Johnson Outdoors Q4 2024 Earnings Report

Johnson Outdoors EPS Results

• Actual EPS: -$3.35
• Consensus EPS: -$0.98
• Beat/Miss: Missed by -$2.37
• One Year Ago EPS: N/A

Johnson Outdoors Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Johnson Outdoors Announcement Details

• Quarter: Q4 2024
• Date: 12/10/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, December 10, 2024
• Conference Call Time: 11:00AM ET

Johnson Outdoors (NASDAQ:JOUT) is an outdoor recreation company that designs, manufactures and markets equipment for fishing, watercraft, diving, camping and other outdoor activities. Its products are sold through retailers, dealers and distributors in the United States and international markets.

The company’s fishing portfolio includes Minn Kota electric trolling motors, Humminbird marine electronics and Cannon downriggers. Its watercraft brands include Old Town kayaks and canoes, Ocean Kayak products and Carlisle paddles, while its camping business includes Eureka! tents and outdoor equipment and Jetboil cooking systems. SCUBAPRO provides scuba-diving equipment, including regulators, buoyancy systems, dive computers and accessories.

Johnson Outdoors traces its roots to the outdoor products business established by Samuel C. Johnson in 1970 and is headquartered in Racine, Wisconsin. The company continues to focus on developing branded equipment intended to support recreational activities on the water, underwater and in camping environments.

Johnson Outdoors Q4 2024 Earnings Call Transcript

Key Takeaways

• Consumer demand remained soft in fiscal 2024, leading to a tough year marked by competitive pressures and challenging marketplace conditions.
• Our operational cost savings program delivered about 2 points of gross margin improvement in FY 2024, and we plan to expand these efforts.
• A debt-free balance sheet and a $51.7 million reduction in inventory enabled us to generate positive cash flow from operations.
• We are increasing investments in innovation, digital go-to-market capabilities, and operational efficiencies to drive long-term growth.
• Gross margin declined by 2.9 points due to increased promotional pricing, a shift to lower-margin products, and higher inventory reserves, while operating expenses rose by $12.2 million from a goodwill impairment and other charges.

Presentation

[Operator]

Hello, everyone, and welcome to the Johnson Outdoors Fourth Quarter 2024 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer. Prior to the question-and-answer session, all participants will be placed in listen-only mode. After the prepared remarks, the question-and-answer session will begin. If you'd like to ask a question during that time, please press star 11 on your telephone keypad. This call is being recorded. Your participation implies consent to our recording of this call. If you do not agree to these terms, simply drop off the line. I'll now turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

[Patricia Penman, VP at Johnson Outdoors]

Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2024 fiscal fourth quarter. If you need a copy of today's news release, it is available on our website at johnsonoutdoors.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. If you have additional questions following the call, please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

Thanks, Pat. Good morning, everyone. Thank you for joining us. I'll begin by addressing our fiscal 2024 performance, and then I'll share our plan to address future challenges. Dave will cover some key financials, and then we'll take your questions. I won't rehash the numbers in our fourth quarter and year-end earnings announcements. Obviously, it was a tough year. Continued challenging marketplace conditions and competitive pressure significantly impacted our fiscal 2024 performance. Consumer demand for outdoor recreation products across all of our businesses remained soft. While we're not seeing indicators that these challenging conditions are going away anytime soon, we have been aggressively leaning into our critical strategic priorities: innovation, our go-to-market strategy, and operational efficiencies to enable future growth for our brands and businesses. In this highly competitive outdoor recreation marketplace, our focus on strong innovation cannot be more critical.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

As a result, we are taking our innovation approach to the next level and investing in the critical elements, including key talents and technologies, as well as strengthening our consumer-centric innovation approach. Our focus remains on delivering the best outdoor experiences possible across all of our categories. The ever-evolving digital landscape requires us to do things differently to engage and stay in front of our consumers. Our online presence provides key consumer touchpoints for our brands, from product research to purchase to post-purchase support. We've been making investments in restructuring the way we go to market to enhance our capabilities and drive growth, and we're confident this will be a meaningful contributor to accelerating our sales and profitability. Lastly, as I mentioned in previous quarters, improving profitability and strengthening our business operations continue to be important focus areas.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

We've worked hard to drive operational cost savings and redeployed resources against our strategic priorities. The cost savings efforts were masked by our results, and we recognize there is more work to do. Fiscal 2024 is tough, but we've been through tough times before. We are committed to investing in the strategic priorities that will position our brands for long-term growth while also working hard to improve our financial performance. We know we have a lot of work to do, but we're confident that we'll see benefits from these investments in the future. Now I'll turn the call over to Dave for more details on financials.

[David Johnson, VP and CFO at Johnson Outdoors]

Thank you, Helen. Good morning, everyone. In the midst of our challenging results for fiscal 2024, I wanted to start by highlighting three important areas. First of all, our balance sheet remains debt-free, which is a strong competitive advantage in today's marketplace. It enables us to invest in mission-critical strategic priorities Helen just discussed. Second, as I've mentioned previously on quarterly calls, we've been working hard to manage our higher-than-normal inventory levels. Our inventory balance as of September was $209.8 million, down about $51.7 million from last year's fourth quarter. Through prudent inventory management, we were able to generate positive cash flow from operations in fiscal 2024. Lastly, we continue to pay a meaningful dividend to our shareholders, with the board approving our most recent dividend, which we announced on December 5th. We remain confident in our ability and plans to create long-term value for shareholders.

[David Johnson, VP and CFO at Johnson Outdoors]

Now let's get into some of the numbers from the quarter and fiscal year. Gross margin in the fourth quarter was negatively impacted by increased promotional pricing, changes in product mix toward lower margin products, and increased inventory reserves. For the fiscal year, gross margin declined by about 2.9 points. Operational cost savings positively impacted gross margin by about two points but did not offset the impact of unfavorable absorption of fixed overhead costs and unfavorable product mix. For the fiscal year, operating expenses increased $12.2 million versus the prior fiscal year due primarily to a non-cash goodwill impairment charge of $11.2 million, a $2.5 million increase in bad debt reserves, increased severance costs of $1.5 million, and $3.8 million of higher deferred compensation expense as a result of marking plan assets to market value.

[David Johnson, VP and CFO at Johnson Outdoors]

The increase was partially offset by lower incentive compensation and professional service expenses between the years. Looking forward, we'll continue to strategically manage our cost structure while protecting investments to strengthen the business. Now I'll turn the call over to the operator for the Q&A session. Operator.

[Operator]

Thank you. At this time, we'll conduct the question-and-answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Again, as a reminder to ask a question, you'll need to press star 11 on your telephone. Our first question comes from the line of Anthony Lebiedzinski from Sidoti. Your line is now open.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Good morning. Yeah, good morning, and thank you for taking the questions. So first, in the fourth quarter, your sales were up in three out of the four segments. Can you talk about unit volumes versus ASP and what you see as far as inventory levels at the retail level?

[David Johnson, VP and CFO at Johnson Outdoors]

Yeah. I mean, in terms of the fourth quarter, we did see a bit of lift in unit volume kind of across the board in the fourth quarter because last year's fourth quarter was obviously a challenging quarter. Overall, for the year, we're seeing growth from ASP as well as unit volume. It's both. And in terms of the retail inventory, we're seeing a mixed bag right now. I mean, we're seeing pockets of inventory that's in good shape, but other retailers and trade, there's a little bit of increased inventory there. And there's still a very cautious perspective from our trade partners.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Gotcha. Yeah, thanks, Dave. So as far as the gross margin, that did come in lower than what we were expecting. Can you provide, I don't know if there's any way you can quantify or maybe share more details. I mean, you called out a few items, but just wanted to get more specifics as to how impactful some of these things were as far as promotional pricing, the mix shift to lower margin items, their inventory reserves. Is there any way you can provide more details about that?

[David Johnson, VP and CFO at Johnson Outdoors]

Sure. Yeah. I mean, the promotional pricing, the decrease in pricing for the fourth quarter was about a 2.5-point, roughly, impact versus last year's fourth quarter. So we were down six points for the quarter. So a big chunk of that was just the reduced pricing and promotional pricing for the fourth quarter. Mix was comparable to that, so we just had a lower mix out there, and that was most of the rest of the decrease. And then inventory reserves were about a point.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

That's very helpful. And then in terms of your strategy, so the focus on innovation has been certainly a key factor for Johnson Outdoors as long as I can remember. But can you talk about what, if anything, you're doing differently? And maybe you can touch on the upcoming pipeline of new products.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

We are taking a hard look at our approach to innovation, and we are putting more resources behind it in terms of types of research we do and actual dedicated people helping in that area, but a lot of it is about getting consumer insights and driving those through. We feel good. We've got some good launches that are happening this year, and it's not about quantity. It's really about quality, so we've got some launches in fishing that our Quest and our MEGA Live 2 product, which are critical to this year for us for that business. We've got launches in watercraft entering the water recreation category. We've got Jetboil. We've got, I would say, solid new product launches, but the market gets competitive.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

We've got more competition, and that's why we are relooking at our process to make sure that we're approaching it in a way that can make us better and increase the success of our launches.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Gotcha. Yeah. Thanks, Helen. So for you guys to execute this strategy, do you think you have the appropriate internal resources for that, or do you think you need to make an acquisition to improve your capabilities to execute this strategy?

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

We're always looking to get better, and we don't have a problem leveraging external resources as well as internal. I do think that we can and plan to win in the categories we have today, and it's a matter of really understanding the consumer, and the consumer has changed, which is, I think, a great opportunity for us. But we are looking for the resources we need to do the job we have to do, but innovation is critical to us, and it's always changing.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Understood. Okay. And then in terms of the operational efficiencies, can you share more details about the cost savings program? What's been the benefits on recent results, and how should we think about the future cost savings opportunities?

[David Johnson, VP and CFO at Johnson Outdoors]

Yeah. We had a very deliberate operational cost savings program we launched over a year ago, and that bore fruit for us in Fiscal 2024. We really focused on the factories, increasing our efficiencies, reducing our scrap rates, driving down costs of the materials that come into the factory, logistics savings. Those are the four big areas that we really worked on. And it drove about two points of benefit on the gross margin for us for Fiscal 2024. So we're pleased with that. Unfortunately, it was masked by the results. We also did a job elimination in the fourth quarter, which will help us going forward on the operational expense side of things. And just back to the operational cost savings program, we expect to expand that. I mean, we want to keep working on opportunities with sourcing and driving down product costs.

[David Johnson, VP and CFO at Johnson Outdoors]

So we've got plans in place to continue that effort and expand that effort.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Gotcha. Okay. Yeah. So as far as the severance cost that you guys cited in the press release, was that all in the fourth quarter?

[David Johnson, VP and CFO at Johnson Outdoors]

Yeah. Yeah. It's basically all in the fourth quarter.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Okay. Gotcha. And I guess lastly for me, I mean, so obviously you guys are predominantly a manufacturer in the U.S. here, but you guys do use a lot of imported components. Just wanted to get a sense from you as far as what you think about the impact from potential tariffs coming next year.

[David Johnson, VP and CFO at Johnson Outdoors]

Yeah. I mean, we've definitely got our ear to the ground on that, and we've had discussions preliminary on ways that we could mitigate what could happen. So obviously, we've been through this before, and we had some mitigation strategies before, but yeah, more to come on that.

[Anthony Lebiedzinski, Senior Equity Analyst at Sidoti]

Understood. Okay. All right. Well, thank you very much, and best of luck.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

Thanks.

[Operator]

Thank you. I'm showing no further questions at this time. I'll now like to turn it back to Helen Johnson-Leipold for closing remarks.

[Helen Johnson-Leipold, Chairman and CEO at Johnson Outdoors]

I just want to thank everybody for joining us today, and I hope everyone has a happy holiday. Thank you.

[Operator]

Thank you for your participation in today's conference. Just as we conclude the program, you may now disconnect.

Participants

Executives

• David Johnson, VP and CFO
• Helen Johnson-Leipold, Chairman and CEO
• Patricia Penman, VP

Analysts

• Anthony Lebiedzinski, Senior Equity Analyst at Sidoti