This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes comments and analysis relating to the results of
operations and financial condition of Johnson Outdoors Inc. and its subsidiaries
(collectively, the "Company") as of and for the three month periods ended
December 27, 2019 and December 28, 2018. All monetary amounts, other than share
and per share amounts, are stated in thousands.
Our MD&A is presented in the following sections:
• Forward Looking Statements
• Trademarks
• Overview
• Results of Operations
• Liquidity and Financial Condition
• Contractual Obligations and Off Balance Sheet Arrangements
• Critical Accounting Policies and Estimates
This discussion should be read in conjunction with the Condensed Consolidated
Financial Statements and related notes that immediately precede this section, as
well as the Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 2019 which was filed with the Securities and Exchange Commission
on December 6, 2019.
Forward Looking Statements
Certain matters discussed in this Form 10-Q are "forward-looking statements,"
and the Company intends these forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for
purposes of those safe harbor provisions. These forward-looking statements can
generally be identified as such because they include phrases such as the Company
"expects," "believes," "anticipates," "intends," use of words such as
"confident," "could," "may," "planned," "potential," "should," "will," "would"
or the negative of such words or other words of similar meaning. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results or outcomes to
differ materially from those currently anticipated.
Factors that could affect actual results or outcomes include the matters
described under the caption "Risk Factors" in Item 1A of the Company's Form 10-K
which was filed with the Securities and Exchange Commission on December 6, 2019
and the following: changes in economic conditions, consumer confidence levels
and discretionary spending patterns in key markets; uncertainties stemming from
changes in U.S. trade policies, tariffs, and the reaction of other countries to
such changes; the Company's success in implementing its strategic plan,
including its targeted sales growth platforms, innovation focus and its
increasing digital presence; litigation costs related to actions of and disputes
with third parties, including competitors; the Company's continued success in
its working capital management and cost-structure reductions; the Company's
success in integrating strategic acquisitions; the risk of future writedowns of
goodwill or other long-lived assets; the ability of the Company's customers to
meet payment obligations; the impact of actions of the Company's competitors
with respect to product development or enhancement or the introduction of new
products into the Company's markets; movements in foreign currencies, interest
rates or commodity costs; fluctuations in the prices of raw materials or the
availability of raw materials used by the Company; any disruptions in the
Company's supply chain as a result of material fluctuations in the Company's
order volumes and requirements for raw materials and other components necessary
to manufacture and produce the Company's products; the success of the Company's
suppliers and customers and the impact of any consolidation in the industries of
the Company's suppliers and customers; the ability of the Company to deploy its
capital successfully; unanticipated outcomes related to outsourcing certain
manufacturing processes; unanticipated outcomes related to litigation matters;
and adverse weather conditions. Shareholders, potential investors and other
readers are urged to consider these factors in evaluating the forward-looking
statements and are cautioned not to place undue reliance on such forward-looking
statements. The forward-looking statements included herein are only made as of
the date of this filing. The Company assumes no obligation, and disclaims any
obligation, to update such forward-looking statements to reflect subsequent
events or circumstances.
Trademarks
We have registered the following trademarks, among others, which may be used in
this report: Minn Kota®, Cannon®, Humminbird®, Eureka!®, Jetboil®, Old Town®,
Ocean Kayak®, Carlisle®, and SCUBAPRO®.
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Index JOHNSON OUTDOORS INC.
Overview
The Company is a leading global manufacturer and marketer of branded seasonal
outdoor recreation products used primarily for fishing, diving, paddling and
camping. The Company's portfolio of well-known consumer brands has attained
leading market positions due to continuous innovation, marketing excellence,
product performance and quality. The Company's values and culture support
innovation in all areas, promoting and leveraging best practices and synergies
within and across its subsidiaries to advance the Company's strategic vision set
by executive management and approved by the Company's Board of Directors. The
Company is controlled by Helen P. Johnson-Leipold, the Company's Chairman and
Chief Executive Officer, members of her family and related entities.
Highlights
Net sales of $128,054 for the first quarter of fiscal 2020 increased $23,614, or
23%, from the same period in the prior year, reflecting increased sales volumes
across all businesses. This sales volume increase, partially offset by
additional deferred compensation costs related to marking the deferred
compensation plan's assets to market, was the primary driver of an increase of
$823 in operating profit over the prior year quarter.
Seasonality
The Company's business is seasonal in nature. The first fiscal quarter falls
prior to the Company's primary selling season for its warm-weather outdoor
recreation products. The table below sets forth a historical view of the
Company's seasonality during the last three fiscal years.
Fiscal Year
2019 2018 2017
Net Operating Net Operating Net Operating
Quarter Ended Sales Profit Sales Profit Sales Profit
December 19 % 9 % 21 % 11 % 19 % 1 %
March 32 % 43 % 31 % 41 % 30 % 45 %
June 31 % 43 % 31 % 51 % 32 % 54 %
September 18 % 5 % 17 % -3 % 19 % - %
100 % 100 % 100 % 100 % 100 % 100 %
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Index JOHNSON OUTDOORS INC.
Results of Operations
The Company's net sales and operating profit (loss) by business segment for the
periods shown below were as follows:
Three Months Ended
December 27, December 28,
2019 2018
Net sales:
Fishing $ 99,278 $ 78,797
Camping 7,514 5,820
Watercraft Recreation 4,809 4,325
Diving 16,459 15,538
Other / Eliminations (6 ) (40 )
Total $ 128,054 $ 104,440
Operating profit (loss):
Fishing $ 15,018 $ 11,422
Camping 66 (686 )
Watercraft Recreation (1,563 ) (1,492 )
Diving 205 (707 )
Other / Eliminations (6,925 ) (2,559 )
Total $ 6,801 $ 5,978See "Note 16 - Segments of Business" of the notes to the accompanying Condensed
Consolidated Financial Statements for the definition of segment net sales and
operating profit.
Net Sales
Consolidated net sales for the three months ended December 27, 2019 were
$128,054, an increase of $23,614, or 23%, compared to $104,440 for the three
months ended December 28, 2018. Foreign currency translation had an unfavorable
impact of less than 1% on current year first quarter net sales compared to the
prior year's first quarter net sales.
Net sales for the three months ended December 27, 2019 for the Fishing business
were $99,278, an increase of $20,481, or 26%, from $78,797 during the first
fiscal quarter of the prior year. Availability of new products in the current
year drove much of the growth over the prior year quarter.
Net sales for the Camping business were $7,514 for the first quarter of the
current fiscal year, an increase of $1,694, or 29%, from the prior year net
sales during the same period of $5,820. Increased sales volume across both
Jetboil and Eureka was the primary driver of growth.
Net sales for the first quarter of fiscal 2020 for the Watercraft Recreation
business were $4,809, an increase of $484, or 11%, compared to $4,325 in the
prior year same period. The increase was mainly driven by success of new
products.
Diving net sales were $16,459 for the three months ended December 27, 2019
versus $15,538 for the three months ended December 28, 2018, an increase of
$921, or 6%. The increase is largely due to growth in Europe, partially offset
by foreign currency translation unfavorably impacting sales in this segment by
approximately 2% versus the prior year quarter.
Cost of Sales
Cost of sales for the three months ended December 27, 2019 was $74,442 compared
to $60,121 for the three months ended December 28, 2018. The increase year over
year was driven primarily by higher sales volume in the current year quarter
over the prior year quarter. Additionally, tariffs on the import of certain
components and other supplies from China increased the cost of sales in the
current year quarter by approximately $800 over the prior year three month
period.
The Company anticipates an aggregate negative impact of Section 301 tariffs on
China sourced goods on the Company's fiscal 2020 operating profit of
approximately $4 to $5 million.
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Index JOHNSON OUTDOORS INC.
Gross Profit Margin
For the three months ended December 27, 2019, gross profit as a percentage of
net sales was 41.9% compared to 42.4% in the three month period ended
December 28, 2018. The slight decline in margin was due primarily to the impact
of the additional tariffs noted above which were not in effect during our fiscal
first quarter of 2019.
Operating Expenses
Operating expenses were $46,811 for the three months ended December 27, 2019
compared to $38,341 for the three months ended December 28, 2018. The increase
of $8,470 was partially due to higher sales volume related expenses between
quarters. Additionally, the impact of favorable market conditions on the
Company's deferred compensation plan assets resulted in approximately $3,400 of
higher deferred compensation expense in the current year quarter and an
offsetting gain in Other Income related to marking the assets to market.
Operating Profit
Operating profit on a consolidated basis for the three month period ended
December 27, 2019 was $6,801 compared to an operating profit of $5,978 in the
first quarter of the prior fiscal year. The increase year over year was driven
primarily by the increased sales volume and the other factors noted above.
Interest
For the three months ended December 27, 2019, interest expense was $35 compared
to $37 in the three months ended December 28, 2018. Interest income for the
three month periods ended December 27, 2019 and December 28, 2018 was $655 and
$540, respectively. The increase in interest income year over year was mainly
driven by the increase in interest earnings on increased balances of interest
bearing cash in fiscal 2020 versus the corresponding periods of fiscal 2019.
Other (Income) Expense, net
Other income was $1,168 for the three months ended December 27, 2019 compared to
other expense of $2,150 in the prior year period. For the three months ended
December 27, 2019, foreign currency exchange losses were $33 compared to gains
of $165 for the three months ended December 28, 2018. Investment gains and
earnings on the assets related to the Company's non-qualified deferred
compensation plan were $1,324 in the three month period ended December 27, 2019
compared to investment losses of $2,122 in the three month period ended
December 28, 2018. This $3,446 increase year over year in investment gains is
offset by the deferred compensation expense included in the Company's Operating
expenses.
Income Tax Expense
The Company's provision for income taxes is based upon estimated annual
effective tax rates in the tax jurisdictions in which the Company operates. The
effective tax rate for the three month period ended December 27, 2019 was 25.1%
compared to 18.7% in the corresponding period of the prior year. The key factor
impacting the effective tax rate for the three months ended December 27, 2019
was the net excess tax benefits related to share-based compensation, which were
lower in the current period compared to the prior year period.
Net Income
Net income for the three months ended December 27, 2019 was $6,430, or $0.64 per
diluted common class A and B share, compared to net income of $3,521, or $0.35
per diluted common class A and B share, for the first quarter of the prior
fiscal year.
Liquidity and Financial Condition
Cash and cash equivalents totaled $138,257 as of December 27, 2019, compared to
cash and cash equivalents of $104,214 as of December 28, 2018. The Company's
debt to total capitalization ratio was 0% as of December 27, 2019 and
December 28, 2018. The Company's total debt balance was $0 as of each of
December 27, 2019 and December 28, 2018. See "Note 11 - Indebtedness" in the
notes to the Company's accompanying condensed consolidated financial statements
for further discussion.
Accounts receivable, net of allowance for doubtful accounts, were $78,249 as of
December 27, 2019, an increase of $22,691 compared to $55,558 as of December 28,
2018. The increase year over year was consistent with increased sales volumes
between the same periods. Inventories, net of inventory reserves, were $103,885
as of December 27, 2019, a decrease of $12,393, compared to $116,278 as of
December 28, 2018. The decrease over the prior year period is due, in part, to
pulling forward certain purchases in anticipation of the implementation of
further Section 301 tariffs on China sourced goods in the prior year. Accounts
payable were $35,384 at December 27, 2019 compared to $41,820 as of December 28,
2018, which decreased consistent with the decrease in inventories.
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Index JOHNSON OUTDOORS INC.
The Company's cash flows from operating, investing and financing activities, as
presented in the Company's accompanying Condensed Consolidated Statements of
Cash Flows, are summarized in the following table:
Three months ended
December 27, December 28,
(thousands) 2019 2018
Cash used for:
Operating activities $ (29,088 ) $ (39,195 )
Investing activities (3,307 ) (7,505 )
Financing activities (2,149 ) (2,092 )
Effect of foreign currency rate changes on cash 419 (1,009 )
Decrease in cash and cash equivalents $ (34,125 ) $ (49,801 )Operating Activities
Cash used for operations totaled $29,088 for the three months ended December 27,
2019 compared to $39,195 during the corresponding period of the prior fiscal
year. The decrease in cash used for operations over the prior year three month
period was due primarily to the increase in net income between periods, as well
as changes between periods in working capital. Depreciation and amortization
charges were $3,432 for the three month period ended December 27, 2019 compared
to $3,349 for the corresponding period of the prior year.
Investing Activities
Cash used for investing activities totaled $3,307 for the three months ended
December 27, 2019 compared to $7,505 for the corresponding period of the prior
fiscal year. Cash used in the prior year period reflected increased investment
in short-term investments versus cash in that period. Cash usage for capital
expenditures totaled $3,307 for the current year three month period and $4,081
for the prior year period. Any additional capital expenditures in fiscal 2020
are expected to be funded by working capital.
Financing Activities
Cash used for financing activities totaled $2,149 for the three months ended
December 27, 2019 compared to $2,092 for the three month period ended
December 28, 2018 and represents the payment of dividends and purchase of
treasury stock. The Company had no debt during either quarter ended
December 27, 2019 and December 28, 2018. See Note 11 "Indebtedness" to the
accompanying Condensed Consolidated Financial Statements for additional
information on our credit facilities.
As of December 27, 2019 the Company held approximately $39,317 of cash and cash
equivalents in bank accounts in foreign taxing jurisdictions.
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