Johnson Outdoors Inc (JOUT) 2016 Q1 法說會逐字稿

Hello, everyone, and welcome to the Johnson Outdoors first-quarter 2016 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. (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, Andrew. Good morning, everyone, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2016 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 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 either Dave Johnson or me.

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

Good morning. I'll begin with comments on performance this quarter and share a perspective on market conditions for the year ahead. Dave will review key financials. And then we'll take your questions.

During our fiscal first quarter, the warm weather outdoor recreational industry is in ramp-up mode, getting ready for our primary selling season during the second and third quarters. Our first-quarter sales are usually the lowest of the year, and we historically post an operating loss. This year's first-quarter sales grew to $85 million, a 20% increase versus last year. So the quarter's operating loss shrunk to under $1 million, a sixfold decrease versus the prior-year period. And that loss dropped to $0.05 compared to a net loss of $0.42 in last year's quarter.

This was a great start to the fiscal year. We got a nice lift from warmer-than-normal fall temperatures that led to extended retail demand until late in the calendar year. In addition, this year's new products have generated a lot of excitement in pre-season orders across our flagship, fishing, camping, and watercraft recreation brands.

Marine electronics remains a primary driver of top-line growth, with sales 35% above last year's first quarter. Keep in mind that first quarter last year was unusually slow for marine electronics. But, even so, year-over-year increases are significant. We did benefit from higher boat sales and lower gasoline prices, but, most importantly, terrific innovation.

Demand for Minn Kota's Ulterra and this year's new Riptide Ulterra helped propel increased pre-season sales, and i-Pilot and i-Pilot Link continue to exceed expectations. Humminbird is also off to a great start, with sales up double digits over prior year. This is due, in part, to a strong, favorable market response to the HELIX series of fish finders, particularly the 7-inch and the 9-inch screen model.

Importantly, we're seeing growth in all key channels, consistent with a reported resurgence in the boat market overall. Growth in Old Town led to a 17% surge in watercraft revenue this quarter. New products like Old Town's Predator series of fishing boats, and NEXT canoe/kayak hybrids, are helping us keep pace with an overall upward trend in the paddle boat market.

Our camping business continues to benefit from Jetboil, the world's number-one personal cooking system we acquired three years ago. Award-winning new products fueled double-digit growth in the brand this quarter, leading to growth in our camping business overall. While our consumer business was up, declines in military weighed down results in our outdoor equipment unit.

Our diving business has been significantly impacted by ongoing geopolitical tensions across the Middle East. At this time, it remains unclear how long travel restrictions to the Red Sea, one of the most popular dive destinations for Europeans in the Middle East, will last. Unfavorable currency translations had an even greater effect this quarter, which Dave will discuss further in his remarks.

While we are addressing these near-term challenges, our primary focus remains on ensuring the long-term growth and strength of the SCUBAPRO brand. That's why we're working hard to invigorate innovation in underwater electronics and computers, a key growth industry segment.

We are very excited by the opportunities we see in our acquisition of Seabear Dive Technology, specialists in the development of underwater instrumentation through the unique application of new and emerging technologies. Seabear's technical expertise, together with our deep knowledge of the dive consumer and iconic SCUBAPRO brand, is a great combination. Diving has historically been a key contributor to growth. And we believe our efforts will result in steadily improved performance in this business over time.

Just a reminder that first-quarter results are not indicative of full-year performance. However, the fact that we are off to such a strong start is certainly a positive sign. Our core brands across fishing, camping, and hiking and watercraft recreation businesses are heading into the season with strong momentum. And our continued investments in comprehensive consumer research, enhanced innovation, and digital sophistication are essential to consistently deliver accelerated growth and enhanced profitability for Johnson Outdoors, long-term.

We are very excited by the future.

Now I'll turn the call over to Dave for financial highlights.

Thank you, Helen. Good morning, everyone. The strong top-line growth was obviously a key driver in our improved operating profit performance. We also benefited from a significant decrease in legal spending of approximately $2.5 million, due to the pacing of Humminbird patent litigation.

Foreign currency translation, which had a negative impact of $1.5 million or 2.2% on total Company net sales during the quarter, primarily affected diving, our most global business. The effect of unfavorable currency translation on total Company operating profit was minimal. As we told you previously, wherever possible, we've adjusted pricing to minimize the impact of the strong US dollar on overseas revenue.

The effective tax rate was negative 2.9% this quarter, and is primarily a function of losses occurring in jurisdictions with valuation allowances for which no tax benefit is recognized. We expect the tax rate to return to a normal level throughout the year.

Working capital is higher compared to last year, due in part to higher inventory levels year-over-year, both in finished goods and raw materials. In addition to ramping up production for the season, pre-season demand has been strong. And inventory levels reflect the positive momentum behind this year's new product lineup, particularly in Minn Kota and Humminbird, our largest and most profitable brands.

Accounts receivable are also up $9 million in the quarter, in line with this early demand. We will be monitoring inventory closely as we move into the primary selling season, for our products in the second and third quarters, to keep levels consistent with market demand.

Finally, operating cash flow usage reflects our cash purchase of Seabear Technology, which is being integrated into our diving unit.

We're heading into the warm weather outdoor recreation season with the balance sheet in great shape, providing us the capacity to invest in growing our business while also consistently paying a dividend to our shareholders.

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

(Operator Instructions). Kristine Koerber, Barrington.

Congratulations (multiple speakers) a solid quarter. A few questions. First, Dave, where there any unusual expenses in the quarter?

No.

Okay, so the litigation expenses are now behind you, for the most part?

Well, we expect them to be significantly less, this fiscal. There's always a chance of that things could heat up again. But we're happy with where we are with the litigation.

Okay, so it's ongoing, but just not as significant?

Yes.

Okay. And then with regards to the marine electronics business, who does -- is the [spector] taking share from? I mean where -- I know the growth; you're doing well with several products. But where do you think the share is coming from?

Well, in our motors business, we, I think, are growing the market. And we lead that front. We don't have a major competitor there. But I would say in the fish finder business, we've got two major competitors, Lowrance and Garmin. And I think Lowrance has more share then Garmin, so I would say we are taking from both of them.

Okay. And then as far as diving, obviously working on improving the trends in that segment. How long do you think it will take before we start to see a payoff with some of your initiatives you're working on?

Well the fact that some of the factors are external, that piece of it makes it a little hard to predict. But we are working on initiatives that should generate energy and growth, and not -- that don't rely on those external factors turning positive. So, we have a lot to do, a lot of opportunities, and I think we're positive. I hate to tell you when, but you should see some -- we should see some positive performance as we move forward.

Seabear, those products -- when will they hit the market?

Well, that's dive computers, and we did buy some great technology from them. And we are in process of incorporating the technology into our computer line. And we would probably see products coming out under the SCUBAPRO name in our next -- we will probably launch them at the next dive show, which is in November.

Okay. And then the recent price increases -- did the recent price increases in the dive segment have any impact in the quarter? Help at all?

Yes, it helped a little bit. It did. But it's just that versus prior year, we still had a weaker dollar. So I'm hoping, on a go-forward basis, that stabilizes a bit, and we will have increased pricing in a more normalized value of dollar to euro.

Okay, thanks. And then just lastly, as you look at some of your -- the retail accounts, your customers, what are their inventory levels looking like? And what was the promotional environment like in the quarter?

Well, our largest sales came out of our marine electronics group, and we feel pretty good that there is also some positive consumer pull from that. So, there was increase in the consumer takeaway. They do have inventory, but not significant, we feel, that's going to move forward. In the other businesses, I think it's pretty much -- there's not a significant amount of inventory. We have an extended season, so that's helpful, too. So I think we're in pretty good shape.

Okay, great. Thank you.

Brian Rafn, Morgan Dempsey Capital.

I apologize. I got stuck with your operator for about 17 minutes. So I missed all the opening lines, so I hope my questions aren't redundant. Give me a sense, if you look at this season, getting into your strong seasons, what was your sense of sales momentum, inventory pattern, or order patterns, inventory building from some of your retailers? I'm judging, based by sales, probably some pretty good stocking forward. Or give me a flavor for what you guys have seen.

Well, I think the pre-season orders for marine electronic were significant, and I think there was a lot of elements in that. But I think the retailers are pretty good about not over-stocking these days. We do get point-of-sale data in our marine electronics, and there is a good pull-through on that product. So, it is -- they are responding to the innovation in the product and the strong boat season. So I think we're in pretty good shape. In the other businesses, it's pretty much as history has gone, and not unusual patterns.

Yes. In the marine electronics, if you look at some of your big-box, your category super -- the Bass Pro Shops, the Cabela's -- are they ordering? You're obviously saying you're getting POS. Are you -- you got an electronic data interchange? Or is there -- is that -- you're constantly refurbishing? Or how many sequential orders will they put in? Do they order by the month or --?

It varies, Brian. We do have an EDI system with our major retailers, and so we've got almost real-time visibility. It's into what their inventory is, and the buying patterns. But it's fairly constant, the activity.

So it's constant, so their replenishment is virtually continuous, basically?

Yes, I don't want to say continuous, but it's -- we've got a pretty good handle on what's happening out there with those retailers.

Okay. On the scuba diving side, obviously, you've got geopolitical issues in the Mediterranean and that. Give me a sense: what is it, SUBGEAR versus SCUBAPRO? I don't want to say the low end, because obviously scuba diving is mission-critical. You're not selling things that are going to kill people. But how has your initiative been on the SUBGEAR side? And in a difficult market, is SCUBAPRO performing better than the lower price point? Or how is that lower price point value area, in the diving area, performing?

I would say that's a segment of our business that we get very -- we get minimal data from the market. What we have to deal with is mostly our own internal data. So we make assumptions. But our philosophy has been that our premium brand is really the focus and the power brand. And during tough times, I think our consumer is not as price-sensitive as the lower-end consumer. So, our assumption is we don't get hit as hard during those times. We do have entry-level price points, but our emphasis has always been on the higher-end product. And we feel that that's really a better place to be when there's things going on in the external environment.

Okay. You guys pride yourself in trailing sales, a fairly substantial portion being generated from new product design. With the acquisition on the diving side, and coming out with some new dive computers, would you say fairly in -- for the November 2016 show -- would you say that you should have more product sales in the diving area, given the fact of this -- the new dive computer? Because obviously in marine electronics, you are always bringing stuff out, so that seems to be a fairly strong generator. For this year, would you say that you're going to get more incremental sales, now that you're launching this dive computer stuff in the -- or updating it, upgrading it?

Well, as I mentioned earlier that we will be incorporating the technology that we purchased into the SCUBAPRO computer line. And we will launch the first of our entry there with the new technology in November. So that's next fiscal year. But the dive computer segment is a significant and very important segment in diving. And we do feel that, with this technology and with -- we've got some pretty steadfast core product offerings from our own historic product launches.

This is a key -- we feel it's a key growth area for us. It's an area that should go long. You're number-one in regulators; you should have the same with the computer lines. And we feel very good about it. But you'll see the new acquisition, the technology being integrated to next year's launches.

Okay. Dave, you don't have a number on what new product sales were in the quarter, do you?

Well, it was over 30%.

Okay. Yes, okay, okay, okay. All right. Anything on the military side, from the camping, Eureka!, the tent side?

Yes, military was -- it was a weak quarter for us. We're hoping to -- we've said this before -- stabilize around a $7 million, $8 million level for the year. But we've got some work to do to get there.

Okay. As you look out the balance of the year, CapEx plans, Dave, for --?

Yes, I think we'll probably up a bit this year versus prior -- last year, I think we were at a $10 million level, something like that. It looks like it may be more around $12 million.

Okay. And can you highlight maybe where you're allocating that?

Yes. Our fishing business is going to be up again. It's really all new-product-driven; some growth driven in fishing. And then there's other investments at a Company level in digital marketing that will be capitalized.

Okay, okay. And then I missed the tail end -- I caught the tail end of your tax discussion. Did you talk about the rate you anticipate for this year?

Yes. It should normalize. We expect it to normalize by the end of the year. This first quarter is so wacky with the mix of income. But I think between 36% to 38%, something like that, will be our target.

Okay. And any headcount initiatives, hirings or reductions across the four different product areas? Staffing (multiple speakers)?

Nothing significant. We're investing in pockets, and then we're simplifying in other pockets, but there's nothing significant on the horizon.

Okay. And then anything, Dave, that you see on the cost side? Materials, raw materials, freight costs -- anything that you see as a cost escalator?

No. I think our cost structure, right now -- things could change -- but right now, it's looking pretty good.

Okay. Thanks.

(Operator Instructions). I'm seeing no other questioners in the queue at this time, so I'd like to turn the call back over to management for closing remarks.

Thank you, all, for joining us, and we'll talk to you soon. Thank you.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program, and you may all disconnect your telephone lines at this time. Everyone, have a great day.