Johnson Outdoors Inc (JOUT) 2010 Q4 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors fourth-quarter 2010 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.

(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, from Johnson Outdoors. Please go ahead, Ms. Georgeson.

Thank you, operator, and good morning, everyone, and thank you for joining us for our discussion of Johnson Outdoors' full-year and fourth-quarter results for fiscal-year 2010.

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 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 or me at 262-631-6600. It's now my pleasure to turn the call over to Helen Johnson-Leipold.

Thanks, Cynthia. Good morning, everyone. Thank you for joining us. I hope you've had an opportunity to review today's earnings announcement.

I'll start off with comments on fiscal 2010 performance and perspective on the future. Dave will cover some key financials, then we'll take your questions.

We approached 2010 with a cautious, conservative outlook. The outdoor recreational industry had been severely jolted by the economic recession. We had anticipated a gradual recovery beginning in 2010 and a highly competitive marketplace. I can tell you that these marketplace expectations held true.

However, over the past 18 months we have redesigned our business model, taking aggressive steps to reduce our cost structure, streamlining operations, simplifying processes, and improving efficiency. Working capital management was a major priority and we put strict inventory controls in place, which have allowed us to manage our inventory levels 40% below what they were two years ago.

We also restructured debt, carefully managed cash, and strengthened the balance sheet. All of these efforts enabled us to invest strategically in new products and programs to strengthen our market-leading position. As a result, we ended the year with revenues up 7% and significant growth in profits and earnings.

A year ago, we unveiled our four-point plan to transform Johnson Outdoors for enhanced competitiveness and sustained profitable growth, and outlined the key measures we're using to monitor and gauge progress over the next three years. Let me tell you how we're tracking against those.

Number one, reduced cost structure. In 2009, we achieved $20 million in cost savings, and expected at least 60% of those to carry forward, and they have. On top of those, this year's ongoing cost-savings efforts netted another $10.7 million in savings. Manufacturing consolidation in watercraft was key, delivering more than $5 million in annual savings, well above expectations.

Improved margins and operating profit are other important measures of progress. In 2010, margins grew in all businesses, and marine electronics, diving, and outdoor equipment realized significant growth in operating profit. And despite sales decline, watercraft was profitable this year.

Number two, enhanced price value. Here, we're focused on reducing cost of sales to enable us to continue to invest in strengthening the price value of our products through meaningful innovation. Supply-chain optimization efforts have driven cost of sales down considerably from 62.8% of net sales in 2009 to 59.9% in 2010. We believe further reductions are achievable in our global operations and we remain on track to have ERP systems up and running in Europe in 2011.

And we've made smart, strategic investments in innovation to ensure consumers see our brands as the best choice at every price point. New products as a percentage of sales is a key measure of our success, and in 2010 for the sixth straight year, more than one-third of our total Company revenues came from new products.

Minn Kota's i-Pilot, a new accessory that uses wireless GPS technology for automatic boat steering and positioning, was a huge hit with anglers this year. In Eureka, camping accessories such as sleeping bags, camp furniture, and portable energy sources also exceeded expectations.

Moving on to number three, targeted revenue gains. Share growth is key here. Marine electronics, outdoor equipment, and diving all delivered revenue growth that outpaced their markets, clearly indicating our brands increased their market-leading position. Our new Watercraft brand channel strategy is designed to achieve the same for our paddling brands.

Point-of-sale data is hard to come by in outdoor rec markets, but we now have visibility into the next best thing, retail inventory. Through a unique partnership with some of our top customers, we track and monitor retail inventory of our brands. This enables us to help customers get the right product mix in the right place to prevent costly out-of-stock or overstock situations location by location.

This year's pilot program was very successful, and we're expanding it to more customers in 2011.

We are also investing in new segments to drive topline growth. In 2010, we introduced SUBGEAR, a new midpriced line of dive equipment that proved to be the perfect complement to our high-end SCUBAPRO brand. Dealer response has been overwhelmingly positive, and year one targets were exceeded.

Marine electronics is poised to enter the 25- to 60-foot boat market with new G10 and G12 multifunction displays from our new Geonav brand. We're a new player in this segment, and we've already raised the bar on design and ease of use with a highly-intuitive BlueLogic interface.

Geonav is also first to market with groundbreaking what we call DualFuel cartography. In the past, big boat consumers had to choose between one of two mapping systems and configure their entire electronic navigation system around that. That meant trade-offs for the boater, and we've eliminated those with DualFuel. First shipments are slated for January 2011, and a full line of big boat marine electronic accessories will come later.

And last but not least, our fourth objective is to keep the balance sheet strong. Working capital management is critically important here. As sales increased, we kept inventories in check, and reduced cash to cash days from 158 to 134 days. As a result, average working capital as a percentage of sales dropped from 34.6% of net sales in 2009 to 29.9% in 2010.

In summary, we said we would transform Johnson Outdoors and we have, delivering solid progress toward our fiscal 2012 targets.

Looking ahead, we are moving forward with energy and clarity of purpose to sustain marketplace and bottom-line momentum. Continued industry recovery and focused, disciplined execution of our strategic plan are central to our continued progress. We are stronger, more competitive, and more prepared than ever to deliver sustained profitable growth and enhance shareholder value now and in the future.

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

Thank you, Helen. There's just a couple of topics I want to touch on, and then we'll take your questions.

First, operating expenses. While operating expenses increased in dollars year over year, they actually declined as a percentage of net sales, from 37.2% in 2009 to 36.3% in 2010.

The main driver of the dollar increase was higher sales, which accounted for about half the increase. Bonus and retirement contributions and R&D spending accounted for the rest.

For the past two years, we held off on discretionary compensation programs, consistent with business performance. We always said these expenses would return once business conditions and performance improved. Ultimately, we think an operating expense level of 34% of net sales is achievable in the next couple of years, and that's what we're aiming for.

The second topic, credit agreements. Last year, we put a new debt financing structure in place which was much better suited to our seasonal business needs and was expected to reduce borrowing costs significantly. At the end of 2010, debt and net debt were at historic lows, and borrowing costs have been cut almost in half year over year. Last month, we announced those agreements have been amended to reflect the current lending environment and our improved performance.

At this time, we're expecting an additional 15% reduction on borrowing costs next year. Importantly, the new terms and financing limits enhance our flexibility to react to and capitalize on marketplace opportunities.

As Helen said, we've made good progress in positioning Johnson Outdoors for sustained growth. We've reduced our cost structure, dramatically improved operating efficiency, and strengthened the balance sheet. We are focused on keeping the positive momentum going, and pending any significant shifts in the macro economy, our 2012 targets remain the same, a 5% annual growth in total company sales and a 6% operating profit margin.

Now, I'll turn the call back over to the operator for questions. Operator?

(Operator Instructions). [Lisa Brockowitz], KeyBanc Capital Markets.

Congratulations on the good quarter. How comfortable are you with retail inventory levels as we head into Q1?

I'm sorry, could you repeat that question? I didn't hear that.

No problem. How comfortable are you with retailer inventory levels as we head into Q1?

They've been a lot more disciplined this year, and in the past 12 to 18 months in terms of what kind of inventory they carry. And we've had good shipments up front, so we think they've done a good job that way. But we don't think they're excessive at all. So I think we're in good shape.

Okay, great, great. And then, how much of your other revenue gain do you think was driven by market share versus just an overall recovery in the outdoor market?

That's kind of hard to tell because we don't get really good information in this market. But -- all we can do is look from the public data that's available, and all we can see is that our rate of growth has outpaced our competition, and that's kind of where we're at. So, we're assuming that it's also beyond market growth.

Okay, okay, great. Then, just a maintenance question. Can we get the dollar amount in more detail, starting on the deferred tax asset?

Yes, Lisa, I can get that for you, but I'll have to get that to you separately. It will also be in the K in which we file.

(Operator Instructions). Michael Schechter, Mentor Partners.

Congratulations, first off. Looks like a good quarter and a good year. Helen, can you just talk a little more about the Geonav and the BlueLogic? Is it -- is this more of a retrofit or is it going to go into OEM, and where do you see attacking this market?

The product is actually geared to do both. But, you know, I think it can be a combination of OEM and aftermarket. But we feel pretty good that there will be a good opportunity in aftermarket, given people aren't necessarily buying new boats but they are re-accessorizing their boats, and this would fall into that category. So, we feel pretty good that it has opportunity down both paths.

And you said it was a 20- to 60-foot boat that you're going after?

Yes.

How big a market is that? If you look at the, say, existing boats that are in the water or registered, what are you looking at?

Well, we can only estimate, but we think that the kind of global category size for this kind of equipment is over $500 million.

Are you going to introduce this globally or is it the U.S. launch? What's the --

It is being launched currently both Europe and U.S. this year.

Good luck with it.

Justin Orlando, Dolphin Associates.

Helen, another good quarter and quite a good year. You guys did a great job. I just had a quick question on the current liabilities. Dave, do you have a quick break-out of payable and wages, and if there is a tax payable?

Yes. I'll give you a breakdown of the current liabilities. Salaries, wages, and benefits, about $14.5 million. Warranty and returns, about $5.6 million. Income taxes payable, about $1 million. And then, there is an other bucket of about $12.9 million.

$12.9 million.

Yes.

Anything in there that's meaningful to talk about?

No. I think everything is flowing as expected. So there is nothing necessarily in there that would be meaningful.

Okay. And if you guys had to think about which of the four businesses had the tail winds and the headwinds looking into next year, how would you kind of think about that?

Actually, I have to say we feel pretty good across the board, and I think we're set up very well. We have seen -- there's certainly a lot of momentum in the MED business, and -- but again, we feel pretty good across the board.

That's good to hear. And with the -- I think -- Dave, I got -- the 2009 cost saves were $20 million, of which you've captured the $12 million permanent, and then an additional -- I think I got $10.7 million for 2010, and what percentage of those are, if I got that right, are permanent and carried over?

We are not giving it a percentage, but it will be a majority. Well over 50% of that will be sustainable.

Great. I appreciate it.

(Operator Instructions). I see no further questions in the queue at the moment. I'd like to turn the conference back to Ms. Helen Johnson-Leipold for any further remarks.

Thank you, operator. If you have any further questions, please give either Dave or Cynthia a call, and thanks for joining us, and best wishes for the happy holidays season, and we will talk to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.