Johnson Outdoors Inc. — Q2 FY2024 Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 29, 2024; comparatives are the periods ended March 31, 2023. Amounts below are in USD millions unless stated otherwise. The company makes seasonal outdoor recreation products across Fishing, Camping, Watercraft Recreation and Diving.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $175.9 | $202.1 | $314.5 | $380.5 |
| Gross profit / margin | $61.4 / 34.9% | $75.3 / 37.3% | $114.3 / 36.3% | $138.1 / 36.3% |
| Operating profit (loss) | $(0.3) | $11.4 | $(0.2) | $16.9 |
| Net income | $2.2 | $14.9 | $6.1 | $20.7 |
| Diluted EPS | $0.21 | $1.45 | $0.59 | $2.02 |
Q2 sales fell 13% year over year; six-month sales fell 17%. Lower volume and promotional pricing contributed to the Q2 gross-margin decline, while lower material costs and overhead spending helped keep the six-month margin flat. Operating expenses declined 4% in Q2 and 6% year to date, but did not offset weaker sales and gross profit. Effective tax rates were 28.4% for Q2 and 31.4% year to date, up from 25.5% and 26.2%, respectively, primarily due to changes in the geographic mix of income.
Segment results
All segments reported lower sales. Q2 sales and operating profit (loss) were: Fishing $138.6 million and $7.4 million; Camping $10.5 million and $1.7 million; Watercraft Recreation $9.7 million and $(0.5) million; Diving $16.9 million and $(0.3) million. Fishing sales declined 11%, with softer demand, cautious customer inventory management and increased competition. Camping sales fell 23%, partly reflecting the prior-year tent-product-line divestiture. Watercraft Recreation fell 25% amid weaker market demand; Diving fell 17% due to soft demand across regions.
Cash flow, liquidity and debt
- For the six months, operating cash flow was $(51.8) million versus $(18.1) million a year earlier. The cash use reflected an $86.1 million increase in accounts receivable and was attributed by management to lower sales volumes and higher inventory purchases.
- Investing activities provided $7.0 million, including $15.0 million from investment maturities and $2.2 million from asset-sale proceeds; capital expenditures were $10.2 million. Financing activities used $6.9 million, mainly dividends of $6.7 million.
- Cash and cash equivalents were $60.4 million at March 29, 2024; short-term investments were $23.9 million, for combined cash and short-term investments of $84.3 million. Cash declined $51.5 million from fiscal year-end. Cash, cash equivalents and short-term investments were $107.6 million at March 31, 2023.
- Accounts receivable were $129.3 million and inventory was $249.2 million at March 29, 2024. Inventory was $12.5 million higher than a year earlier; management cited elevated inventory, primarily in Fishing, amid lower customer replenishment and softer consumer demand.
- No debt was outstanding. The company has a $75 million unsecured revolving credit facility, with a conditional $50 million accordion, expiring July 2026. Lease liabilities totaled $52.6 million and are separate from reported debt.
Outlook, risks and unusual items
The filing provides no specific sales, earnings or margin guidance. Management cautions that results are seasonal and current consumer demand, customer purchasing, competition and broader economic conditions are uncertain; first-half results are not necessarily indicative of full-year results. Management expects additional fiscal 2024 capital expenditures, if any, to be funded by working capital.
- Other income was $2.4 million in Q2 and $7.1 million year to date. Current-year amounts included approximately $1.9 million from the sale of a Fishing-segment building and gains on deferred-compensation plan assets. Prior-year comparisons included an approximately $6.6 million gain on the sale of Military and Commercial Tent product lines.
- The company identified potential long-lived-asset impairment indicators in Watercraft Recreation but concluded undiscounted cash flows exceeded carrying value; no impairment was recorded.
- Risks cited include discretionary consumer demand, competition, customer payment and inventory decisions, supply-chain and raw-material availability and costs, foreign exchange, weather and climate-related factors, litigation, and successful execution of strategic and cost initiatives. Management said there were no material changes to the Form 10-K risk factors and does not expect pending litigation to have a material adverse effect.
- The company is winding down the Eureka! consumer camping brand after previously selling its Military and Commercial Tent product lines. Further fiscal 2024 wind-down costs were not expected to be material.
Important facts for investors to verify
- Whether sales and customer replenishment recover during the primary warm-weather selling season, particularly in Fishing.
- Whether elevated inventory converts to sales without further promotional pricing or margin pressure.
- Whether operating cash flow improves as receivables and inventory normalize.
- The extent of future deferred-compensation investment gains or losses and other asset-sale gains, which affect reported other income.
- Customer concentration: two customers together generated approximately $54.7 million of Q2 sales and $108.9 million of six-month sales.