Earnings Call: Q2 2021

May 7, 2021

Hello, everyone, and welcome to the Johnson Outdoors Second Quarter 2021 Earnings Conference Call. Today's call will be led by Helen Leipold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer. This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Patricia Penman from Johnson Outdoors. Please go ahead, Ms. Penman. Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors' results for the 2021 fiscal Q2. If you need a copy of today's news release, it is available on our website atjohnsonoutdoors.com under Investor Relations. I also need to remind you that this conference call may contain forward looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. It is now my pleasure to turn the call over to Helen Johnson Leopold. Thanks, Pat. Good morning and thank you for joining us. I'll begin with an overview of the quarter and year to date results, and then I'll share perspective on the performance and outlook for our businesses. Dave will review key financials and then we'll take your questions. Historically, the 1st 6 months of the fiscal year Is our preseason ramp up and selling period for the primary retail selling season. But the ongoing impact of the COVID-nineteen pandemic and the increased interest in outdoor activities has resulted in unprecedented high demand for outdoor recreation products that has continued through our fiscal Q2. As both customer and consumer demand remained strong, Sales surged to $206,200,000 during the Q2, 26% ahead of last year. Strong operational efforts allowed the company to deliver these results at the halfway mark of the fiscal year. Total company year to date sales Stand at $371,800,000 a 28% increase over same period year ago. Total company fiscal 6 month operating profit increased 54.4 percent to $59,600,000 compared with same period year ago. For the 2nd fiscal quarter, total operating profit was $36,000,000 versus $31,800,000 in the previous year's quarter. Net income for the quarter was $27,800,000 or $2.76 per diluted share. Dave will discuss the key financial drivers in detail later in this call. The pandemic has been a catalyst for people to get outdoors And as participation in outdoor activities has grown, we've been able to take advantage of the heightened interest by leveraging our portfolio of market leading brands and innovation. In Fishing, our largest and most profitable business, participation has always been high, but it's been even higher during the pandemic. Robust demand for Minn Kota and Humminbird Technology continued through the Q2 as both new and seasoned anglers look to Johnson Outdoors for the best fishing experiences possible. With a strong heritage innovation quality and durability, Minn Kota continues to be the industry leader in trolling motors. Sales continue to impress across all product lines as Anguish look to Minn Kota as the trusted brand to help them catch more fish. We're also seeing continued success with Hummingbird's award winning MEGA 360 Imaging, the only sonar option that provides a high resolution 360 degree view with unmatched detail and coverage as well as success with MEGA Imaging Plus. Extending the depth range and expanding the side coverage areas, MEGA Imaging Plus can be found in Hummingbird's new generation of HELIX fish Binders, providing anglers with the latest in innovative imaging technology and a variety of screen sizes, ensuring there is a helix to fit any angler's needs. We will continue to invest in building upon our strengths, our knowledge of fishing and fishing consumers, coupled with our technical know how to maintain our pipeline of exciting new products and to Dane McCota and Hummingbird's leadership position in the fishing market. In watercraft Recreation, our pedal drive system technology Has been expanding to a broader audience as more people are eager to get out on the water and the fishing kayak segment especially continues to grow. Enthusiasm hasn't slowed down for the innovative line of Sportsman kayaks that was launched last year. From the versatile pedal powered Sportsman Salty Kayak to the award winning Autopilot 120 motorized fishing kayak, the Sportsman in line offers a watercraft for everyone looking to enjoy the great day outdoors. Innovation is key to taking the camping experience from good to great, and we're seeing our hard work pay off in understanding consumers' evolving needs and expectations and translating those insights into bigger, better new product success. Since his launch earlier this year, we've seen consumer excitement for all new super lightweight Jetboil Stash Stove. We all know reducing weight on the trail is critical for backpackers. Stash is the lightest all in one backpacking stove system that Jeff Boyle, the technology leader in portable outdoor cooking systems has ever made. And as more people continue to look for ways to spend time outdoors this year, Demand for our Eureka brand of tents and camp cooking technology continues to be expectations. In diving, while ongoing travel restrictions and lockdowns in certain countries continue to impact the diving market, We'll continue our work to promote and support local diving, taking steps to simplify our diving business during this challenging time and enhancing our digital presence globally with new European websites and e commerce. These efforts along with sustained innovation will strengthen ScubaPro's position as the most trusted dive brand in the world. Looking ahead, our near term focus is to keep pace with the strong demand in fishing, Watercraft Recreation and Camping. Longer term, we remain committed to investing in our key strategic drivers, understanding our consumer, sustaining innovation leadership, identifying new sources and paths of growth in our markets, and optimizing our digital consumer experience as more consumers research and purchase online. Our ongoing hard work on these priorities ensures that our portfolio of market leading brands is well positioned for success in 2021 and that we continue to deliver sustained profitable long term growth for Johnson Outdoors. Now, I'll turn the call over to Dave for a review of financial highlights. Thank you, Helen. Good morning, everyone. As Helen mentioned, the 2nd quarter was another unprecedented period with strong sales in 3 of our 4 businesses, with market dynamics strong and retail inventories lean. Our excellent sales performance was the key driver in increasing profits during the quarter. For the quarter, gross margin of 45 0.2% was down slightly versus the prior year quarter as a $1,100,000 increase in tariffs $10,900,000 driven primarily by higher sales driven expenses as well as higher variable and deferred compensation expenses between quarters. Deferred compensation expenses were up $4,700,000 due to favorable valuations and were 100% offset in other income. Net income for the quarter was $27,800,000 compared to $20,400,000 in the prior fiscal year Q2. The year to date effective tax rate is 24.7% compared to last year's rate of 27.5%. We expect the full year tax rate to be in the mid-20s. Looking ahead, we anticipate a strong season and we'll continue to monitor the many marketplace dynamics. While our cost of goods will be pressured, At this time, we don't expect a material impact on our margins from cost increases. Our balance sheet remains strong and our cash position is healthy, providing us the financial capacity and flexibility to strategically invest in strengthening the business, while continuing to pay out a cash dividend to our shareholders. Now I'll turn the call back over to the operator for the Q and A session. Operator? With questions. And our first question comes from the line of Anthony from Sidoti. Yes. Good morning and thank you for taking the questions. So first, Dave, you said that the Inventory levels at retail are lean. Is that across the board? Or just wondering if when you look at your Is there one particular area where you think the retail inventories are leaner than others? Yes, I would characterize the 3 businesses that are growing that the retailers are still seeing very lean inventory across the board. So I don't think there's any distinction Among those three businesses. Got it. Okay. Thanks for that color, Dave. And then You mentioned that obviously demand is high and working to increase capacity. So can you give us a sense as to where you are with Your capacity now and what should we look for in terms of your ability to increase capacity from here? Yes. I mean, We're kind of set for the season in a way. We added shifts early to our factories where we're building product, and that's been very helpful. Of course, adding a lot of seasonal labor, Which has its challenges, but we've done that as well. So, we're working as fast as we can to meet the demand right now. And those are kind of the 2 short term levers that we've pulled. And just to keep in mind that we still are at, like 80% in terms of being able to have our workforce in the plant because of the COVID and all the safety rules that are going on. So if we can cross our fingers, hope things change, we will You don't have the ability to staff more during a shift. Got it. Okay. Thank you both for the color. So in terms of the supply constraints that have certainly been well publicized, can you give us a sense as to as you look now May 7 versus March 31 at quarter end. Have things gotten better or worse or the same in terms of the supply chain constraints? I would say it's pretty dynamic, Anthony, right now. I mean, electric parts coming in, We're working very hard to make sure we have adequate supply. I think we've done a good job so far of maintaining that. But As you heard, I'm sure out there in the industry, there are shortages here and there and longer lead times. So we're working very hard to make sure we can maintain that supply. And I would say it's still a pretty delicate balance right now. Got it. Okay. And then lastly, I guess for me here. So Yes. How should we think about your ability to offset the higher rate costs, whether price increases, are you thinking about those or anything else as far as So, some of the cost mitigation strategies? Sure. Yes. I mean, I think We'll definitely consider all options to help mitigate cost increases. Cost savings programs are important, how we price our product, The innovation we bring out into the marketplace, that's all part of the equation. So we'll look at all options for that. Got it. Okay. Well, thank you and best of luck. Thank you. And there are no further questions in queue. So at this time, I would now like to turn it back over to Helen Johnson Leopold. Thanks, everyone, for joining us, and we hope you have a great day. Thank you.