Johnson Outdoors Inc (JOUT) 2014 Q1 法說會逐字稿

Hello everyone and welcome to the Johnson Outdoors first-quarter 2014 earnings conference call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoor 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 their prepared remarks, the question-and-answer session will begin. (Operator Instructions).

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 2014 fiscal first quarter. If you need a copy of our news release that was 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. These statements are made on the basis of our views and assumptions at this time and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many of which are beyond Johnson Outdoors' control. These risk and uncertainties include those listed in today's press release and our filings with the Securities and Exchange Commission.

If you have additional questions following the call, please contact either Dave Johnson or me. It is now my pleasure to turn the call over to Helen Johnson-Leipold, Chairman and CEO.

Good morning, thank you for joining us. I will start off with comments on the first quarter results and share perspective on the marketplace and then Dave will review key financials and then we will take your questions.

Fishing, camping, diving and paddling equipment markets are highly seasonal and heavily influenced by weather conditions. During our first fiscal quarter, we are ramping up for the warm weather selling season that hits us during the second and third quarters therefore our sales are usually the lowest of the year and we historically post an operating loss.

Last year we benefited from unusually early new product shipments during the first quarter and this year the early onset of harsh winter conditions has shifted the timing of new products, orders and shipments. As a result year-over-year comparisons this quarter are unfavorable.

I think it is important to note that during our first quarter, cold weather outdoor equipment and ski resort revenues were very strong consistent with the rising consumer confidence and reported increasing consumer discretionary spending. If these positive consumer trends continue into the warm weather outdoor rec season, we feel we are in a very good position to capitalize on the opportunity.

While it is far too early to predict the full year, I can tell you that we have an exciting new product lineup across our portfolio and customer demand is strong and growing.

At the same time, every business unit will be dealing with its own unique set of challenges. For starters, a highly charged competitive environment in Marine Electronics; demand for innovation in electronics is a never-ending quest which is why our focus is on technology that we can own. And in Marine Electronics, competition runs the gamut from small companies who thrive and survive on grassroots guerrilla warfare to multibillion-dollar giants with seemingly unlimited resources.

Net-net, a very challenging marketplace particularly for Hummingbird which designs and makes high-tech sonar-based equipment for anglers. We have leveraged our deep knowledge of fishing to bring forward unique features and applications that truly make the fishing experience continually better and more enjoyable for anglers. This is a key to how and why we continue to win in the marketplace. Like every other high-tech company, Hummingbird needs to periodically upgrade its operating system. These upgrades are major system advancements involving a virtual overhaul of the operating platform to dramatically increase and improve its features and functionality now and in the future.

In 2014, we are implementing a system upgrade to more than half of Hummingbird high-end models. This was an important investment in the future enabling us to continue to meet the ever-growing needs and expectations of fishing enthusiasts and help maintain Hummingbird's positive growth trajectory.

Planning and development began in earnest well over a year ago. Software testing and debugging as well as production process validation has been tedious and comprehensive because quality and performance are a must.

In addition this quarter, we implemented a new pricing to value strategy across the rest of Hummingbird family of products to enhance margins and improve our competitive position. Demand for both Minn Kota and Hummingbird new products are on track and we feel good about our competitive position and our ability to maintain market leadership.

Marine Electronics is a strong, resilient business and we are optimistic the unit will continue to deliver against our number one goal of driving profits faster than sales.

Diving, our most global business, will continue to deal with the effects of weak European economies. Unrest in the Middle East has dramatically affected popular dive destinations for European dive enthusiasts in that part of the world. Both local country and export sales in Europe have been impacted. We are looking to generate positive marketplace momentum with the introduction of our new SCUBAPRO CHROMIS and Aladdin's Square Dive Computers which are shipping in the second quarter.

While sales may not offset revenue declines in Europe, healthy margins in this product category can help protect the profitability of the unit.

In our Outdoor Gear area, growth in camping brands fell just shy of offsetting declines in non-core military sales. The Jetboil integration has gone smoothly and we have begun restructuring our consumer camping business to better optimize market and operational synergies going forward.

In Watercraft, the new Old Town Predator fishing kayak series helped drive sales in the all-important specialty class of trade during the first quarter. The challenge will be keeping up with demand and that is a good thing. Despite the planned loss of international sales in the unit due to global restructuring as well as the continued de-emphasis of low-margin products, we are expecting Watercraft to return to profitability by the end of 2015 if not sooner.

To summarize, the first quarter results are not necessarily indicative of full-year performance and it is far too early to project how the season will shake out over the next two quarters. As always the battle for discretionary dollars is fierce and challenging. Demand for our new products is growing and we believe our strategies and plans are on target to drive and sustain positive marketplace momentum.

Our balance sheet is strong, we have the capacity to both invest where needed to strengthen and grow our business and we remain optimistic in our ability to achieve our 2015 financial targets.

Now I will turn things over to Dave.

Good morning everyone. As Helen said, the first quarter is not necessarily an accurate barometer of full-year performance. At the same time, Q1 results provide direction on areas of focus where we need to have the flexibility and speed to adjust as the season unfolds.

Working capital is one of those focus areas. It is normal for working capital to be higher during our first quarter. This is when we are in full ramp up mode as we build inventory based on seasonal forecasts. This year orders and shipments are tracking more closely to the retail selling season for our products during the second and third quarters.

Marine Electronics is driving the uptick in inventory due to the higher number of new products coming out this year. Right now the level of inventory is justified due to strong demand. Nonetheless, we are watching point-of-sale data closely and prepared to ramp up or pull back based on marketplace trends.

Cash net of debt is down about $1 million year-over-year. As you know, we initiated a quarterly cash dividend during the first quarter. We are of course very pleased to be in a position where we can continue to invest in strengthening and growing our portfolio and pay a dividend to shareholders.

Now I will turn things back over to the operator for the Q&A session. Operator?

(Operator Instructions). James Fronda, Sidoti & Company.

I would imagine some of that weather would probably negatively reflect you in the second quarter as well?

You know, it depends. I think how long the cold weather lasts certainly we need the lakes to melt and not ice over. So the good thing is that it has -- all of the winter inventory of product there is not a lot of inventory on the shelf because the winter clothing and apparel and equipment have been able to sell so there is some positive side so we'll have to see.

And any area of interest for you guys to make another acquisition, any specific categories you would looking in?

We are always looking at opportunities, certainly our growth area we have great momentum in the Marine Electronics areas so that is always on our list. I mean across the board, we keep our eye out. I would say it is not category specific but we are very much out there and looking.

All right. Thank you, guys.

Brian Rafn, Morgan Dempsey.

Good morning, everybody. Give me a sense. Helen, you spoke a little bit about a new pricing value strategy at Hummingbird. Can you give us a sense, flush it out a little more relative to what you are kind of talking about?

Well, in a range of product lines we went through some cost reduction exercises so that we could reduce the cost of sales and it was very successful and therefore we could adjust the pricing so our margins are actually better but we have got a price that we feel better about in the marketplace. So it is a win win on that end of the space.

You guys have always done a superb job in actually driving trailing 12-month sales our quarterly sales from the new product development. I maybe have missed it. If you look at the $79 million or so, what kind of percentage of new products in the last two or three years might that have composed?

Brian, I'm sorry. I don't have that number in front of me. It is probably close to our goal of 30%.

Okay, okay. So range [amount]. What is your sense as you guys look and you talk about your ramp up for the second and third quarter stocking some of your boutiques and maybe obviously it is different in the Hummingbird, Minn Kota, if you are doing a Cabela's or Bass Pro versus somebody that is a little more of a single proprietor. What is kind of the aptitude of your retail channel in actually building inventory, holding inventory, or is it still that kind of just-in-time mentality?

Yes, I think right now it is interesting because as Helen alluded to the winter equipment and apparel have done well. But in our area, we have not seen a lot of ordering yet. Hopefully it will. I think they are still holding the inventory pretty close to the vest.

Okay, all right. So you are saying then obviously the assumption being that with decent cash flow from the winter side plus I would think somewhat amiable banking credit market, there ought to be at least from a financing standpoint there should not be any impairments relative to taking down inventory?

Yes, I wouldn't think so.

I'm just curious, North of the Mason-Dixon line we have really gotten clobbered with this polar vortex. I am not a fisherman, I am a boat racer so I'm the guy that is usually creating the havoc amongst the fisherman but when you get a late -- get really cold weather into March or April and you have a late melt, how does that impact the fishing guy? If he can't get out on the lakes -- we had one year I think maybe a year ago where in March we had landscapers out it was so nice. How does that -- the retail side impact your kind of loading and orders and that type of thing from a weather standpoint?

In general, fishing, they do tend to purchase before the season in anticipation of the season so I think also the retailers will order prior to the season. So you do get the first order in unless it is just really abnormally cold. But I would say it impacts more if they can't get all on the water, it is that in season first point of sale purchase that we would see some softness in. So given -- but again if this year is so much different than last year, it does impact the mentality and the purchase mentality. So I can't say it doesn't impact but the fishing season they tend to order in anticipation of it getting nice so that first shot out the door is not necessarily what gets impacted.

I think that makes sense. You alluded to it a little bit, is the same trajectory declining heading south in the military gear from the camping side, the outdoor?

I'm sorry, can you repeat that, Brian?

Is the same trajectory that has happened the last number of quarters with a kind of a year-over-year decline in military sales in the camping side -- I'm looking at kind of a post-Afghanistan, Iraq replenishment. You guys still don't see anything from the Army, the Guard or the Marines?

We don't see any uplift but frankly I think we have plateaued so I think the quarter is a timing thing. I hate to predict it but I think we will be plateaued year-over-year for the full year.

Okay. Do you see any cost pressures relative to materials? And then maybe how do you kind of see labor and wage inflation and then the wildcard being healthcare obviously so from a cost standpoint?

You know, there is a little bit of pressure on resin. We have seen some cost pressure here and there but nothing significant. We will have to see what happens with healthcare. We did experience a little bit more healthcare cost increase this quarter but that is nothing really to do with the changes in regulation. It is just the experience we have had.

Okay. And then from a strategy standpoint, I know with the seasonality and weather, that's (inaudible). Is there any way in the markets that you are in to -- over the next three or four years to boost the weakness in the first quarter? Some things just don't sell for Christmas or the holiday season. Are there any incremental things that you can do or product line extensions or is it just kind of a given that it is seasonally a tough quarter?

I would say it is historically, it is a seasonally tough quarter but we do have a global business which helps -- diving helps that piece. However outside of the US, there is some economic weakness. But we are working to come up with great Christmas items and if we can get better at that, that would be the opportunity but I would say that we are always going to be as long as we are in the warm weather activities, that we will see this first quarter as seasonally slow.

I think that is fair. And then you talk to us a little bit about the weakness in European diving, what -- ex-European diving, how do you see the US market?

Well, we are doing better in the US and we are in the process of ramping up our launch of the SUBGEAR brand. So far, it is in this quarter a little weak but we don't expect that to trend for the year but it is doing well.

Okay. And then Dave, CapEx kind of budget for the year?

It should be comparable to where we ended last year. There won't be a whole lot of change.

Okay, sounds good. Thanks, guys.

(Operator Instructions). I'm showing no further questions at this time. I would like to turn the call back over to Helen Johnson-Leipold for any further remarks.

I just want to thank everybody for joining us and I hope we will see you at our annual shareholder meeting in February. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.