Johnson Outdoors Inc (JOUT) 2015 Q4 法說會逐字稿

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

(Operator Instructions)

This call is being recorded. Your participation implies consent to our recording of 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 Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Thank you, Operator. Good morning, everyone, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2015 fiscal fourth quarter and full year. If you need a copy of that 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 those 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 Dave Johnson or me. I'd now like to turn the call over to Helen Johnson-Leipold

Good morning, everyone. Thank you for joining us. I'll start off with comments on the quarter and full-year results, along with highlights from each of our businesses, and then review strategic priorities for the future. And Dave will discuss the financials and then we'll take your questions.

Historically, Johnson Outdoors' fourth quarter sales and earnings are the lowest of the year, reflecting the industry-wide slowdown post warm weather outdoor rec season. In the fourth quarter, total sales increased about 1%, profits rose significantly, and earnings of $0.12 per share compared favorably to last year's fourth quarter loss of $0.08 a share. Strong market momentum for new products, particularly in our fishing and camping hiking brands, grew throughout the season and carried over into the fourth quarter. Profits benefited from higher volume and our successes stabilizing and strengthening operations.

Year-to-date performance continues along the same positive trajectory, demonstrating continued progress in our efforts to deliver sustained long-term profitable growth. Total sales for the year were up 1%, to $430.5 million, and operating profit rose 7%, to $18 million, overcoming the effects of foreign currency which weighted down sales and reduced operating profit by over $2 million. For the year, net earnings grew 16%, to $10.6 million, or $1.06 per share.

Innovation is our lifeblood and new products like the Minn Kota Ulterra, Humminbird Helix, Old Town Predator Minn Kota, and the expanded line of Jetboil personal cooking systems generated strong consumer demand, resulting in share growth, as well as improved margins.

Marine Electronics had another terrific year. Minn Kota posted record results, driven by the new Minn Kota Ulterra fishing motor and Talon in 12-foot shallow water anchor. Ulterra's many advancements appeal to broader consumer base than ever. Its automatic spill and deploy feature was particularly welcomed by aging anglers with higher discretionary spending capacity. The innovative Talon series of anchors have doubled in sales in just two years and invigorated growth in the category overall.

Humminbird took the market by storm this year, with the award-winning Helix series of fishfinders bringing our patented side scan sonar technology to small screen for the first time and expanding our consumer base. Side scan sonar is the gold standard in fishfinders, the kind of innovation that enables us to strengthen and grow brand equity and, importantly, compete and win on price/value.

The patented Flux Ring technology from Jetboil is another winner. We saw great potential for growth with this technology when we acquired Jetboil three years ago. Since then, we have used it to expand Jetboil's offering to appeal to a larger outdoor consumer base.

Before, Jetboil was used primarily to boil water; today, campers and hikers are also using it to cook an entire meal. Jetboil's signature compact, lightweight pushbutton ignition and heat capture design provide a welcome alternative for a foodie in the great outdoors. We are very excited about the demand for the innovative, award-winning Jetboil Joule and Mini Mo, and especially the new line of Genesis stoves. We believe Jetboil is well-positioned for further expansion and growth.

We feel the same way about our Watercraft brands, particularly Old Town, where innovative is reignited growth in the brand, notably the Old Town Predator series, which well positions us to grow share and sales in the fast-growing fishing kayak segment. Our latest model, the Predator XL power by Minn Kota, leverages our unmatched knowledge, expertise and legacy in fishing and the world's number one electric trolling motor brand to deliver against unmet consumer needs. Designed by anglers for anglers, the Old Town Minn Kota Predator took best-in-show honors when it was first unveiled at the 2014 ICAS show, the world's largest fishing show, and shipment started in June and response has been very favorable.

Also new to the market this year was the Old Town Next, which sports an innovative crossover design that combines the stability and storage capacity of a canoe with the easy paddling, stylish low profile of a kayak. The Next is another great addition to the Old Town portfolio. It was specifically created to bring innovation to our base paddling business and to appeal to young consumers, a critical consumer segment for the future.

Diving had a very challenging year, largely due to external conditions, most recently heightened geopolitical tensions which have restricted travel to the Red Sea, one of the most popular dive destinations for Northern and Central European divers. No one knows how long this will last. What we do know is that dive enthusiasts in these countries will find alternative dive destinations. We believe ScubaPro, with its rich technical heritage, is positioned well to grow through share gain in core like support product categories.

At the same time, we are working to invigorate innovation in underwater electronics and computers, a key segment for this business. In October, we acquired SEABEAR Dive Technology, specialists in development of underwater instrumentation through the unique application of new and emerging technologies. SEABEAR's technical expertise, together with our deep knowledge of dive consumers and iconic ScubaPro brand, is a great combination. We're counting on steady progress over time.

Diving has proven to be a resilient market for three key reasons. First, divers are avid about the sport. Once in, they are hooked. Second, they have higher incomes and greater spending power and third, divers look for and are early adopters of the latest and greatest equipment of gear. ScubaPro is the world's number one dive equipment brand and enhancing innovation will drive future growth.

Overall, we feel good about each of our businesses are positioned for the future and we're looking at the future in a whole new way, specifically through the eyes of our consumers, what they want, what they need, and what they expect in order to have the best experience in the great outdoors. This requires a comprehensive consumer research effort to bring us deeper, richer understanding of our consumers, which is already underway utilizing array of sources and sophisticated techniques.

Consumers evolve and so must our understanding, demanding ongoing diligence and analysis to ensure we keep our finger on the pulse of the outdoor consumer. By doing so, we will continually be able to uncover the ah-ha consumer insights that will enable us to focus innovation at the biggest and best opportunities and align go-to-market strategies, plans and more for consistent long-term marketplace success.

Looking at our brands with a consumer's perspective also significantly changes our marketplace potential. Consumers view our brand through the lens of the outdoor recreational activities in which our products are used. They see us as the experts that we are in fishing, camping, hiking, diving and water recreation. So within our newly heightened consumer context, we see potential beyond the limits of narrowly defined product categories and markets.

As a result, we are identifying additional growth platforms across these significant recreational activities, where our strong brand equities can be further leveraged to provide us a clear and distinct competitive advantage, like we've done successfully with the Minn Kota brand in moving beyond fishing motors into shallow water anchors and adjacent fishing categories. This will expand the market footprint and innovation horizon in each of our businesses, creating power brands with greater potential for long-term growth able to deliver a better balance of profitability across our portfolio.

We are also revamping our innovation process and setting the bar higher, working towards even bigger, more successful new products with even greater staying power, based on a deeper, richer understanding of our consumers. We've started filling the innovation funnel in every business, with ideas targeting high growth potential consumer segments and based on insights we've uncovered. This begins an ongoing iterative feedback loop with consumers, from concept to commercialization and beyond, to make sure our consumer insights are spot on and that we're on track, moving forward against the right ideas with the best potential to deliver long-term marketplace success.

Enhanced consumer intimacy is also behind a new, more sophisticated approach for our digital presence, to ensure our online look, feel, content and utilization is in line with consumers' use, needs and expectations. We are working with experts now to finalize the strategies and plans, involving everything from our Company and our brand websites to social media platforms and interactive marketing applications and more. This is a major undertaking that will take time and require resources. Importantly, we are minimizing up-front costs by developing a Company-wide plan. A phased in rollout will spread further spending out over time.

Our strategic plan lays the foundation for consistent and accelerated sustainable growth and profitability in building capability and capacity to drive progress against our three strategic priorities, enhanced consumer intimacy, greater innovation success, and digital sophistication. Investments in these strategic areas will translate into even stronger brand equities and help ensure a better future for Johnson Outdoors.

In the end, Johnson Outdoors will be a wholly consumer-centric enterprise fully committed to providing the best overall outdoor experience for people every step along the way, from planing their outdoor adventure to shopping and buying equipment to just having fun fishing, camping, diving and recreating on the water. We hope you share our excitement for the future.

Now, I will turn the call over to Dave.

Good morning, everyone. As Helen mentioned earlier, sales and profits were affected by foreign currency movements. The strength of the US dollar particularly affected diving, our most global business. On a constant currency basis, diving sales this year would have been flat year-over-year, and total Company sales would have been up 3%.

We think that the dollar will continue to be strong, at least for the next year, given the current global economic environment. To help mitigate the impact, we've revised pricing in key international markets to adjust to the stronger dollar.

Performance in our other businesses more than offset the currency impact on total Company sales and profits. Higher volume and improved margins in these units demonstrate the value innovative new products are bringing to our consumers and customers. Marine Electronics ended the year with new product demand strong and growing, resulting in higher inventory levels at year-end. The good news is that this positive momentum is continuing and we are gearing up earlier to meet the high demand.

We're also pleased with the continued progress in Watercraft, which remains in a profitable growth trajectory. We've done the heavy lifting to begin to turn this business around and we're definitely moving in the right direction. Now we're not satisfied with where we are yet, and we plan to keep up our efforts to get there.

Just a couple of comments regarding legal costs this fiscal, which added $7.3 million to operating expenses. These costs were related to litigation alleging infringement of our side scan sonar patents by Garmin International. Last month, we received a favorable final determination by the International Trade Commission on this matter which affirmed the initial finding that certain Garmin's products did infringe a Johnson Outdoors patent. The ITC issued orders barring the import, sale and distribution of the infringing products in the US, to take effect after a 60-day review. At this time, for FY16 we're expecting legal costs to decline.

And finally, net income, which improved 16%, benefiting from a significantly lower year-over-year effective tax rate of 32%. This year's rate was due to the reversal of valuation allowances on deferred tax assets in certain foreign jurisdictions.

In closing, the balance sheet's in great shape. Our healthy cash position enabled us to invest in growing our business and our brands, while continuing to pay a dividend to our shareholders. Looking ahead, we expect to see steady incremental sales and profit growth over the next three years, reflecting investments needed to implement strategic priorities for our new plan.

I'll turn the call back over to the operator for the Q&A session. Operator?

(Operator Instructions)

Brian Rafn, Morgan.

Good morning, everybody. Helen, you talked a little bit about the consumer-centric -- consumer not being limited by narrow product lines, identifying growth platforms. Is this something that you're pursuing with penetrating new organic markets that you don't compete in now? Is it line extensions, like Talon, that extends an area like fishing you're already in, or is this looking for attractive tuck-in M&A?

We're losing you a little bit, but I think I got most of the question. It's a combination. We are always looking for M&A acquisition opportunities. And specifically, the growth that we're uncovering is new consumer segments. It's adjacent product categories, but all within the current recreational activities in which we participate.

As we uncover these new opportunities, we certainly are open to strategic acquisitions, if they fit, but we're not banking on that. Our assumption is that we are moving forward with organic growth, but always looking for acquisition opportunities.

Helen, you talked a little bit about new product development, innovation. It's really the life blood of Johnson Outdoor. Are you rolling that across all of the other areas? (multiple speakers).

We're losing you a little bit. Could you repeat the question? I'm sorry.

I'm just asking -- relative to your product innovation. Is that something that you're rolling -- is that new across the entire Company, or is it something that you've done in Marine Electronics and now you're doing in other areas? How do you define that? Because you've always been very good at that.

Well, we're kind of raising the bar on innovation. And as you know, it's getting more and more competitive out there.

This is a process that we have rolled out across all of our businesses. And it certainly doesn't say that we were not good at it before, but I feel very excited about the fact I think it will deliver even better results going forward.

It takes a while to kick in because your pipeline doesn't develop overnight. But it's an exciting process that is -- it's a repeatable process with -- it's systematized, but yet is really meant to maximize the potential to identify innovative new products. So, it's a very exciting process.

Okay. Dave, you talked about higher inventory, Marine Electronics. With this El Nina, this warmer weather, does that at all extend fishing? I saw people were jet skiing on a number of lakes. It certainly impairs ice fishing. How does this warm weather impact your product line?

That's a good question, Brian. I think there's definitely a season. And to the extent that we have a longer tail, it helps. We'll have to look to see how the first quarter shakes out, and look back to see how our POS data looked. But it's certainly not hurting at all.

Yes. When you look at some of your boutique retailers, is there an offset where they may carry kayaks in the summer, but do a lot of snowboarding or Alpine skiing, where they get just hammered, and then their inventory problems and discounting affect the next season, which is your season on the water side in summer?

We have a diverse distribution network. And we do have some of the smaller ones that kind of shift season to season, and have to deal with inventory. But some of the bigger customers -- they may get stuck with winter inventory, but there's still room for fishing and they won't miss a beat on that. So, in fishing, the smaller dealers is a smaller piece of the puzzle for fishing.

Okay. And I'll just ask one more, and get back in line. Helen, you talked a little bit about scuba diving in the Red Sea and the international Mediterranean. Certainly, everybody knows about that. How are some of the other areas, like North America with ScubaPro? Are there any other markets that can counterbalance that?

Well, we do have growth in our Asia-Pacific region. We also have some growth in North America. We are looking -- as I said, as we use this new consumer segmentation process to look at new growth opportunities, we feel that we can gain share and grow the market, even if it's a struggle. And it will be a struggle in Europe. But our goal is to identify growth, despite what's going on with the Red Sea.

Okay. Thank you.

(Operator Instructions)

Brian Rafn.

Yes, short line. Let me ask: Dave, any comments on cost of goods sold, feed stocks, raw materials? I would think it'd be pretty benign, but I'd ask it anyways.

It's benign. The biggest impact for us has been the strong dollar. So, particularly in our diving business, we saw cost of goods sold impacted by the strong dollar, because it's such an international business. But everything else is in pretty good shape.

Okay. All right. Fair enough.

When you guys have such a strong culture of innovation and new products -- I didn't hear a number -- do you guys have a number of what new products were, say, trailing 12 months for the year, as a percentage of total revenue?

Yes, it was over a third of our sales came from new products.

Okay. Dave, one of the issues certainly that would drive that is the innovation, the electricity, the wow factor that you talk about. How does that cannibalize the current products when you develop something new? How much falloff is there, or are there different price points?

It really depends on which category and what product you're talking about. Certainly, in fishing, where there is a significant amount of cannibalization, but that's taken into account in the budgeting process and you assume that. But coming out the other end, you get the incremental growth on top of it.

I would say what we are -- again, our process, our growth efforts are to look at new consumer segments and new, adjacent product categories, which, in that case, it will be all incremental and minimal cannibalization. But as you're in electronic business, there's a fast turn of new products, and you assume you're going to significantly cannibalize what your previous products did. But the goal is to get the incremental sales on that. But it's different by business.

Right. Helen, you talked a little bit about scuba diving, and your acquisition on -- and maybe I heard it wrong -- on underwater instruments. What specifically kind of products does that add?

That acquisition was specifically to enhance our ability to manufacture innovative dive computers. And the dive computer segment of the diving business is significant and very important. And if you recall in past calls, we've talked about having challenges in that area. So, this is a perfect acquisition to help us grow in a very important segment.

It's not going to kick in right away. It's life supports that we put -- the development process is -- takes a little more time. It has to go through a lot of testing and qualification. But we hope to see some energy in our dive computer segment going forward.

Okay. And where is that manufactured, Helen? Is that domestic or is that a foreign --?

We purchased technology and capability. And so, it will be manufactured in our current plant, where we do currently make our computers, which is in Batam, Indonesia. And that's our owned plant that we currently produce in.

Okay. Thanks, everybody. Appreciate it.

Thank you.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back over to Ms. Johnson-Leipold for any further remarks.

Thanks, everyone, for joining us. If you have any questions, you can give Dave or Pat a call, and I hope everyone has a happy holiday. Thank you.

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