prior-year goodwill impairment comparison and the favorable tax-credit benefit.
- Inventory, seasonal borrowing needs, and liquidity under the new revolving facility and its covenants; year-end debt-free status does not remove seasonal funding needs.
- Potential exposure from foreign earnings and tax examinations, and the continuing funding requirements of the underfunded defined-benefit pension plans.