Johnson Outdoors Inc (JOUT) 2008 Q1 法說會逐字稿

Hello everyone, and welcome to the Johnson Outdoors first-quarter 2008 earnings conference call. Today's call will be led by Dave Johnson, Vice President and Chief Financial Officer of Johnson Outdoors. Prior to question-and-answer session, all participants will be placed in a listen-only mode. After the prepared remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) 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 Cynthia Georgeson, Vice President, worldwide communication for Johnson Outdoors.

Thank you, operator. Good morning, everyone, and thanks for joining us for our discussion of Johnson Outdoors results for the first quarter of fiscal 2008. If for some reason you didn't receive a copy of the news release that was issued this morning, it is available on the Johnson Outdoors website, at www.JohnsonOutdoors.com under Investor Relations.

Before I turn the call over to Dave I need to remind you that this conference call may contain forward-looking statements intended to qualify for the Safe Harbor for liability established by the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical fact are considered forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond Johnson Outdoors' control, that could cause actual results to differ materially from those set forth in or implied by such forward-looking statements.

These risks and uncertainties include those listed in our media release from today and our filings with the Securities and Exchange Commission. If you have any further questions after the call, please give either Dave or me a ring at 262-631-6600. It is now my pleasure to turn things over to Dave Johnson, Vice President and CFO.

Good morning, everyone, and thanks for joining us. Now, normally Helen would be on the call and she was planning to be, but today she had laryngitis and can't talk, so I'll be leading today's call. I've got some brief comments on the quarter and then I will cover some key financials. After that, we will open the call up for your questions. Before we get started, I wanted to note a change in the reporting of our financial results. Last week we announced that we are evaluating strategic alternatives for our Escape business and reporting results of this brand as a discontinued operation going forward. I believe reporting the operation in this way further clarifies our confidence in the short and long-term growth opportunities in the paddle sport segment.

On to the first quarter results. Just a reminder that the first-quarter results are not good indicators of the year's overall performance. Specifically from October through December each year, we are ramping up and building inventory for our primary selling season from January through June. And first quarter results reflect the warm weather seasonality of our markets. Historically first-quarter revenues are the lowest of any period. Revenues were $76 million as double-digit growth in three of our four businesses delivered a 6.4% increase in total company net sales.

Exports outpaced domestic sales in Marine Electronics and Diving, which impacted our profitability. Overall net loss from continuing operations was $0.40 per diluted share. Operating losses were higher this quarter than last year due largely to the decline in military, as well as both product and geographic mix in Marine Electronics and Diving. We do believe we will see better balance in product mix as well as export and domestic sales mix once the primary selling season gets underway.

New products are doing well on all businesses, representing more than one-third of sales during the quarter. We're seeing growth in key channels although at varying levels. Second and third-quarter sales are the truest measure of new product success, when we will see consumer response and flowthrough at retail.

I know that some companies in our markets are feeling the impact of a slowing economy on their businesses. At this time, we are not, but it is much too early to predict the year. Right now revenues are pacing ahead of plan for the period and are the highest for any first quarter in the past five years. A recent Robert W. Baird survey within the sporting goods sector indicated more than half of retailers and manufacturers are projecting 2008 growth at or above last year. And Leisure Trend says outdoor specialty sales were up 11% in November and December. So some good science but again it is way too early to call.

Now, a major focus this year is working capital management. It should not be a surprise that working capital levels are up over last year. We have added new brands to the portfolio and entered new product categories since last year which combined added more than $10 million to inventory.

In addition, last year Marine Electronics key fishfinder components were delayed and we had orders that couldn't be shipped or filled. We told you that that issue would not arise this year and it hasn't. Right now we are building to forecast and against scheduled promotions. The increase in inventory reflects projected growth across our businesses. Currently orders are strong and accounts receivable are up year-over-year as a result.

Our businesses are on a solid growth curve and working capital management is and will remain a top priority and ongoing challenge during the year. Our greatest inventory risk is if the primary warm weather season kicks in slow or late. Now, we work to minimize this impact of those risks with improved forecasting and production planning. As a result, we have greater confidence heading into the season. At the same time we're monitoring, analyzing, and if need be reforecasting on a weekly basis. We're ready to move quickly to adjust and align production schedules with market demand to mitigate risks.

Longer-term we're looking to leverage our size and business synergies even more to reduce costs. For instance we're looking to further globalize and centralize forecasting and purchasing across business and regions. Supply chain optimization efforts underway this year in Diving are a key first step which should begin to have a positive impact on working capital next year.

So looking ahead, it's too early to predict the outcome of the season, let alone the year, but we feel good about where we are and the opportunities we have to grow sales and marketshare going forward. Finally, a reminder that our annual shareholder meeting will be in Racine on Thursday, February 28. You should be receiving our annual report and annual meeting proxy in the mail within the next week; and we hope you'll be able to join us for the meeting.

With that, I'm going to hand things back over to the operator for the question-and-answer part of the call.

(OPERATOR INSTRUCTIONS) Scott Hamann, KeyBanc Capital Markets.

I thought that military sales were going to be kind of flat year-over-year. Is this kind of a dip -- is it a timing issue quarter-to-quarter? Are we still on track for the $25 million roughly or how should we think about that?

Good question, Scott. It really is a matter of timing. If you're following Washington, the Fed's supplemental bill has been kind of been delayed and getting it through the system has taken longer than what we would have hoped for. Although we did kind of plan for a little bit of a delay, so we set $20 million, $25 million as kind of a historical military sales rate and I am comfortable with that range now. But again we will obviously have more as we go into the rest of the fiscal year.

So it's fair to say that those lower sales also kind of impacted your overall margins, too, because they are higher margin products?

Absolutely. Military sales business has historically been one of our highest margin businesses, so when that goes down it affects our overall bottom line.

Okay, can you also talk about a little more detail on the unfavorable product mix, and geographically I guess specifically in the Marine Electronics business, which products were not the higher margin stuff?

Yes, it is really -- we had a lot of growth in the first quarter in our export business and outside the United States, a lot of that was Humminbird product and a lot of that product that goes to the export market is the lower end value products. So at least in the first quarter, exports totally outpaced the domestic sales in the Marine Electronics group.

Okay, then domestically are you seeing any kind of softness in domestic demand? I know it is still kind of early in the year, but can you speak to what you're seeing across the industry?

Yes, it is mixed, frankly. I think -- and again the first quarter is really a hard indicator for us. We do see good orders on the books, but there have been some retailers that have pulled back a bit. Now we do expect that to come back in the second and third quarter, but obviously we are all watching the economy right now.

Is that kind of vary throughout the distribution channels? Which ones are you seeing softness in and which ones are still doing well?

I would say generally some of the bigger retailers have at least in the first quarter pulled back just a bit. I think our specialty channel is still pretty good overall. That is kind of a broad stroke. I mean, there's pockets everywhere than are up and down.

Okay, then just one final question, a clarification. The $1.3 million impairment charge, is that included in disc ops?

Yes, it is.

Okay, thank you.

(OPERATOR INSTRUCTIONS) [Justin Orlando, Dolphin Management].

I wanted to ask a couple of quick things. I know that we were talking last year about -- last quarter we were talking about cost saves and potentially on the expense line in this business, and getting it under $1 million was your kind of target for getting cost saves for 2008; kind of roughly $500,000 to $700,000. Then I noticed that we've got an increase of about $3 million in operating expenses in the current quarter. Can you give me a little bit of color on that and how should I think about operating expenses for 2008 versus the discussion we had last quarter on the conference call?

I would still be comfortable saying yes, we are going to get about that amount of cost savings. I don't want to go into a ton of detail, but each business unit has a pretty full portfolio of cost savings efforts and we have some at corporate as well that we are leading on behalf of the business units. In general, the operating expense line does vary with sales to a certain extent. Freight expense is in our operating expense line. There some other variable costs in there, so it won't necessarily be totally uncorrelated with sales. It will vary with sales a bit.

But we were up kind of $3 million year-over-year in this line. Is there some foreign exchange in that number?

There is a bit of foreign exchange in there.

What was that?

I think it's about $700,000 in foreign exchange. The Diving business had a bit of operating expense, a [nonrelation] in the first quarter of about $600,000 due to some severance costs outside of the United States. That drove some of it as well; and the watercraft business had some front-end advertising promotion for their accessories business which we expect will grow in the second and third quarter. So those are some of the things that are explaining operating expense.

That's very helpful. Then what was the growth in the quarter that is organic versus acquired? I know we've got a couple of things that were bought in '07.

Yes, Seemann Sub added about $2 million this quarter, which was bought last year. And our Geonav acquisition was about $800,000 for the quarter. So those are the two most recent ones.

Okay, and then I guess we -- on the last conference call we talked about Escape and our investment in Escape and I guess we made a $2 million investment in Escape in 2007. And it was mostly I remember from trying to develop some new channels to sell those products into. And I remember on the call you guys highlighted that you were going to take a look at the business opportunity for Escape, and decide what increased investment or decreased investment you were going to need to make. Was the decision not to throw good money after bad? Is that --? How do we get to where we are as we were deciding to sell that business?

Well, it is really -- we did take a look at the business on a go forward basis, and we did decide that this was not necessarily the business that we wanted to try to develop. It was growing slower than we thought. Customer acquisition costs were more difficult than we thought. So at this point we feel it is best to look at strategic alternatives for the business.

What did it make in revenues in '07?

I don't have that number with me, Justin. I will have to get that to you.

That would be great. And then the same thing, I was wondering, the same thing on the EBIT line for those assets. With and without that $2 million investment. Is there any -- that $2 million investment you made for the channel, are you going to be able to put any paddle business through that channel or is that kind of something you foreclosed and you're moving on?

Well, that channel still is active for us on the paddle sports business, it historically has been. Ocean Kayak is a brand that is pretty prevalent in the resort channel. We go about that in a different way than we tried with the Escape business. So not to get into total detail on it, but that will still be a viable channel for us on our paddle sports.

Lastly, what is the cash opportunity that you are pursuing for working capital this year?

I'd be hard pressed to actually go after that right now because of our sales growth curve, and the fact that we did in Marine Electronics we have kind of level loaded going into the season. I would --

In the last quarter we talked about kind of $12 million, David, as kind of what you were targeting as you would like to get back in 2008. Was target -- nobody promised anything, but that was kind of the target. And I am wondering if that number still makes sense to you, whether there is some Escape inventory in that target that you have now written down? I am just trying to get a handle on that.

The Escape inventory write-down is pretty small against that number. So I think, you know, $10 million to $12 million as a target is probably an okay number for -- after we get through the season, but again we're really looking at our sales growth curve and making sure that we can service our sales that we expect.

Okay, I appreciate it. Thanks a lot.

(OPERATOR INSTRUCTIONS) There are no further questions at this time. I would like to turn the presentation back over to management for closing remarks.

Well, thank you very much for joining us today and I hope we can always [challenge] to get better soon and if you have any further questions, please call Cynthia or me. Thank you very much.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect and have a good day.