Johnson Outdoors Inc (JOUT) 2011 Q3 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors third quarter 2011 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 now like to turn the call over to Cynthia Georgeson from Johnson Outdoors. Ms. Georgeson, please go ahead.

Thank you operator, good morning everyone, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2011 fiscal third quarter. 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 liability established by the Private Securities Litigation Reform Act of 1995.

Statements (inaudible) statements (technical difficulty) are not 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 and 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 immediate release from today and our filings with the Securities and Exchange Commission. If you have additional questions after this call, you can reach either Dave or me by calling 262-331-6600. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Thank you, good morning, I hope you've had an opportunity to review our third-quarter earnings announcement. I'll start off with comments on our results in the marketplace and give you our perspective for the future. Dave will cover some key financials, then we'll take your questions.

Economic and weather conditions impacted the pace of recovery in outdoor recreational markets during the third quarter. The late onset of paddling and camping seasons coincided with the downtick in consumer spending as economic anxieties flared, so our results were mixed. Continued strong performance by our flagship marine electronics and diving brands more than offset declines in paddling and camping segments during the quarter. However, US federal budget gridlock led to significant declines in military sales which drove total revenue and profits below the prior-year quarter.

Despite these challenges, year-to-date performance confirms our transformed business model enables us to adjust quickly to marketplace fluctuations, maintain a strong balance sheet and protect the bottom line against the backdrop of a start-and-stop recovery in our outdoor rec market.

For the nine-month period, sales increased 7% and net income grew 24% to $1.58 per diluted share over the same period last year. Our 2012 plan anticipated a slow recovery in our outdoor rec markets. Some markets have recovered faster than others, such as Marine Electronics and Diving. In both, we are gaining share and recovering faster than the market. We believe there are two key factors driving the faster pace of recovery in these markets.

First, both have a high percentage of what we call enthusiasts in the sport. Fishing is more than a pastime to an avid fisherman, it's a passion, just as diving is to an avid diver. The outdoor enthusiast is highly engaged and highly knowledgeable about their sport. Their participation and purchase behavior is less susceptible to economic influences. They want the best and our portfolio represents the aspirational brands in every segment in which we compete.

Minn Kota fishing motors, Humminbird fish finders and Cannon downriggers are all market leaders. Scubapro is the number one dive equipment brand in the world. Each has a reputation for performance, quality and durability that is second to none.

Outdoor enthusiasts are also early adopters -- trend setters. They want the newest piece of equipment designed to make their outdoor experience more fun and enjoyable, which leads to the second key factor behind Marine Electronics and Diving results, which is innovation. Our innovation strategy in Marine Electronics is to maximize technology to help anglers catch more fish. That sounds a lot simpler than it is because electronic and digital technology is advancing at a rapid pace. We're constantly looking for new technologies or new ways to apply existing technology to achieve the end in mind.

Last year we introduced the Minn Kota i-Pilot, a revolutionary wireless steering and positioning system which exceeded year one expectations. Year two will be even bigger. This year, the Minn Kota Talon, a pushbutton deployable shallow water anchor has energized a once sleepy segment.

Humminbird pioneering Side Imaging and new Down Imaging technologies are now available across a range of fish finders at every price point suitable for the amateur to professional angler.

Cannon's new digital electric downriggers enable anglers to present intervals and depths for up to six bait lines with a backlit keypad or screw your Humminbird fish finder with unique Cannon link system.

LakeMaster is the most recent addition to our portfolio of proprietary technologies and a regional brand known as the gold standard for electronic charts and maps for fishing and boating. We are already working on expanding LakeMaster coverage, development of new innovative chart features and integration with our other Marine Electronic technologies to maximize the growth potential for this acquisition.

Our growth strategy in diving focuses largely on innovation at the mid price point, the largest and fastest-growing segment in the diving marketplace. Here, we've leveraged the power of the premium Scubapro brand equity to introduce a new brand, Sub Gear, from the maker of Scubapro. Sub Gear is a complement to Scubapro and gives our dealers and consumers confidence in the quality, performance and durability of products at a more affordable price.

Over the past 18 months, we've expanded global distribution of Sub Gear with very little cannibalization of Scubapro. Importantly, enthusiasts still flock to Scubapro and beginning and intermediate divers aspire to own it.

Now there are enthusiasts in paddling, but this is a smaller segment. This year a perfect storm brewed with the weather and economy to stall recovery. Watercraft had a strong sell-in during the first half of the year and our unique trading partner intelligence data shows product is continuing to steadily sell through. However, the third quarter is all about in-season replenishment and given how late the season started, those orders simply didn't materialize as retailers ratcheted back to keep inventory in check.

Outdoor gear started the year strong as well. The commercial market began to turn around as rental companies started replacing older, worn, big party tent inventory. Consumer camping was benefiting from new accessories. Then the budget gridlock gang in Washington put a stranglehold on military orders. Military is a niche business for us, the $15 million to $20 million of historical level of sales helped stabilize operations and provides cash to invest in growing our core consumer businesses. Barring any unforeseen occurrence, we expect military command around $10 million to $13 million at the end of this fiscal year.

While the weather and economy factored into Watercraft and Outdoor Gear results, clearly there's more to be done to strengthen operations and profitability in these units. We're working on plans for both units and will share those with you when they're finalized over the next few months.

The obvious question is, given the seesaw recovery of outdoor recreation markets, can we deliver against our 2004 financial targets? The recent economic news and this year's unpredictable weather patterns demonstrate the level of uncertainty regarding factors outside of our control. We believe the prudent and appropriate response is to stay focused on what we can control, keeping our brands and balance sheet strong and our spending and costs down. We have righted the ship following an unprecedented economic downturn and we remain committed, focused and disciplined on our plans to achieve 2012 targets.

Now I'll turn things over to Dave for a deeper dive into the financials.

Thank you, Helen. First let's talk about inventory, which has been higher throughout the year.

Third-quarter inventory is up $11 million over the prior year due to the effects of foreign currency translation, growth in Marine Electronics and some inventory build in Watercraft in anticipation of a stronger recovery. We believe this inventory will steadily decline to normal end-of-year levels through the fourth quarter.

Total working capital is also up again due to currency in Marine Electronics growth, and as inventory levels decline so will working capital.

Overall our balance sheet continues to be in very good condition. Debt is at a historic low, down 29% from June of last year and down 63% from two years ago.

Net income continues to benefit from lower debt as well as reduced borrowing costs. Year-to-date interest expense was $2.8 million, a 30% reduction from the prior-year nine-month period as a result of the amended debt agreement we put in place last fall.

Our tax rate year-to-date is 9.8%. We've mentioned on prior calls that the Company has a cumulative valuation allowance balance of about $33 million for deferred tax assets in the US and certain foreign tax jurisdictions. Therefore, to the extent we have income in these jurisdictions we have the opportunity to offset tax with a reversal of valuation allowances. A lot of factors play into whether or not reverse allowances and we are monitoring those on an ongoing basis.

Key to our valuation is likelihood of continued business improvement with which can trigger a reversal of some or all of these allowances.

As Helen mentioned, innovation has played a key role in driving marketplace demand, leading to improved margins and fueling a 6% organic sales growth year to date. Looking ahead, our priorities are clear -- keep the balance sheet strong, cost and spending down. We are confident we can do it.

Now I'll turn things back over to the operator for a Q&A session.

(Operator Instructions) James Fronda, Sidoti & Company.

Could you give a little color on the $1.7 million charge on the other income line through the income statement, what that was?

Yes, it was mostly intercompany transactions. We have intercompany loans from foreign jurisdictions to the US and it's currency translation on those loans. We have a Swiss franc loan to the US and that's actually denominated in US dollars. And with the Swiss franc increasing so much, there as an expense on that line because of that.

Okay, that makes sense. And in terms of I guess bigger retailers' inventories, have you talked with anyone in terms of when they're going to start building that back up?

You know, we are getting the feeling that they're just playing it very safe and they're going to wait and see if there is increased demand towards the end of the season. But our feeling is that going forward, they are just going to be very careful about what inventory they keep on hand.

Right, right, right. Okay that's all I had, thanks guys.

(Operator Instructions). And with no further questions in the queue, I would like to return the conference to management for any closing remarks.

Thank you for joining us today, and if you have any questions, call Cynthia or Dave.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Have a great rest of the day.