Johnson Outdoors Falls On Bleak Outlook

Deep Value Johnson Outdoors Goes On Sale 

Johnson Outdoors NASDAQ: JOUT is a blue-chip quality outdoor recreation stock with two things to be aware of. The first is that demand is high across all segments and driven by secular tailwinds that have nothing to do with COVID-19. The second is that supply chain headwinds are cutting into sales, primarily in the Fishing segment, and are expected to last through the end of the year. As bad as the news is for Johnson Outdoors, it could be worse for the broader market if this is what we can expect from S&P 500 earnings as we approach the midpoint of Q2 2022. More importantly, lingering issues (cough cough) inflation and higher prices for consumers are also going to compound problems for the FOMC and may lead to economy-crushing interest rate hikes, but we digress. Johnson Outdoors is a high-quality dividend growth that we think is worth a nibble now that share prices are down to the lowest level in over two years. 

“As we work through persisting supply constraints, this fiscal year we are strategically maintaining higher inventory levels as well as seeking alternative sources for key components where possible. Planned product price increases announced last quarter have been taken, and we will continue to evaluate future pricing actions. During this time, we expect margins will continue to be impacted by pressure caused by the supply chain and related inflationary trends everyone is seeing in the marketplace,” said David W. Johnson, Chief Financial Officer.

Johnson Outdoors Laps Tough Comps, Shares Fall 

Johnson Outdoors had a decent quarter given the conditions and the comps to last year. The company reported $189.6 million in revenue which is down sequentially and -8.0% versus last year but up in both the two and three-year comparisons. As odd as it sounds, we’re far enough past the pandemic that 2 and 3-year comparisons are now applicable. In the case of Johnson Outdoors, the Q2 revenue is down 8.0% versus last year but last year’s revenue was up 24% YOY and the Q2 take is up 16% in the 2-year and 6.7% in the 3-year comparison. On a segment basis, all segments saw revenue growth in excess of 28% save the Fishing segment which decline 19% due to unfilled orders caused by component and shipping delays. 

Moving down the report, the news only gets worse. The company’s gross margin contracted by 900 basis points to 36.7% on rising materials and inbound freight costs that are not expected to decline in the second half. The company is working to mitigate its issues, however, by building inventory and finding alternative sources for parts that will help speed up manufacturing times but that’s not a done deal. Regardless, the Q2 GAAP EPS of $.97 is down more than 50% from last year and missed the Marketbeat.com consensus by $0.88. 

The takeaway is that, while earnings power is impaired, earnings are still ample in regards to the capital structure and dividend payout. The company carries no long-term debt and is paying out less than 30% of 2022 expected earnings even with the hit to margin. In our view, investors should expect dividend increases to continue if not at the 26% CAGR of the past few years and that is on top of what is now a 2.0% yield.

The Technical Outlook: Bottom-Fishing For Johnson Outdoors 

The bottom fell out of Johnson Outdoors' price action following the Q2 results and outlook but bottom fishing is already present. Price action is showing signs of support at the $57 to $59 level which is coincident with the pandemic bottom of 2020. Assuming this level holds as support, we see price action bobbing along the bottom until later in the year when results either improve or show lingering supply chain and inflationary issues.