Johnson Outdoors Inc (JOUT) 2011 Q1 法說會逐字稿

Hello everyone and welcome to the Johnson Outdoors first-quarter 2011 earnings conference call. Today's call will be held 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 will now turn the call over to Cynthia Georgeson from Johnson Outdoors. Please go ahead, Ms. Georgeson.

Thank you, operator. Good morning everyone and thank you for joining us for our discussion of Johnson Outdoors' results for the first quarter of fiscal year 2011. 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 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 further questions after the call, please give either Dave Johnson or me a call at 262-631-6600.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Thank you, Cynthia. Good morning. I hope you have had an opportunity to review our first-fiscal quarter earnings announcement. I will start off with comments on results and discuss some of the challenges and opportunities we see for the year ahead. Then Dave will cover some key financials, and then we will take your questions.

Net sales rose 12% to $79 million, the highest first-quarter revenue in 10 years. Due to the seasonality of warm weather outdoor rec industry, Johnson Outdoors historically records a loss in the first fiscal quarter. However, this quarter's loss was significantly below the prior year due to largely -- to transformative actions over the past two years, which have streamlined and simplified our business model, dramatically reducing costs and improving efficiency.

Recovery of outdoor recreational markets key to continued progress against our three-year plan to ensure sustained profitability. This quarter there are positive indicators that recovery continues.

Discretionary consumer spending appears to be on the upswing, driven in part by price-conscious shoppers. Holiday sales set records, credit is easing and preseason customer orders suggest anticipated pent-up demand. We are watching customer inventory levels very closely to avoid overstocking and ensure we are prepared to meet growing demand.

That said, the primary retail selling period for our products during the second and third quarters will determine whether early customer demand will be matched by consumers' appetite to purchase.

Two of our greatest strengths as a company are the diversity of our portfolio and breadth of our distribution. As a result, we have a bird's eye view into a number of outdoor recreational markets. None are exactly alike, each has its own unique challenges and opportunities in the year ahead. Let me outline those for you.

First, Marine Electronics, which had an outstanding first quarter, there is growth in every channel from OEM to distributors to marine dealers and outdoor retailers. And international growth is running in parallel to domestic markets.

Innovative products like the Talon, a new award-winning shallow water anchor, and the i-Pilot, a wireless GPS accessory for the automatic steering and positioning, are adding fuel to Minn Kota's trolling motor growth.

Humminbird Side Imaging and Down Imaging Sonar technologies are bringing in new consumers. And Cannon sales are once again on the rise with the return of deep water fishing.

The big opportunity and the big challenge for this business are one and the same, keeping pace with demand. Our ability to do that relies on having access to an ample supply of electrical components, which are in very high demand, particularly in the automotive and consumer electronics industries. We have put a lot of effort into forging the right supply-chain partnerships and right programs to help keep up the demand.

It is a big challenge, and if our efforts succeed, the current growth trajectory in Marine Electronics points to significant upside.

Moving onto Outdoor Equipment, where we have three distinct segments with very different channels. At the core is consumer camping, a traditional outdoor rec market. This market was fairly flat for a few years and experienced a resurgence throughout the recession due to the staycation trend.

Next, commercial party tents, which cater to the rental market, a channel that is just now beginning to show signs of economic recovery.

And, finally, military, which supplies our US Armed Services. Although a niche market for us, military has served as a cushion to help balance out the seasonality of the other segments, and over the past couple of years helped to moderate the impact of the economic recession.

Right now there is congressional gridlock in Washington, which is delaying approval on defense spending, and that is holding up military orders. This is not a new issue, it happens regularly, but this year it is taking longer than usual.

So until the government frees up those dollars, the challenge and therefore the goal is to soften the military shortfall with gains in consumer and commercial.

We are moving aggressively on all fronts, but may not see the full benefit of these efforts until the third quarter. While there is no way of knowing when Congress will act, on the flip side we see a lot of opportunity in military once funding is approved.

Next, diving. There has been a lot of change in this business over the past few years. We consolidated manufacturing of dive computers into a new state-of-the-art facility in Indonesia. We restructured regional operations to fully align resources with dealer and diver needs country by country. And we have introduced SubGear, a completely new brand of midpriced dive equipment to complement Scubapro, our elite premium-priced dive brand.

The good news is that Scubapro is benefiting from the addition of SubGear, which is also meeting expectations. Both brands have recently launched new products in core categories which have been very well received.

We are also conducting educational seminars for our elite dealer network around the world, and hosting Scubapro diving days across Europe to further strengthen our relationships with the customers and divers.

On top of that, this year we are implementing a new ERP system across European diving operations. This will stretch our internal resources. And our challenge will be to keep diving's positive marketplace momentum while we implement the new system. While a short-term challenge, ERP presents a big long-term opportunity for diving with benefits extending well into the future.

Diving is our most global business, and we are closely monitoring the current upheaval in the Middle East. We don't foresee significant impact on the business; however, the situation is fluid, so we are keeping a close watch on how things evolve.

Finally, Watercraft. Some outdoor recreational markets are recovering at a slower pace than industry; paddle sports is one of those. Like diving, we made significant changes to improve the profitability profile of this business, and last year Watercraft was profitable.

We are in the first year of executing a new brand channel strategy that better delivers against the targeted needs of all our paddle sports customers, notably the specialty channel.

The goal is to ensure we leverage and maximize our brand equities in a way that grows each customer's business. Product differentiation is key, so not every product nor every brand is now available in every channel. That is why first-quarter comparisons to the prior-year are unfavorable, and we believe the numbers don't tell the whole story.

Our programs have changed over the past couple of years to incentivize orders in the second and third quarters, just in advance of the primary retail selling season. These programs begin to kick in during January, and as a result we currently have a robust and growing order position.

Net, net we believe we have made up a lot of ground since the end of December, which we expect to see in results over the next two quarters.

We believe we have done the right thing to ensure Watercraft remains a strong competitive force in the marketplace long term. The challenge for this business is building momentum.

While our portfolio is diverse and our distribution channel is broad, our businesses do share a common goal, meeting and exceeding the price value expectations of our customers and our consumers. Meaningful innovation and high quality are key, and we believe our commitment to delivering value-added service to our customers and consumers matters more every day to help ensure continued success.

Clearly we are off to a solid start this year, although it is still too early to predict how the season will go. At this time our number one focus is on sustaining positive marketplace momentum and gaining additional share.

We have a strong lineup of new products across every business, and targeted marketing programs well underway to help drive traffic and sales for our retailers when the season kicks in.

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

Thank you, Helen. Helen outlined some key challenges and opportunities facing our businesses. I'm going to do the same with respect to the balance sheet.

First, working capital. As Helen said, we are off to a strong start this year. Understandably higher sales are driving higher working capital levels as we build product to meet increased demand. We are watching cash-to-cash days so we can act quickly to keep working capital in check, and aligned with any fluctuation in the marketplace. So far, so good.

Second, commodity prices. Over the past couple of years commodity prices held steady. Now that the economic outlook seems to be improving we are being pressured by rising commodity prices. Resins and metals are up. And products sourced from China are being affected by higher labor costs in that country. At this time potentially every business is likely to be affected, some more than others.

Now our sales programs were announced a few months ago. So it would be a challenge to pass an increase on to customers this year. While it is too soon to know how the increases will impact the full year, we are not waiting to take action. Cost savings plans are already in place to offset higher commodity prices and mitigate any potential downside.

Finally, interest expense. Last fall we announced that our amended debt agreement was expected to reduce interest expense by 15% below last year. However, new terms, coupled with lower debt levels, contributed to a nearly 30% reduction in interest expense year-over-year from $1.2 million in the prior-year quarter to a little over $800,000 in the current quarter.

While too early to predict the full year, we do feel good about our plans and our position heading into the season. And at this time we remain focused on driving continued progress against our 2012 financial targets, a 5% compound annual growth in sales, and a 6% operating profit margin.

Now I will turn the call back over to the operator for questions.

(Operator Instructions). James Fronda, Sidoti.

I had a question regarding the Marine Electronics segment. Was it a significant rollout of new products, or did you guys increase distribution, or is it just all over the board?

Well, it is certainly we have a lot of new products, but I think more of it is just the customers kind of what they foresee going forward. And they must -- are predicting that some fairly significant purchases are going to continue through the season. So they have been getting inventory, and not just in the warehouse, but at shelf as well.

Okay.

I could just add, Jim, I do think we are growing faster than the market because of the new products, the Talon and the i-Pilot have been fairly successful.

In terms of streamlining your merchandise, can you give any specifics on how that is working? You guys are cutting costs pretty aggressively, can you give me any specifics on that?

In terms of -- well, if you're talking about streamlining our product lines, we have definitely been very disciplined on SKU reduction, and really looking at the ones that are too slow-moving to keep on the shelves. And we have been pretty disciplined about focus and keeping it fairly simple, but certainly not jeopardizing any part of the brand.

For the quarter can you guys give me an accounts payable number and accrued liabilities number? Are you guys allowed to do that?

Yes, let me just pull it up real quick.

No problem.

So accrued liabilities (inaudible). I am sorry, Accounts Payable $30 million, just about even. And roughly about $29 million in accrued liabilities.

Okay, guys, I don't think I have anything else. Thanks.

(Operator Instructions). Justin Orlando, Dolphin.

It was a great quarter obviously. Dave, do you have a sense of what the spread is between the high and low on working capital for the year, if it goes the way you want it to?

That is an excellent question, because of -- the demand we are seeing is going to be -- I want to say it is going to be like historical, maybe a $40 million peak to trough. But we'll just have to see how the second quarter plays out in terms of demand.

And I thank you for that. On that question, are you seeing that -- in the past couple of years it has been that the channels have been ordering later and later. Are you seeing a little bit of a reversal in that or do you think you are still seeing that pattern, it is just more? Did that make sense?

I think it depends on the channel and the business, yes. I think in Marine Electronics we are seeing some pent up demand here in the first quarter. I think in some of our specialty channels it is a little bit later.

So you are not seeing pull-through in the other businesses from the second and third quarter. And in Marine you are seeing reshelving as the reason for really good revenue growth in the first quarter.

Well, I think -- yes, definitely. I think in Marine Electronics, reshelving. I think also the retailers are also seeing it go through, so I think in that particular business it is fairly strong.

Okay, well that is very positive. Thanks very much. I appreciate it.

Ed Moore, Satuit Capital.

Is it possible to break out the military tent sales? And on the back of that what is normal seasonality like in sales to the military?

Can you break it out?

Break out military sales and what -- you mean in terms of what the number is?

Yes.

It is around $5 million for the quarter. We expect it to be around historical levels, around $20 million or so, $15 million to $20 million is what we said before.

For the full year?

Yes.

But backend loaded now?

In this case -- yes, probably second quarter may be a little light. So normally it is not seasonal, but it is choppy.

Okay, great. Thank you. And then my other question, you mentioned that orders for Watercraft have picked up in January can you quantify that at all?

Well, we haven't made up all the sales that we were behind in the first quarter, but we are getting fairly close. And that channel is certainly has shifted buying patterns later and sooner to the season. So we are feeling that the momentum is picking up.

Okay, great. Thank you.

(Operator Instructions). I am not showing any questions coming up at this time.

All right, well, thanks everyone for joining us. Once again, if you have further questions please give either Dave or Cynthia a call. Thank you.

Ladies and gentlemen, this does conclude today's program. You may now disconnect. And have a wonderful day.