Johnson Outdoors Inc (JOUT) 2015 Q1 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors first-quarter 2015 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 Patricia Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Thank you, Eric. Hello, everyone, and thank you for joining us for our discussion of Johnson Outdoors' results for 2015 fiscal first quarter. If you need a copy of our news release 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 the statements due to a number of factors, many of which are beyond Johnson Outdoors' control. These risks 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 out my pleasure to turn the call over to Helen Johnson-Leipold.

Good morning. Thank you for joining us. I'm in transit right now so let me jump right in with my comments on the quarter and discuss early reaction to this year's new products. Dave will review key financials, and then we will be able to take your questions.

During our fiscal first quarter the warm weather outdoor recreational industry is in a ramp-up mode, getting ready for the primary selling season during the second and third quarters. Sales are usually the lowest of the year and we historically post an operating loss.

This quarter the industry was also affected by the slowdown in consumer spending during December. In addition, order positions in marine electronics, watercraft, and outdoor gear indicate there has been a shift in orders from the first into the second and third quarters.

While performance this quarter is disappointing, first-quarter results are generally not indicative of full-year performance and often do not reflect important positive preseason momentum. For example, in marine electronics first-quarter results masked continued growth in Minn Kota, our largest and most profitable brand. An analysis of year-to-date point-of-purchase data, which is a key indicator of consumer demand, anticipates solid year-over-year revenue gains in Minn Kota across the retail chain.

Earlier innovations like i-Pilot and i-Pilot Link continue to boost top-line growth and excitement is building for new products such as the award-winning Ulterra fishing motor and the 12-foot Talon shallow water anchor. Humminbird is also getting good response to new products like the HELIX family of fish finders.

Humminbird, the innovation and market leader among high-end fish finders, has packed the most advanced technology features into HELIX 5 and 7 compact format fish finders to create a compelling value for anglers at the entry-level and midrange price points. Right now, the challenge is keeping pace with demand.

Turning to watercraft, we are very pleased with the trends we are seeing. Over the past two years we have worked hard to right-size the business and put a great team in place to strengthen competitiveness and drive sustained meaningful innovation. We turned a big corner in 2014 returning this business to profitability a year ahead of schedule. And we're off to a great start this year with double-digit sales growth in the US that almost completely offset the expected decline in revenue from planned international operations closures last year.

Importantly, Old Town Predator fishing kayaks are driving growth for the brand and in the market. Predator is the first and only fishing kayak designed by anglers for anglers. Our newest model, the Predator XL powered by Minn Kota took overall best-in-show honors at ICAST this year, the world's largest and most prestigious fishing show. This new Predator highlights Johnson Outdoors' ability to create a competitive advantage by leveraging one of our greatest assets, the diversity and breadth of outdoor recreational knowledge and expertise across our portfolio. There's a lot of buzz in the marketplace around this boat, and shipments are slated to begin later this spring.

Moving on to Outdoor Gear, where changes in sales calendars and pacing of orders have resulted in what is essentially an apples-to-oranges to I oranges comparison for the quarter, specifically we moved Eureka's sales programs to January-June versus fiscal year calendar. And international orders for Jetboil have shifted into the second and third fiscal quarters. While it's too soon to project out into the season, we are getting favorable response to new products, particularly the Jetboil fuel, which was honored by Outside magazine in 2015 Gear of Year winner. So we feel good about our ability to maintain share in our core camping categories.

And lastly, diving, our most global business -- Europe's economic woes continue to take a toll on top-line and bottom-line results in diving. We've done a lot to reduce complexity and costs in this business and to reinvigorate innovation in core life-support segments. We are not where we want to be yet, so our work and investment in diving will continue. We are taking a hard look at every aspect of the business, inside and out, to make sure we take the right steps to deliver sustained, profitable growth in diving long-term.

SCUBAPRO is the number one dive brand in the world. The aspirational brand engaged divers want to own and a brand that command strong, healthy margins. Protecting and expanding SCUBAPRO's leadership position going forward is one of our top priorities.

To summarize, first-quarter results are not necessarily indicative of full-year performance. And it is far too early to predict how the season will shake out. As always, the battle for consumer discretionary dollars is fierce and challenging. Demand for new products is growing, and we are focusing on sustaining this positive marketplace momentum into the season.

Importantly, our balance sheet is strong, and we have the capacity to continue to make strategic investments to strengthen and grow our business. And we remain optimistic in our ability to achieve our 2015 financial goals.

Now, I will turn things over to Dave.

Thank you, Helen. Good morning, everyone. Clearly, there are a number of moving parts that factored into our earnings this quarter. Two items drove the higher operating loss for the quarter. First, lower volume, which contributed about $2.5 million to the quarter's operating loss; second, higher operating expenses of $1.8 million in the current quarter versus last year.

The year-over-year increase in expenses was driven by higher legal costs of $2.5 million related to litigation asserting infringement of Humminbird side scan sonar technology patents by a competitor. A similar amount of legal expenses are expected in the March-end quarter.

Now, as a matter of practice, we don't comment on pending litigation and we're not going to break convention today. What I will say is that these patents are valuable asset for our marine electronics business, and our invention has been recognized by the US patent office, the marketplace, and by our competitors. Side Imaging technology is a cornerstone platform for sustained profitable growth and continued marketplace success for marine electronics. The full extent of our disclosure on this matter can be found in our filings with the SEC.

On the positive side, decreased cost and targeted cost savings efforts led to an improved gross margin of 38.6%, which help offset the quarter's operating loss. The effective tax rate for the first quarter was 39.4% compared to 24.9% in last year's first quarter. The rate is a function of where we make money and where we lose money and whether there's a tax benefit in those countries were losses occur. We expect the rate will go down to the mid-30s over the course of the year as we drive more profits during the season, and we are constantly looking at and implement strategies to help reduce the Company's tax burden long-term. For example, the change in terms to international distributors agreements with Institute will allow us to take advantage of foreign tax credits in the future.

Our continued focus and diligence on keeping working capital in check has brought down working capital as a percentage of sales to the lowest level in a decade. As Helen said, the balance sheet is in excellent shape and we have the capacity to invest in opportunities to strengthen and grow our businesses as well as pay a dividend to shareholders.

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

(Operator Instructions) Brian Rafn, Morgan Dempsey.

Good morning, everybody. Can you guys hear us okay? We got a new telephone conference system. We were breaking up on another call. Are we coming over clear?

Loud and clear.

Okay, sounds good. Dave, question for you -- anything on raw materials feedstocks as we go into 2015 -- plastics, resins, aluminum, anything that's a benefit to maybe margins going forward?

The biggest one is fuel. We've seen a little bit of a benefit in the first quarter from that so we'll keep an eye on that. Resins started off high and has flattened out. So I think right now we're looking at even but will keep an eye on that. So I don't expect big movement either way on other feedstocks.

Okay, sounds good. And talk a little -- we've had, obviously, these winter blizzards in the upper Atlantic seaboard. Last year it was the polar vortex. Are you seeing any changes in -- obviously not maybe weather-related, but with the early season, as you guys call it, ramp up in order patterns, either with boutique retailers or with some of the category superstars? Are they ordering less, keeping less inventory? Are they turning it faster? Is it more just-in-time inventorying? Or are their patterns about the same as you have been over the last four or five years? I'm just trying to see if there's any discerning pattern changes.

We have seen that our orders in the second quarter are up over a year ago. So I think we are seeing some shift from first quarter to second quarter. And I think it is as much as the retailers can get better at inventorying and quick turnaround of product, they will continually try to reduce inventory and get to a just-in-time mode. And I think that's the evolution of -- as they get more sophisticated and have more technology to do that. So I think that we will see. But we haven't seen a jump from one year to the next. It seems to be a kind of a slow evolution. But always moving toward inventory and just-in-times.

Yes, okay. In the quarter, Helen, did you mention sales derived from products, new products? I don't know what you guys use, whether it's two or three years, what component of current sales in the first quarter were from new product launches?

Dave, do you want to take that?

Yes, I'll jump in on that. It's the first quarter, but we continue to see over third of our sales come from new products. And we do use -- it's a 24-month period that we use.

Right, right, 24, two years. But let me ask you. Again, seasonally it is your business. And there are not necessarily great expectations in a lot of different seasonal businesses. Are there things that you can do strategically over the next five to 10 years? Businesses talk about taking cyclicality out. Are the things that you can do product-wise that can seasonally change that or because of the sporting goods, outdoor type thing that that really -- short of getting into snowmobiles or something related to that, that you really can't, that first quarter is always going to be kind of soft question?

I think it's -- just like historically I think as long as we stay in the warm weather outdoor recreation activities we feel that first quarter is going to be the down cycle of the year.

Yes, okay, that's fair. You mentioned again European weakness relative to the diving side. Does your I think you call it SUBGEAR -- has that had any more traction, being a little more of the value category from the standpoint versus SCUBAPRO?

The issues in Europe are actually more related to the unrest there and the fact that divers are not traveling to the Red Sea to dive because of what's going on over there. So it's a kind of a different element that is impacting not just us but everybody. So it's more of a -- the Red Sea to Europe is like the Caribbean to the US. So until they get used to traveling to other places I think it's going to be a challenge for everyone. But we are still bullish on the category and we do think innovation drives sales and can grow the category, and we just have to put a harder push on that end of the business.

Yes, okay. Actually, geopolitics, Helen -- if you just look maybe at the diving category, forget about Europe and look at North America and what has -- how has the rollout of SUBGEAR in something that's not related to the geopolitics, how has that been as far as building the brand name?

Well, I would say that SUBGEAR did not [have] the performance we had hoped. But there is certainly a segment that -- it's a very expensive sport to participate in. We are very bullish on the SCUBAPRO brand, continue to put the innovation behind the SCUBAPRO business. There is a role for SUBGEAR, but it's not as significant, I think, as we originally projected.

Let me ask you, as we talk about Eureka and camping for the Army or the Marines or the National Guard, is there any scuba demand for your high-end SCUBAPRO from, say, Marine Force Recon or Navy SEALs our military side, because you guys are obviously a premier manufacturer of very high-end stuff. Do you do anything for the military on the diving side?

Actually, the military very much likes the SCUBAPRO brand. We have not developed specific customized product, but they buy our product, especially the life-support pieces that we produce for the technical divers. So we do get military business from that. Going forward, we have thought about making a concerted effort against that group. And I think we are a very good brand for that target audience. So I think your point is well taken and we do have business there right now.

Okay, and I'll just ask one follow-on. Anything on the camping site for the military, the government side?

Dave, I'll let you do that one.

Yes. Right now there's not much happening in terms of sales. So our expectation is to be plateaued where we ended up last year. It's funny with the business, though; anything can pop. But right now we expect kind of a flat business.

Is that somewhat episodic, short cycle, where a PO can show up just out of the blue without any warning or any bids, quotes or anything? Or is that something that you do get some radar on that?

Yes, we get some radar on some stuff, yes. But there's nothing right now that we can say that's going to happen.

Okay. All right, thanks, guys.

(Operator Instructions) James Fronda of Sidoti & Company.

Just on the outdoor equipment segment, it was kind of a significant decline. Do you think that's weather-related, and do you see that flattening our picking up towards the back half of the year?

Yes. I think it's -- we've definitely seen a shift in orders.

Okay, because you had some ramp up last half.

And it's hard to know how the season is going to play out, but we've definitely seen the orders pick up here recently. So it's definitely been the shift. Some of it was our own doing. We did change our sales program in Eureka to be more of an incentive for January-to-June type of order pattern. And in Jetboil the international distributors did delay orders that we've seen come in.

Okay. All right, that's all I had. Thanks, guys.

There are no further questions at this time. I'd like to turn it back to Helen Johnson-Leipold for closing remarks.

I just appreciate everyone joining us. And again, if you have any questions you can give Pat Penman or Dave Johnson a call. Thank you very much.

Ladies and gentlemen, this does conclude today's conference. Thank you for your attendance. You may now disconnect. Everyone, have a great day.