Johnson Outdoors Inc (JOUT) 2010 Q1 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors first quarter 2010 earnings conference call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors's 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 now like to turn the call over to Cynthia Georgeson from Johnson Outdoors. Please go ahead, ma'am.

Good morning, everyone, and thanks for joining us for our discussion of Johnson Outdoors' results for the first quarter of fiscal 2010. If you need a copy of the news release that 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 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 today and our filings with the Securities and Exchange Commission. If you have further questions after the call, please contact either Dave Johnson or me at 262-631-6600.

It's now my pleasure to turn the call over to Helen Johnson-Leipold, Chairman and CEO, Johnson Outdoors.

Thank you, Cynthia. Good morning. Thank you for joining us today. I hope you've had an opportunity to review our first fiscal quarter earnings announcement. I'll start off with comments on results in the marketplace and outline some key measures of success going forward. Dave will cover some key financials, then we will take your questions.

Historically, Johnson Outdoors records a loss in the first fiscal quarter due to the seasonality of our industry, and this quarter's losses were significantly reduced over the prior year. Last year's economic downturn dramatically impacted the industry, which is reliant on consumer discretionary spending. However, there are early indications already that the outdoor rec industry is beginning what we expect to be a slow recovery in the years ahead.

Major outdoor retailers have recorded better-than-expected holiday sales and modest upticks in comp store revenues for the quarter. Johnson Outdoors' first quarter sales were up slightly, due largely to rebound in Marine Electronics and Diving segments, which are key growth engines for the Company. Over the past few years, the recession and credit crisis took a toll on the boat industry, which put a drag on Marine accessories like Minn Kota, Humminbird and Cannon. This quarter, all of our Marine electronics brands posted revenue gains. Diving, our most international business, faced last year's economic turmoil on a global basis as sales softened in virtually every diving market. This quarter, sales in key geographies were up significantly and the unit posted a double-digit increase in revenues. The growth in these two segments more than offset declines in Outdoor Equipment and watercraft sales.

More importantly, operations are benefiting from cost reduction efforts over the past 18 months, and as a result we've realized a 38% improvement in the operating loss for the first quarter. Efficiency is vastly improved with sales per employee this quarter more than 10%.

Our most streamlined business model and ongoing cost savings plan should help further improve profits going forward. On our last quarterly call I outlined four key objectives of our three-year plan to transform Johnson Outdoors to sustain profitable growth. The plan is predicated on the realization that there is a new normal that will affect the outdoor recreational marketplace. In the new normal, customers and vendors will be keeping inventories very low with retailers limiting in-store offerings to the most profitable and popular products. Consumers will be even more discerning in their purchase decisions against a higher bar of price-value expectations. Competition will be tougher than ever with brands focused on growing share in slower-growth markets.

Let me tell you some of the key measures we are using to monitor and gauge progress against our plan. Number one, reduce cost structure. Last year we targeted and achieved $20 million in cost savings with more than 60% of those carrying forward into the future. Watercraft restructuring is expected to realize an additional $4 million in annual savings. We will also benefit from other cost reduction projects underway in Marine Electronics/Diving in the future years. Savings against all these initiatives are being tracked and adjustments made if necessary to ensure long-term savings remain permanent. Ultimate success will be measured by improvements to gross margins and operating profits.

Number two, enhanced price-value -- there are two key drivers here. First, reducing cost of sales, particularly in our global operations. ERP systems are critically important to this, and we are tracking progress against a project that will have ERP systems up and running in Europe by 2011.

Second, smart strategic innovation is who we are, and new products as a percentage of sales will be a key measure. This year, Humminbird upgraded its 300 series fishfinder with sonar and features enhancements, and Minn Kota introduced the i-Pilot, a new accessory that uses wireless GPS technology for automatic boat steering and positioning.

For perspective, in 2008 and 2009, 30% of our total Company revenues came from new products or those which were introduced in the last two years. We'd like to continue that level of success.

Third objective -- targeted revenue gain. The key word here is targeted. For example, consumer spending trends point to growth in mid-priced segments, so this year we've introduced Sub Gear, a new mid-priced line of diving equipment with the functionality and quality you would expect from the maker of Scubapro. We also feel there's an opportunity to grow revenues by growing share through highly targeted sales and marketing programs. We are working closely with retailers and industry groups to simplify point-of-sale data collection across our channels and segments to more uniformly measure and track share position.

The fourth objective is to keep the balance sheet strong. Obviously, this means a continued focus on working capital, particularly inventory, which we continue to manage carefully. The goal is to keep total inventory within 5% of 2009 levels on an annual basis, helping to reduce cash-to-cash days.

Obviously, it is far too early in the year to predict how the season will go. I can tell you that we believe the steps we've taken over the past 18 months have positioned Johnson Outdoors for a stronger, better future. We're more competitive, more focused and more prepared to deliver sustained, profitable growth than ever.

Now I'd like to turn the call over to Dave for the financial highlights.

Thank you, Helen. As noted in the press release, we are benefiting from our new loan agreement which reduced borrowing costs during the quarter by $400,000. More importantly, the new debt structure is better aligned with the seasonality of our business and working capital targets.

Over the past year there have been fairly dramatic declines in inventory levels, leading to highly favorable year-over-year comparisons. Now that inventory has stabilized, favorable comparisons are not likely to be as prominent going forward.

Gross margin improved 1.4 points over last year. This was due largely to closeout pricing on discontinued products to reduce inventory during the last year's first quarter. We began this year with little excess in obsolete inventory and improved forecasting and production planning processes has helped keep inventory low and a better mix of products moving out the door.

As Helen mentioned, cash management is a big focus for us. The next couple of months are critical as we look to build what we need for the season without tying up too much cash in inventory. So far, so good, and we have plans in place to maintain appropriate cash levels as accounts receivables turn, beginning in April.

We are confident in our ability to manage our debt net of cash levels through the year if revenues continue to track with expectations.

A quick note about corporate expense, which appeared to growth this quarter -- this was due to the non-cash accounting effect from the fair market valuation of our deferred compensation plan, or Rabbi trust asset. As the value of these assets increase, so do deferred comp liabilities. While the accounting treatment results in an increase in the expense line, this is offset in our other income line.

In closing, I want to second what Helen said. We feel good about the work we've done to reduce costs for the long-term and positioned Johnson Outdoors for sustained profitability going forward. Now I'll turn the call back over to the operator for questions. Operator?

(Operator instructions) Scott Hamann, KeyBanc Capital Markets.

Helen, can you touch on what you are seeing in channel inventory levels right now and how retailers are approaching taking on inventory from you guys and other manufacturers this early in the season?

Well, what I can say is that our shipments in this first quarter have lived up to our expectations. So we feel pretty good about it. Our feeling is last year they definitely depleted their inventories, so it's on track and they are taking the product in.

And then, just in terms of some of the improvement that you are seeing on retail sell-through around the holidays and into the first quarter here, are there certain segments that are performing a little bit better than others? And which ones might those be?

Well, in terms of Johnson Outdoors, we certainly have -- our Diving business is performing very well. A lot of that is happening, however, outside of the US. But we feel pretty good about the momentum that diving has gotten.

And Marine and Electronics, across the board, all the brands have done very well. So we feel pretty good about the first quarter.

Does it seem like you are getting some more shelf space or at least holding on to your shelf space with some of the new innovation that you've introduced this year?

Well, our new products certainly have been accepted very well from the trade, so I would say we are at least holding onto shelf space.

Just thinking about the moving pieces on gross margin and introducing more mid-tier pricing levels, is that going to be a pressure immediately to your gross margins? And how do we think about potential offsets like big buckets in gross margin for the year?

I think it's difficult to know because the consumer is really going to ultimately end up voting on that. I can tell you, though, that last year we did a lot of discounting and the cost savings on the supply chain hadn't all kicked in yet. So there's a lot of moving parts with our gross margin. We are hoping to maintain those margin levels. The other factor, too, is commodity pricing. So a lot of moving parts, and it's difficult for me to tell you exactly what's going to happen. We're hopeful to maintain those.

Is there any meaningful legal expense assumption that you have in the operating expenses for this outstanding litigation this year?

It's hard to know. We don't know exactly where that's going to go, so we don't have anything significant, necessarily, in the plan. So we'll see where things go with that.

Can you give us the break down of the operating expenses by line item?

Yes. I've got marketing and selling expense for the quarter at $17.9 million or at $18 million, roughly; admin, finance and IT at $8.9 million and R&D at $3 million for the quarter.

(Operator instructions) Justin Orlando, Dolphin Management.

It sounds like another good quarter, guys. I wanted to ask just three things. Maybe I could start with the litigation. What's the revenue number from last year or historically on products that you guys think run afoul of your patent from your competitors?

I don't think we're disclosing that. I can tell you, though, it's an important piece of our portfolio.

And are you all the leading market share on this, with respect to the products where this is patented?

Yes. We are the market.

Are we still on track in you all's plan for watercraft to be profitable in 2010?

I would say, at this point in time, we still feel pretty good that that's our target.

I know it's early. I apologize for asking it that way. I should have prefaced it by saying that first.

Yes. It is early, but that's still our goal.

Helen, do you think of that as a core asset for this Company, or is it one where you could be opportunistic with it over time?

Well, I think we obviously have invested to turn that business around. We feel very good about it, and it's going to be a profitable contributor coming up. So I would say it's a core business for us.

Okay, I appreciate that. And then my last question, and thank you very much, is on the Outdoor Equipment side, it sounded like there were some military headwinds in the quarter. Are you all planning for military headwinds for the year?

I think, for the year, we're comfortable with around the $15 million level for military. So it's comparable to the prior year. So some of it's pacing.

And then, without being crass, there's been a lot of stuff in the papers on Haiti. And I'm wondering how you all are dealing with any of the questions around tents, etc., with respect to Haiti.

Well, our Outdoor Equipment Group has done a great job of accessing the inventory that we have. We have donated tents, and we've sold close to $80,000 worth on a significant discount level. So we've really depleted our supply of what is available for that use. So we've definitely done our share.

That's great to hear. I appreciate it. Thanks very much.

And with no further questions, I'd like to turn the conference back to Helen Johnson-Leipold for any additional or closing remarks.

Thanks again for joining us. Once again, if you have further questions you can give Dave or Cynthia a call. Thank you.

That does conclude today's conference, ladies and gentlemen. Again, we appreciate everyone's participation today.