Johnson Outdoors Inc (JOUT) 2009 Q4 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors fourth quarter 2009 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 a listen-only mode. After the prepared remarks the question-and-answer session will begin. (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 like to turn the call over to Cynthia Georgeson, Vice President Worldwide Communication for Johnson Outdoors.

Thank you, Operator. Good morning, everyone, and thank you for joining us for our Johnson Outdoors fourth quarter fiscal 2009 results. If you need a copy of the news release we 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 Helen, I need to mind 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 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 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 contact either Dave Johnson more me at 262-631-6600. It's now my pleasure to turn the call over to Helen Johnson-Leipold, Johnson Outdoors Chairman and CEO.

Thanks, Cynthia. Good morning. Thank you for joining us. I hope you had an opportunity to review our fourth quarter and year end earnings announcement. I will start off with comments on 2009, share my perspective on 2010 and outline our plans for the future. Dave will cover key financials, then we will take your questions.

Obviously it was a challenging year, like every industry the outdoor recreational marketplace felt the affects of the recession throughout the year. We acted quickly to implement aggressive plans to reduce cost, working capital and capital spending. Our efforts exceeded targeted goals. More than $20 million in cost savings achieved during 2009 with at least $12 million of these savings expected to be sustainable in future periods. Working capital is down 25%, year-over-year due in large part to a 29% reduction in inventory and capital spending was down 33% as we prioritized investments with a clear focus on initiatives with the greatest benefit to the business. Another very important success was the completion of a new debt agreement which will reduce borrowing cost by 40% next year, and Dave will cover the details of this later.

As a result, even though revenues declined significantly we maintained our market leadership positions while reducing losses. Due to the steps we have taken, we believe operation is stronger business is competitive and we made significant progress in transforming business model to improve profitability going forward. No one has a crystal ball or is able to predict when the climate will improve dramatically. At this time, we expect the outdoor rec marketplace to begin a slow recovery in 2010. However, we believe the future of the outdoor rec industry will be defined by what we are calling a new normal that will affect manufacturers, customers in the marketplace as a whole. In this new normal, customers and vendors will keep inventories as low as possible. Retailers will limit in-store offerings to the most popular and most profitable products. Consumers will even be more discerning in making purchase decisions against a higher bar of price value expectations. Competition will fight for growth through share gains in constricted markets.

The good news is that the fundamentals of our industry are strong, participation in our categories is robust with more people turning to the outdoors as an accessible, enjoyable and healthy substitute to fulfill their leisure time. We believe our portfolios of market leading brands is unmatched in breadth, innovation and quality, thus placing us in the great position to expand our base of loyal consumers. However, in view of the new normal, we determined it was necessary to adjust our business model to help ensure future success. We must better leverage strength such as innovation and expanse of distribution channels, we must increase flexibility, drive simplicity and become more targeted in everything we do. Choiceful tragic investments will be necessary to keep our brands strong and growing. Restructuring efforts in 2009 laid the groundwork for more significant transformation to our model and a new three-year plan is in place to keep us moving forward. To goal of our plan is clear, to transform Johnson Outdoors to be competitive and better positioned for sustained profitable growth.

We have four key objectives. Number one, reduce cross structure. A lot of work has already been done in the area there is more to come in 2010. Last week we announced completion of consolidation of our US Watercraft operations which had permanently removed nearly $5 million of costs in this business. That is in addition to the expected $12 million of sustainable cost savings carrying forward from this year, our expectation is that Watercraft will be profitable in 2010.

Number two, enhance price value of our products. There are two key drivers of this objective. First, reducing cost of sales, particularly in our global operations. ERP systems are critical here and will be up and running in Europe by 2011 which will give us visibility to bring costs down and improve margins. Second, aligning innovation with consumer spending trends. Mid priced products performed well over the year and we expect that to continue in the foreseeable future. Our new product focus will be provide the best price product with emphasis on delivering meaningful innovation to generate excitement and growth in the mid price segment.

Number three, targeted revenue gains. Future growth will be a function of two things, growing share and expanding into new related markets. Keeping our core businesses strong is critical and we are working to sustain our lead positions. In marine electronics where we have a commanding presence in mature fishing electronics categories, it makes sense to leverage our technology expertise in to a new arena. We just introduced a new Geonav G12, a multifunction display targeting the $0.5 billion marine electronics accessory market for the bigger boats. These accessories are largely after market products which are less impacted by fluctuations in new boat sales and we believe the scope of functionality in user interface in the G12 are very unique. We leveraged our strong sonar and mapping technology capability in developing the product and look to benefit from Geonav's brand equity and distribution strength in this market as we begin rolling out the product in Europe this year.

Number four, keep the balance sheet strong. Continued focus on working capital is key. Our plan is to keep 2010 inventory levels at or below 2009. Cash management will continue to be a priority. In three years our targets are to achieve a 5% cumulative annual growth rate in sales and a 6% operating margin. If the industry begins on a slow path of recovery as anticipated, we believe these targets are achievable. The greatest risk in meeting these targets is if the industry declines further.

In summary we are moving to a new more profitable business model, execution is already underway and the results are evident. We are building a future on unmatched core strength in our industry and a clear road map for success. We are confident we are doing the right things to ensure the long-term health and success of our businesses and to enhance shareholder value in future. Now I will turn things over to Dave to discuss the key financials.

Thank you, Helen. As reported in the earnings release, loss for the quarter and the full year was due primarily to the decline in sales and restructuring related costs. Fourth quarter sales 20% behind last year's fourth quarter for a variety of factors. In marine electronics, preseason orders normally shipped in September were delayed until October. Outdoor equipment product availability cannot keep up with demand and consumer, and there was continued weakness in military and commercial segments. Diving sales 10% below the prior years unit fared better than the market which was down estimated 20%. Watercraft posted the largest decline due largely to production transition as well as (inaudible) to exit noncore channels. Restructuring and consolidation in Watercraft were essential to getting this business back on track in our work to build positive momentum in this business continues. Cost savings really helped pushed the impact of the revenue decline. Some of these were short-term in nature, such as wage reductions and salary freezes, but they were essential to protect our cash position and meeting debt covenants during the year. Others were longer term strategic actions such as consolidation, overhead reductions and restructuring all of which we will see the benefit going forward.

I can't say enough good things about our team's successful working management efforts. About 18 months ago, before the economy took a nose dive, we had initiated the strategic SKU reduction plan that focused on retaining our most popular models which were also our most profitable models. We had already started to taking necessary steps to manage down obsolete and slow moving models and keeping raw material inventories to a minimum. That early action put us ahead oaf the curve when the recession really took hold last fall. As a result, our 29% reduction in inventory outpaced the industry. As a result of the operational successes in cost savings and balance sheet management, we were able to secure a bank capital structure that works for Johnson Outdoors. In September we completed a new asset based debt agreement that better reflects our improving performance and better addresses our business needs.

Importantly, our credit facilities are appropriately tailored to meet the ebb and flow of our seasonal business needs at a significantly lower interest rate and for a full three years. We are very pleased and able to complete the debt agreement in the midst of a very tough credit climate. With that, I will turn the call back over to the operator for questions. Operator.

(Operator Instructions) We will pause for just a moment. We'll go first to Justin Orlando at Dolphin Management.

Dave, how are you?

Good Justin, how are you?

I'm doing okay. Looks like you guys are doing pretty well in some tough times here. I commend you for the actions that you guys have taken this year. So (no audio) -- sorry about that. Can you talk to me about what base you are using for the $12 million in OpEx reduction?

The $12 million in cost savings?

Yes. What's the OpEx base you are using to arrive at that number?

It's essentially what we are saying there is $12 million of cost savings we achieved this year, both in cost of goods and operating expense. That will continue in to next year. So I think it's best to look at carrying forward from 2009 that $12 million.

I see, okay from a 2009 standpoint. It's not OpEx, it's in the COGS line as well, so from 2009 really the 17 including the work you've done up in Maine?

Yes. And the work in Maine, we've talked about being $4 million plus, that should be incremental for next year.

Okay. That's very helpful. Could you let me know, we spent, what, $8ish million this year in CapEx. Is that a good maintenance number or is there some growth in it or is it kind of below a good maintenance number?

I would say it's probably a bit below maintenance number but I don't expect with our strategy that we will have significant growth in capital spending over the next couple of years.

Okay. Then can I -- just one of the things Helen mentioned about the three-year plan and I was very grateful to get you guys thinking about your goals for the business. I didn't catch the revenue growth. Was it a by year three of 5% growth on an absolute basis from 2009 or was it -- that wasn't clear to me. So I missed it.

5% [cager] from 2009 going up three years.

Okay. That's great. Thank you very much. I appreciate it. Thank you that's all I've got.

(Operator Instructions) We will pause again for just a moment. At this time we have no further questions. I'll turn the conference back over to Ms. Johnson-Leipold for any closing remarks.

Thank you to everyone for joining us. We wish you a happy holiday season and look forward to speaking with you again early next year. Thank you.

That does conclude today's conference. Again, thank you for your participation.