Johnson Outdoors Inc (JOUT) 2016 Q4 法說會逐字稿

Hello everyone and welcome to the Johnson Outdoors fourth-quarter 2016 earnings conference call. Today's call will be led Helen Johnson-Leipold, Johnson Outdoors Chairman and Chief Executive Officer. Also on the call today 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, Nicole. Good morning everyone and thank you for joining us for a discussion of Johnson Outdoors fourth-quarter and full fiscal year results for the 2016 fiscal year. If you need a copy of our press 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. The statements are made on the basis of our views and assumptions at this time. They 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 me.

I'd now like to turn the call over to Helen Johnson-Leipold, Chairman and Chief Executive Officer.

Good morning. I will start off with the comments on the quarter and full-year results, discuss key performance drivers in each business and outline priorities going forward. Dave will review financial drivers behind results, then we will take your questions.

Fourth-quarter results reflect the industry-wide slowdown of our outdoor recreation market and show our earnings and sales at the lowest of the year. This year's fourth-quarter sales were $75 million and net loss was $2 million, or $0.21 per diluted share. A shift in orders due to a product-line technology restage in marine electronics along with a $4 million-plus decline in non-core military tent sales in our outdoor gear business led to an unfavorable quarter-over-quarter comparison.

Heading into fiscal 2017, positive momentum for new products is building rapidly and open orders are steadily growing. For the full year, strong performance through the first nine months more than offset the fourth-quarter slowdown. Total Company sales for the year increased to $434 million, operating profit grew 28% to $23 million and net earnings advanced 27% to $13.5 million or $1.34 per diluted share.

Fiscal 2016 was the first year of our new strategic plan and we are positioning ourselves to deliver incremental growth in sales and accelerated growth in profitability. New products drove strong consumer demand in 2016, notably the Minn Kota Riptide Ulterra power assist and auto stow and deploy saltwater trolling motor, Humminbird HELIX series of fishfinders with patented and Side Imaging sonar at an unbeatable price value, Old Town Predator fishing kayaks designed by anglers for anglers and Jetboil Genesis, our packable lightweight dual burner cooking system.

Importantly, performance this year reflects how critical sustained innovation is in our ability and capacity to deliver long-term profitable growth. Particularly in our fishing business which once again delivered record high sales and profits this year.

Our flagship Minn Kota and Humminbird brands exceeded expectations on every measure, building on a legacy of success through pioneering innovation which has strengthened our brand equities, improved shares and enhanced margin. And we have another exciting new fishing product lineup in 2017 which includes the revolutionary Minn Kota Ultrex trolling motor. The Ultrex is the first ever electric cable steer motor providing pedal control fishing enthusiasts our breakthrough steering and navigation features at the tap of a foot.

Our patent pending Ultrex is the most technologically advanced cable steering trolling motor ever, which was named the best boating accessory and awarded the coveted overall Best of Show at this year's ICAST, the world's largest and most prestigious fishing, trade and consumer show. Bringing the vision of Ultrex to market was a major technical achievement and big news for bass anglers who prefer foot pedal motor control to keep their hands free for fishing. This is a large fishing consumer audience who have been eager to have the edge over the fish that wireless connectivity out on the water provides.

Now for the first time they can have the Edge Minn Kota's pioneering i-Pilot and i-Pilot LINK gives fishing enthusiasts everywhere else. In Humminbird we are continuing to drive marketplace momentum with patented Side Imaging, the gold standard of sonar technology with the expanding HELIX series fishfinders. The new HELIX 10 with its ultra-bright screen clarity gave Humminbird its sixth consecutive Best of Electronics award at ICAST in August.

And in 2017 we made the best even better with Humminbird's exclusive MEGA Side Imaging and MEGA Down Imaging which launched fishfinding sonar technology into the megahertz range for the first time ever. The quantum leap in frequency provides the greatest underwater clarity, detail and definition available. Both will be available in new second-generation HELIX series from small to large screen models.

Fishing is our largest and most profitable business and we are investing to enhance and sustain our technology and market leadership. Innovation has also been central to the turnaround in our watercraft recreation business which is now on a positive profitable growth trajectory. Through in-depth consumer and market research we uncovered aha insights that have enabled us to make bigger waves in the kayak fishing segment with the Old Town Predator series of fishing boats.

In the last four years Old Town Predator fishing boats have captured three Best Boat honors at ICAST, the latest at this year's show for the Predator PDL, our first pedal-drive kayak for the fast-growing pedal kayak fishing segment. The patent pending Old Town Predator PDL offers a unique high ratio propeller drive system which was years in development because we set the bar higher to deliver the best pedal-fishing experience possible.

As a result, the PDL is the most comfortable easiest pedaling boat with the greatest maneuverability and stability for fishing or just for cruising around. We are pleased by the progress in this business. More work lies ahead to ensure we maximize our watercraft recreation brands, innovation and growth potential long term.

The same is true in our camping and hiking business where Jetboil has fired up the can cookware marketplace, delivering strong top-line and bottom-line growth to outpace the competition and gain share in a market that has doubled in size over the past two years. Jetboil has been a great addition to our camping portfolio. In addition to the obvious synergies and complementary distribution strengths with Eureka!, Jetboil's proprietary patented FluxRing technology and expertise has expanded our innovation horizon.

This year's new Genesis is the world's first base camp dual burner cooking system in one easy-to-carry travel bag. And true to its name, the Genesis signals the beginning of a new generation of outdoor cooking solutions to meet the changing wants and needs of a new generation of foodies who like to enjoy the great outdoors and great food at the same time.

At the same time we are repositioning the Eureka! brand against new emerging camp consumer targets and focusing innovation on products customized to meet their unique needs and wants. Eureka! is a heritage brand known by children and adults of all ages with a legacy in American camping that dates back more than 100 years. We feel good about our plans to build on that legacy to ensure an even stronger, better future for Eureka!

In 2017 negative external pressures on the global dive market intensified. Positive trends in North America and key Asia dive markets were eclipsed by the continued slide in Middle East sales and unfavorable currency exchange primarily out of Europe resulting in a disappointing year in diving. Diving has been one of our largest and most profitable units and we are taking action to turn the tide on performance going forward.

First, SCUBAPRO is the largest and most respected dive brand in the world and we haven't now consolidated all product offerings under the SCUBAPRO banner. This singular brand focus ensures we can fully leverage the power of SCUBAPRO brand equity to drive targeted share gain.

Second, identify evaluate and implement new, more effective go-to-market and distribution mounts. Third, innovate, innovate, innovate. Divers crave the latest and greatest and our top priority is delivering against that need better than the competition. SCUBAPRO's heritage is in core life-support products notably buoyancy compensators, or BCs, and underwater breathing regulators.

New for 2017 is what's been called a game changer, BC, the SCUBAPRO Hydros Pro. The Hydros Pro is a lightweight, comfortably molded to the body and grips to the wetsuit so it never slides under the water. It's convertible for either tropical or cold water diving and doesn't absorb water so it dries in minutes. Unveiled at DEMA just last month it's already been heralded as product of the year in Scuba News.

Also new in 2017 is the SCUBAPRO 620 TI regulator, a new ultra-light, ultra-easy breathing regulator. Our top priority is to deliver this same high level of innovation in the all-important dive computer segment which investments in new technology and enhanced technical capability. We are moving forward aggressively with urgency in diving and look to improve performance over time.

Looking ahead our long-term plan focuses on raising the bar in each business to ensure our brands are strong, our businesses are healthy and Johnson Outdoors continues to be thriving as a sustainable enterprise. Our three key strategic plan priorities are one, keeping our finger on the pulse of the consumer. Outdoor rec markets and consumers are dynamic and constantly changing which is why we are using an array of market research methods and analytical tools to stay on top of quickly evolving consumer trends, needs and expectations.

Consumer insights are innovation guideposts helping us identify the best targets and the best new product ideas with the greatest potential for success. Just as importantly, these insights shaper advertising promotions, displays and online presence so we are wholly in touch with and in sync with our target consumer.

A deeper, richer understanding of our consumer is critical to winning in our highly competitive marketplace. Nothing is more important.

Number two, revamping our innovation process. We are taking our new product development process to a world-class level to consistently deliver even bigger new product success, being more disciplined and more fact-based in our decision-making and involving consumers every step along the way from concept to commercialization and beyond. Innovation is our lifeblood, the key to our ability to deliver sustained, profitable growth.

Turning enhanced digital sophistication. For most consumers the purchase journey begins online. We are working to be more connected and better connected to build stronger, deeper relationships with consumers along that journey.

Across the board from website to social media to e-commerce and more we are transforming our consumers' experience with our brand and our Company. Over the next 18 months big changes are in store.

With planning and preliminary execution phases under our belt we are now moving forward with a heightened sense of urgency to quicken the pace of change in all three priority areas. Targeted strategic investments will continue over the next two years with the goal of delivering accelerated profitable growth in the future. We are very excited by the future we see for Johnson Outdoors and confident in our plans and ability to make it happen.

Now I will turn things over to Dave for comments and financial overview. Dave?

Thank you, Helen. For fiscal 2016 total Company net sales increased 1% versus the previous fiscal year. New products in Minn Kota, Humminbird, Jetboil and Old Town brands more than offset lower sales in dive equipment and military tents.

Foreign currency translation also had a slight unfavorable effect on net sales. We saw improved gross margins in every business. Year-over-year gross margins are up 0.8 points due to the combination of innovation, lower cost in certain segments and a strong mix of products.

The $312,000 decrease in operating expense was driven primarily by an improvement of approximately $9.9 million in net legal expense which was offset in part by $6.2 million of impairment charges on diving goodwill recognized in the third quarter of the current fiscal year. Due primarily to the fact that there was no tax benefit associated with the non-cash goodwill impairment charges in the third quarter our current year effective tax rate of 43% increased versus 33% last year. Cash flow from operations improved by over $25 million versus last year due to improved profitability and improved inventory balances.

Cash net of debt reached an all-time high of $79.9 million at year-end, an $18.2 million increase over the prior year-end. We ended 2016 with the balance sheet in great shape and the strong cash position needed to provide us the flexibility and resources necessary to invest strategically and growing our business while continuing to pay cash dividends to our shareholders.

Now I will turn the call back over to the operator for the Q&A session.

(Operator Instructions) George Kelly, Imperial Capital.

Hi guys. I have a couple of questions for you. First, if I could start with your order book.

You mentioned I think in the release and then on the call that you feel good you are seeing orders for some of your new products really start to pick up. Can you give any numbers behind what you are seeing, what the backlog is or what products in particular are driving that growth?

Well, I can tell you that as of September 30, we did have an increase in open orders versus prior year. It's hard to say what's going to happen through the season since we are just in pre-season mode right now. But our K is going to show an increase in open orders of about $7 million versus prior year.

Okay. And then you have data that tracks how things are selling at retail I believe. Can you say anything just about what you are seeing subsequent to the election or with Ultrex or anything since the quarter ended?

Yes, George, since it's our low season I'd hate to read too much into it. I think since the election there's a bit of optimism out there. But, again, we are just heading into our pre-season right now, so I think reports from the retailers are pretty good.

Great, great. And then another question on you mentioned that three main strategic priorities for the next several years, and I believe, Helen, that you said that there's digital sophistication and you expect a big change in the next 18 months or so. Can you give any more detail about will we start to see that in 2017?

Yes, our timetable has us, we are staggering the work we are doing across the businesses. In 2017 we have planned to get some of our new websites going and working. So you will see some surface during that time frame.

Okay. Then I guess last question, and I can hop back in the queue, but I haven't seen any acquisitions recently and your balance sheet and cash flow profile would certainly allow for it. Is that less of a strategic priority now or are you still, is there still a pipeline that you are looking at of potential acquisitions?

Well, we are always looking for strategic acquisitions. And I think I would say that it's just -- it will always be part of our strategy, but we are have a very defined universe and path for our businesses. And so we do evaluate quite a bit, but we are always looking and we are certainly in the position to do some and as the right acquisitions come about you will see us go after them.

Are there other uses? I know your dividend, but are there other more significant uses for your growing cash?

Yes, there's potential other uses. We talk about that very frequently about the balance sheet and how we ought to deploy that.

So right now we feel good about the dividend and as Helen talked about the acquisition path. But believe me, we are well aware of the fact that we've got a lot of flexibility there.

Okay, thank you.

(Operator Instructions) I am showing no further questions at this time. I'd like to hand the call back over to Helen for any closing remarks.

Okay, I just want to thank everyone for joining us. If you have any questions you can call Dave or Pat. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program.

You may all disconnect. Everyone have a great day.