Earnings Call: Q3 2021

Aug 9, 2021

Hello, everyone, and welcome to Johnson Outdoors Third Quarter 2021 Earnings Conference Call. Today's call will be led by Helen Johnson Leopold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David and Vice President and Chief Financial Officer. After the prepared remarks, the question and answer session will begin. 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 with a discussion of Johnson Outdoors' results for the 2021 fiscal 3rd quarter. If you need a copy of today's news release, it is available on our website atjohnsonoutdoors.comunderinvestorrelations. 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 by the Securities and Exchange Commission. If you have additional questions following the call, please contact Dave Johnson or me. 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 on the quarter 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. During the fiscal Q3, the warm weather outdoor recreation season is in high gear and continued strong demand and increased interest in outdoor activities delivered another quarter of unprecedented results. Sales surged to $213,600,000 during the Q3, 54% ahead of last year's Q3. Continued strong operational efforts allow the company to deliver these results. Year to date, total company sales to an outstanding $585,400,000 a 36% increase over last year's fiscal 9 month period. Of note compared to fiscal 2019. We are up 28% for the year to date period. Total company operating profit of $97,700,000 was 16.7 percent of net sales, an increase of 4.7 points over the prior year to date period. The margin improvement was driven primarily by operational efficiencies as a result of increased sales volumes. For the 3rd fiscal quarter, total operating profit was $38,100,000 versus $12,900,000 in the previous quarter. Net income for the quarter more than doubled to $28,800,000 or $2.83 per diluted share. Dave will discuss the key financial drivers later in the call. In fishing. High demand for Minn Code and Humminbird Technologies continued through the Q3 as both new and seasoned anglers continue to look at Johnson Outdoors for the best fishing experience possible. Our most recent innovation in Humminbird, the new MEGA Live Imaging captured best in Electronics, Honors at this year's iCast, the world's most prestigious fishing show, marking our 10th award in this category in the past 11 years. MegaLive Imaging delivers the clarity and detail of MegaImaging in live action, Allowing Anguish to see fish and structure in real time, even watching fish on screen as they move into by move into Byte and Anguish more. With the release of this technology, Anguish have access to the complete package of industry leading technologies and products offered by a single brand. And Enkoto's award winning Raptor shallow water anchor continues to do well in its 1st full year on the market. The Raptor has 2 industry first technologies, auto bottom mode, which to the bottom density to determine the right anchoring force and active anchoring, which continuously monitors anchoring force and adjusts automatically for stable bottom penny. Across all product lines, sales continue to impress as anglers look to Minn Kota as a trusted brand to help them catch more fish. Looking ahead, we will continue to focus on understanding Angler's evolving needs and translating those unique insights into bigger, better product successes to maintain our pipeline of exciting new products and to to sustain Minkota and Humminbird's leadership position in the fishing market. In watercraft recreation, People continue to be eager to get out on the water and our industry leading propulsion technologies offer options for anglers of all abilities and interests. The Fishing Kayak segment continues to grow, driven by ongoing enthusiasm for the innovative line of sportsman kayaks that was launched last year. From the versatile paddle powered Sportsman Salty Kayak to the award winning Autopilot 120 motorized fishing kayak, the sportsman line offers a watercraft for everyone looking to enjoy a great day outdoors. In camping, demand for both Eureka and Jetboil gear remains strong as people continue to be interested in all sorts of camping experiences from backyard to backcountry. Demand for our Eureka brand of tents and camp cooking technology is beating expectations. And in Jetboil, consumers continue to be excited about the super light stash stove that we launched earlier this year. Reducing weight on the trail is critical for backpackers and the Stash is the lightest all in one backpacking stove system that Jeff Boyle, the technology leader in portable outdoor cooking systems has ever made. Finally, in dining, as pandemic related travel and lockdowns are being eased and people are traveling again, we have seen the dining market begin to recover. Dining had a strong fiscal third quarter versus 2020 and is also up versus Q3 2019. And our work to promote and support local diving, to simplify our diving business and enhance our digital presence globally with new European websites and e commerce has been paying off. As the diving market recovers, our continued focus on these efforts, along with sustained innovation, will ensure ScubaPro's position as the most trusted Dye brand in the world. In summary, we are pleased with our results and people's continued interest in spending time outdoors, While ongoing supply chain issues and logistics disruptions may affect our ability to fill all increased demand across our segments in the future. Our near term focus is to continue to work hard to manage supply issues and meet demand for a strong finish to the fiscal year. We remain committed to investing in our key strategic drivers, understanding our consumers, sustaining innovation leadership, identifying new source and paths of growth in our markets and continually optimizing our digital consumer experience. Our ongoing hard work on these priorities ensures that our portfolio of market leading brands as well is well positioned for success and that we continue to deliver sustained profitable long term growth for Jazz Outdoors. Now I'll turn the call over to Dave for a review of the financial highlights. Dave? Thank you, Helen. Good morning, everyone. I wanted to highlight a few items from the quarter. As Helen mentioned, sales for the 3rd Quarter rose 54% over the prior year quarter and increased 36% on a year to date basis, driven by continued high demand across Fishing, Watercraft Rack and Camping, as well as some recovery and diving. Our excellent sales performance was the to increasing profits both during the quarter and the year to date period. Gross margin of 45.7% rose slightly versus the prior year quarter as increased costs due to tariffs and inbound airfreight were more than offset by sales volume driven operating Efficiencies. Total company operating profit was $38,100,000 for the Q3 compared with $12,900,000 during the prior year's 3rd quarter. Operating expenses for the quarter increased $9,800,000 driven primarily by higher sales volume driven expenses in higher health insurance claims, but decreased as a percent of sales. Net income for the quarter more than doubled to 28 $8,000,000 compared to $12,900,000 in the prior fiscal year Q3. On a fiscal year to date basis, the effective tax rate is 25 3% compared to last year's rate of 24.4%. We expect the full year tax rate to be in the mid-20s. Looking ahead, our factories are still running and supply chain issues remain an ongoing challenge that we are continually managing. The balance sheet and cash position remains strong providing us with the capacity and flexibility to strategically invest to drive future growth and to continue to pay out a cash dividend to shareholders. Now I'll turn the call back over to the operator for the Q and A session. Operator? Thank you. Our first question comes from the line of Anthony with Sidoti and Company. Your line is now open. Thank you and good morning everyone. So certainly you've seen a strong demand As you've noted here, just wondering what are the inventory levels that your key retailers like now that you're Winding down the season, just wanted to get a better sense of that. Well, our inventory levels have been very stressed this whole season just because the demand is high. So I would say that they are below normal, and we continue to make as much product as possible. Got it. Okay. And so at the retail level, would you say they're also below normal as well? Yes. I think, across the board, that's true. Got it. Okay. That's all right. Thanks for that. So just wondering, so with the Delta variant Certainly disrupting things last few weeks here. I'm just wondering, have you guys seen any recently any notable changes to So far, we have not Seeing no reaction to that at all, but it's still early. So we'll be monitoring that. Got it. Okay. Thanks. And then regarding the supply chain, certainly Understand all the issues there. As far as airfreight, you did call that out in the press release. Just wondering if you could just comment on how much of that was an impact in the quarter and how do you see usage of airfreight versus oceanfreight here going forward. Yes, it's one of the strategies we've employed to kind of battle the container shortage and the lead time issues we're seeing on the components coming from Asia. So I mean, we've always used airfreight a little bit here and there historically, but it's just much more pronounced this year. And it's probably It probably impacted our margin modestly compared to the cost of goods sold inputs. It was kind of compared to that. So and we'll continue to look to use that strategy in the future as things kind of continue to be challenging. Got it. Okay. And then in terms of labor costs or any other Cost issues, I know you called out higher healthcare costs. I don't know if that was a one off quarter here, but if you could just comment on Any cost issues that you expect that would be different than what you've seen Near term kind of what you're thinking here versus maybe what you were thinking at the beginning of the fiscal year? Yes. I'm hoping the health care is a one off thing just because there was No activity in prior year's quarter. And in terms of the labor inputs, I mean, there's pressure there. I think we're doing okay so far with that. But I think as we look into next year, that'll be another factor that we'll consider in our strategies, The wage rate and what happens there? Got it. Okay. And then, I got 2 more questions for me. So, You mentioned, Helen, about the within the fishing segment that you've been able to certainly Increase your sales nicely to both existing anglers and new anglers. So just wondering if you could give us maybe some more data or Maybe show some more insight as to what you've seen as far as participation rate that as far as new participants into the segments. It's a little the participation data, there's a lag time in getting that We know that it is up and really to get our arms around that, We have to wait till we get the data. But some of them are short term, but we do feel some are longer term. But we'll see how it all plays out. Certainly, there was a lot of existing fishermen that were in the market buying equipment, given what was going on with the pandemic. So it was a mix of both. Got it. Okay. And then, as far as your cash flow priorities, can you talk about like What you're looking to do like as far as with all the cash that you've been accumulating on the balance sheet? Yes. We Yes, the first priority is to grow the business. And so that's what we're looking to do with the cash. A piece of that is M and A, a piece of that is investing in organic growth. So those are both key for us. We'll continue to do that. We've talked about the fact that we're very active out there and we are. We continue to look at a lot of different things. But with our strategy, it's pretty discerning. And so that tends to put a filter on what we're actually excited about. So That's kind of the key thing for us. And then beyond that, we'll continue to look to grow the dividend, hopefully, the regular dividend, and we look at alternate use of the cash continually. So those are always options that we could look at. Right. Okay. And then just a follow-up about that as As far as a special dividend, is that something you guys have looked at or just wanted to get your thoughts on that? Yes, I mean that's part of the alternate use of cash strategies that we look at and we have looked at buybacks and specials We'll continue to look at that as potential uses of cash. No doubt about it. Got it. Okay. Well, thank you very much and best of luck. Thank you. Thank you. There are no further questions. I will now turn the call over to Helen Johnson Leopold for closing remarks. Thanks, everyone, for joining us. I hope you have a great day. Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.