Johnson Outdoors Inc (JOUT) 2008 Q3 法說會逐字稿

Hello, everyone. Welcome to the Johnson Outdoors third quarter 2008 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 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 Communication for Johnson Outdoors. Please go ahead Miss Georgeson.

Thank you, operator, and good morning, everyone. Thanks for joining us for our discussion of Johnson Outdoors results for the third quarter of fiscal year 2008. If for some reason you did not receive a copy of the news release issued this morning, it's available on the Johnson Outdoors website at www.johnsonoutdoors.com.

Before I turn the call over to Helen I need to remind you that this conference call may contain forward-looking statements intended to qualify for the Safe Harbor from 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 further questions after the call, please call either Dave Johnson or me at 212-631-6600. It's now my pleasure to turn the call over to Helen Johnson-Leipold, Chairman and CEO. Helen?

Good morning, everyone. Thanks for joining us today. I will start off with some comments on the quarter and then share my perspective on the future. Dave will discuss the key financial highlights and then we will take your questions.

First the quarterly results. For those of you who may be joining us for the first time, the third quarter is the primary retail selling period for our seasonal products. This is when we see consumer response at retail and customer restocking all of which provides us a better indication of total year performance.

Total company sales this quarter were $141.2 million, about 6% behind prior year and operating profit was $14.6 million. Earnings per diluted share of $0.85 compared unfavorably to last year's $0.90 per diluted share. Despite a solid first six months, year-to-date revenues and operating profit are below last year 1% and 21%, respectively. Earnings year-to-date also compare unfavorably to the prior year.

The big story this quarter, and likely for the remainder of the year, is the weak U.S. economy. The timing could not have been worse for a warm weather seasonal business like ours. In April, just as the retail market got underway economic concerns skyrocketed and consumers put the brakes on spending. Even tax rebate checks haven't been enough to loosen the purse strings.

As a result, customers have clamped down on spending, cutting back on reorders to keep inventories at a minimum. Marine Electronics was hit hardest by the economic pressure as the soft domestic boat market got worse. Watercraft came into the quarter with a good first six months under their belt. However, restocking orders, which comprise the bulk of third-quarter sales, slowed considerably through June.

Outdoor Equipment has benefited throughout the year from growing number of consumers choosing closer-to-home, lower-cost camping vacations this summer. At this time Diving is holding its own. Currency is a key factor in the positive year-over-year comparison. This year we also had the most successful dive computer launch in our history with the new UWATEC Galileo solo. The global rollout is not yet complete, so we feel very good about that.

We reacted quickly to the economic situation to help stem the impact on operations this year and next. Dave will take you through the steps we have taken near-term. While the retail market is soft, we have had some positive news. Consumer purchase data indicates that overall we are holding or gaining share in key markets and key categories. We believe this is due to smart investments in innovation that keep our brands strong and healthy.

This quarter new products, once again, represented a third or more of total sales. Over the next couple of months we will be rolling out 2009 new products in every business. Last week I was at our ICAST show, which is the largest fishing show in the world, where we unveiled new product lineup for Marine Electronics that really pushes the envelope on design and performance. The reaction from consumers and customers at that show was a really, really great.

For example our R&D team has created the first totally new fishing motor design in at least 25 years, the Minn Kota Fortrex. As a result, the Fortrex is tougher, more powerful, yet lighter, easier to use, and much quieter than the trolling motor -- any trolling motor ever.

We have also moved into the ice fishing segment with the first digital ICE Flasher from Humminbird. This is a major step up for serious anglers who don't let a few feet of ice and snow get in the way of their fishing. This product was named the best new electronic fishing product at ICAST, so a good start into a new segment.

We are just as excited about the new 2009 products in our other businesses, which we will unveil next month. Innovation is a core long-term strategic platform for Johnson Outdoors. So we will continue to invest in meaningful innovation to keep a strong three-year pipeline of new products in the development to boost top line performance. However, our main focus continues to be growing profits faster than sales.

There are three major initiatives underway to help us move forward on that goal. First, supply chain optimization. We brought an independent expert in to identify sourcing, procurement, and production process improvements in our operation. The initial focus was Diving, where we believe there was a lot of opportunity to enhance efficiency and we were right. Over the past year we have globalized our diving product offerings, streamlined processes, and consolidated dive computer manufacturing. Diving should begin to realize savings from these actions next fiscal year.

In addition, each business is moving forward on SKU rationalization as a result of this study. The goal is to reduce SKUs by at least 20% by the end of 2009 and we should start to see the bottom line benefit from this in later years.

Moving on to another key initiative, European business model development. Right now we have three growing businesses in Europe, but we also think the economic environment in the region is going to become more volatile. The challenge is to sustain the strong growth trajectory of each business in this region without adding cost and complexity. Simply, we want to expand our market presence, but not necessarily our footprint, and streamline distributions when and where it makes sense. More on this as our work progresses.

Lastly, a strategic study of our Watercraft* business. Over the past four years watercraft sales have grown, operational efficiency has improved, but profitability has been disappointing. We believe in the future of this business. We do believe in the future of this business and are working with an independent consultant on strategic studies focused on enhancing Watercraft's bottom-line performance for the long term. The study just got underway and we expect to have our plans completed early next calendar year.

In summary, the weak economy has put a damper on this year's performance, but has not diminished our confidence in the future for Johnson Outdoors. With that, I will turn it over to Dave Johnson for some financial review.

Thanks, Helen. Good morning, everyone. Obviously this was a tough quarter. Like Helen said the third quarter gives better insight into the full-year performance. As a result, this quarter we have reversed year-to-date discretionary bonus and compensation plan accruals of about $3.2 million.

Now normally we would book between $1.5 million and $2 million in expenses related to these programs during the quarter, which we did not do this year. Last year we told you we had tightened our belts and put strict controls on discretionary spending. We also scaled back production and reduced seasonal labor demand and related costs. On the purchasing side, we worked with vendors and deferred orders whenever possible.

This quarter we continue those efforts and more. First, we have significantly cut back on production. In Marine Electronics we shortened workweeks, eliminated shifts, and made some temporary layoffs. Last month we announced that about 50 positions in Binghamton, New York, would be eliminated, but a $3.8 million military tent order came through a few days later and the actual number was closer to 30 positions.

Watercraft has also cut back on production and eliminated the need for contract labor. Diving restructuring will be completed next quarter and, as Helen told you, we should see the benefits next year.

Second, working capital reduction. This has been a real challenge all year. The primary driver has been inventory. We began taking steps to right-size inventory in every business even before the economy took a nosedive. At the end of the second quarter, inventory was up $22 million above the prior year. During the third quarter, we cut that gap nearly in half. Closeout programs along with the early production ramp down should help bring inventory levels in every business down even more. So good progress, but more work to do over the next couple of months.

Looking ahead to 2009, our primary focus is on improving bottom-line performance. We have a robust, comprehensive roster of cost-saving initiatives slated for the coming year. We should also begin to see more benefit from the investments we have made in systems and process redesign. Improved forecasting and analysis capabilities should enable us to do a better job of managing working capital in the future.

Obviously, we are watching the marine marketplace very closely, specifically both sales which historically impact Marine Electronics results during the fourth and first fiscal quarters. We are also carefully monitoring economic environment in our overseas markets. Importantly, we have detailed contingency plans and are ready to react to changing conditions.

Now I would like to turn the call back over to Helen for closing comments.

You know, obviously, we believe the next 12 months will be challenging. But we are -- feel very good that we are better positioned than ever to take advantage of the opportunity when the marketplace rebounds. Our strong commitment to sustain profitable growth and enhanced shareholder value remains unchanged.

With that, thanks to everyone for joining us. Now I will turn it over to the operator for questions.

(OPERATOR INSTRUCTIONS). Justin Orlando, Dolphin Management.

Hi there. It sounds like you guys did a lot of work on the working capital line in the quarter. Can we just get a quick look at what accounts payable and accrued wages are? Do you have those numbers?

I believe I do, Justin. Accounts payable for the quarter $28.8 million and accrued wages about $10.5 million.

Helen, what do you think about -- it's a broad question, I will try and narrow it down for you -- but what you think about the economy? What do you think about your customers on how they are doing and what they think about next quarter and the sort of the back half of the year? I am sure you are talking to all of them. What is your kind of sense of how everybody is feeling?

That is quite a question.

I know, I know.

Obviously, I think we see the next 12 months as being very challenging, so we are including the next season in that. So it's going to be very tough season for us. I would say from a customer standpoint, they are just very hesitant on buying. They are doing everything on a short-term basis. They are not building inventory.

It makes it very tough on us, but I think everybody is looking for the next year to be very, very challenging. So we are just going to hang in there and hopefully the innovation that we have focused on is going to help us out next season.

Do you think that -- you mentioned last quarter that innovation in Marine Electronics might have contributed to some of the performance there in '08. Do you still think that and is that why you worked so hard on some of the stuff that you talked about on the call here?

Yes. Well, I think the innovation in Humminbird definitely helped Humminbird do well. You know we kind of did not focus as much on Minn Kota innovation last year. We definitely felt the pain on that, but we have got -- that is all kicking in for next season. So we feel pretty good about what we have done for Minn Kota going forward.

So if I think about expense, the expense line, going forward here into the next quarter, how should I think about the savings you guys are anticipating in the near term here to combat some of the slowing that we are thinking we are going to see year-over-year?

Difficult to say for the next quarter, Justin. Obviously, the bonus and compensation accruals won't happen for the fourth quarter. Everything else, all the discretionary stuff we are doing will continue on. You know some of the production cut down curtailments that we have had in the business units will, obviously, probably continue on through the fourth quarter as we slow down the season. It's hard for me to give you a number exactly for the quarter though.

No, I was looking for some kind of -- something I could work with in terms of a range of what you think -- from the salary number, that number is going to come down did you say $2 million or $3 million?

Well, normally we book between $1.5 million and $2 million in bonus and profit-sharing accruals. I wouldn't expect that to happen for the fourth quarter.

I got it. Okay, so it's $1.5 million to $2 million plus whatever you guys are trying to save going forward kind of on a year-over-year basis?

Right.

Okay, I appreciate the time. Thank you.

(OPERATOR INSTRUCTIONS). It appears we have no further questions at this time.

Thank you all very much for joining us today.

Ladies and gentlemen, that does conclude today's conference. You may now disconnect.