Johnson Outdoors - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered a slight beat to Wall Street consensus: revenue $168.35M vs $168.05M estimate and diluted EPS $0.22 vs $0.21 estimate; gross margin held at 35.0% despite discounting, aided by cost savings initiatives (1–2 pts). EPS and revenue beats vs consensus are modest but constructive in a cautious retail environment; both had a single estimate providing limited signal strength (Primary EPS - # of Estimates=1; Revenue - # of Estimates=1)*.
• Mix was mixed across segments: Fishing down 3% YoY to $134.9M but delivered higher operating profit ($9.5M), Camping & Watercraft down 12% with Jetboil growth offsetting watercraft declines and Eureka! exit, Diving down 7% on broad demand softness.
• Operating profit improved to $4.9M from a $(0.3)M loss YoY; inventory fell to $180.1M (down ~$69M YoY), and cash/short-term investments were $94.0M; management emphasized a debt-free balance sheet and continued dividend ($0.33 Class A/$0.30 Class B).
• Management flagged tariffs as a meaningful near-term headwind; mitigation actions include supply chain adjustments, operational efficiencies, and selective pricing; tax rate was unusually high in Q2 due to European audit accruals, a one-off item.
• Near-term stock narrative catalysts: continued sell-through of new Humminbird (MEGA Live 2, Xplore) and Jetboil products, ongoing inventory normalization and cost savings, vs. tariff uncertainty and macro-pressured Diving and Watercraft markets.

What Went Well and What Went Wrong

What Went Well

• New product momentum: “MEGA Live 2 and Xplore… demand has been exceeding expectations” in Fishing; Jetboil launched next-level Fast Boil systems with orders outpacing expectations.
• Profitability inflection: operating profit of $4.9M vs $(0.25)M YoY; gross margin stable at 35.0% with cost savings offsetting discounting; OpEx down $7.7M YoY.
• Working capital progress: inventory at $180M, down ~$69M YoY, and strong cash position; management reiterated debt-free balance sheet and confidence in long-term value creation.

What Went Wrong

• Top-line pressure: total net sales down 4% YoY to $168.3M; Fishing (-3%), Camping & Watercraft (-12%), Diving (-7%); macro and cautious retail/trade cited.
• Elevated tax rate: Q2 effective tax rate 44.6% vs 28.4% YoY; CFO cited European audit accrual and jurisdictional mix as drivers of the quarterly spike.
• Tariff overhang: management expects tariffs to impact the business given imported components; mitigation in progress but outlook remains challenged for the season.

Transcript

Operator (participant)

Hello everyone, and welcome to the Johnson Outdoors second Quarter 2025 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. If you would like to ask a question during that time, please press star, then 1-1 on your telephone keypad. 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 Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Patricia Penman (CMO)

Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2025 fiscal second quarter. If you need a copy of today's news release, it is available on our website at JohnsonOutdoors.com under Investor Relations. I also need to remind you that this conference call may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have any questions following the call, please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen Johnson-Leipold (Chairman and CEO)

Good morning, everyone. Thank you for joining us. I'll begin by sharing perspective on our second quarter performance, as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll take your questions. Our second quarter results reflect continued market challenges and a cautious retail and trade environment. Despite these results, there are pockets of good news with inroads we are making on our strategic priorities and the necessary changes we have been making for future growth. We saw positive results from new products in our fishing and camping businesses, highlighting the critical importance of our ongoing investment in innovation. In fishing, our Humminbird brand launched new technology in the first quarter, MegaLive 2 and Explore. In our second quarter, we started shipping those products, and demand has been exceeding expectations.

We are excited about this momentum as we continue to work hard to give anglers the best fishing experiences possible. That includes tournament fishing experiences. We're thrilled that Easton Fothergill, Minn Kota, and Humminbird sponsored pro bass angler using our equipment was a champion of this year's prestigious Bassmaster Classic tournament. In our camping and watercraft business, our JetBoil brand launched the next level of fast boil systems with features building on the lightning fast boil times and fuel efficiencies that the brand is known for. There is enthusiasm among both retailers and consumers for these new products, and orders are outpacing expectations. Our Old Town brand continues to be a strong leader in a very depressed market. During the second quarter, Old Town launched five new watercraft editions.

This significant launch, which extends our popular sportsman line, also gets us into new recreational categories with our ocean line. These new editions are equipped with pedal or electric propulsion, aimed at giving the best experiences possible on the water for recreational enthusiasts and avid anglers. I am excited to share another win from this year's Bassmaster Classic. Old Town-sponsored kayak angler Wyatt Hamman won the tournament using a sportsman autopilot kayak equipped with both the Minn Kota motor and Humminbird MegaLive technology. Our diving business continues to face a challenging marketplace, very impacted by global economic uncertainties and consumer travel, and we continue to look for ways to drive more operational efficiencies in that business.

As I shared last quarter, we have purchased a company that has been a longtime supplier for our Scubapro brand and is both the catalyst for future Scubapro innovation and a vertical integration that gives us more efficiency and allows us to accelerate our efforts in simplifying this business. Finally, regarding tariffs, they will impact our business despite the fact that we are an American company with U.S.-based manufacturing and operations. Although the current environment remains dynamic, we are focused on multiple strategies to mitigate the potential impact on our business. That includes adjusting our supply chain strategy, looking for operational efficiencies, and considering potential adjustments to our pricing strategy. We are also prioritizing our efforts to focus on products that have the most value for our consumers.

While the tariff situation continues to evolve, and while we get more clarity, we will identify additional solutions that address the changing environment. As we navigate current and future challenges, our debt-free balance sheet and cash position will help us remain resilient, and we will continue to invest and execute on our strategic priorities, innovation, operational efficiency, and e-commerce. We are confident these are the right things to position us for future healthy, profitable growth. Now I'll turn the call over to Dave for more details on the financials.

David Johnson (VP and CFO)

Thank you, Helen. Good morning, everyone. Gross margin in the second quarter was 35%, up slightly from last year's quarter. Our cost savings efforts have helped shore up our gross margin despite continued pricing discounting in the marketplace. Operating expenses decreased $7.7 million versus the prior year's second quarter, and excluding the $3.4 million decrease from the deferred compensation plan valuation, expenses are down $4.3 million. Lower volume-related expenses and decreased promotion expenses contributed to that decline. Inventory levels continue to show good progress. Our inventory balance as of March was $180 million, down about $69 million from last year's second quarter, and was down from our fiscal year end. We'll remain diligent in managing our inventories given the uncertain macro environment. Our cost savings program remains critical in this environment, and we're committed to driving optimal product costs and enhancing operating efficiency across the company.

Finally, I want to reiterate what Helen said. Our balance sheet remains debt-free, and we have a solid cash position, both of which provide a competitive advantage in uncertain times. We remain confident in our ability and plans to create long-term value for shareholders. Now I'll turn the call over to the operator for the Q&A session.

Operator (participant)

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. Our first question comes from Anthony Lebiedzinski of Sidoti. Your line is open.

Anthony Lebiedzinski (Senior Equity Analyst)

Thank you, and good morning, everyone. Yeah, thanks for taking the questions. Certainly great to see the progress with the inventory reductions, and great to hear also about the success of the new products. I guess, first, how does the pipeline look like for new products without you guys sharing too much of the secret sauce? Just wondering, how do we think about the new product introductions in the upcoming quarters?

Helen Johnson-Leipold (Chairman and CEO)

We launched for this season, and we have launched the new products for both fishing and camping, and so far they're beating expectations. We feel good about that. Watercraft has also launched a significant line of new products, which we are hoping to see those results be positive as well. We keep pushing on innovation, and that's one of our strategic priorities. Right now, we're working on the longer-term innovation that will hopefully continue into next year's hope. We've always said innovation breaks through a tough market, so that's always a priority for us.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay, thank you. Given what's happening here in the world as far as just dealing with tariffs and consumer confidence, kind of where it is, just understanding that you guys have a seasonal business, I am just wondering if you guys could talk about the trends during the quarter, whether there were big changes from January to March. Maybe if you look at it on a year-over-year basis, I know for the quarter, your sales were down about, what, 4%. I am just wondering if there were significant changes, variability on a year-over-year basis as you progressed through the quarter, given what's happening in the world out there.

Helen Johnson-Leipold (Chairman and CEO)

Dave, you can pipe in too. I would say it's been pretty consistent of a tough environment, and it's both from the consumer sentiment and from the retailer hesitation. Can you hear me, Anthony?

Anthony Lebiedzinski (Senior Equity Analyst)

Yes.

Helen Johnson-Leipold (Chairman and CEO)

I'm trying to.

Anthony Lebiedzinski (Senior Equity Analyst)

I can hear you. Hello?

Operator (participant)

Please remain on the line. Your conference will resume shortly. Again, please remain on the line. Your conference will resume shortly.

Anthony Lebiedzinski (Senior Equity Analyst)

Can anybody hear me?

Operator (participant)

Yes, they're going to reconnect.

Anthony Lebiedzinski (Senior Equity Analyst)

Okay.

Operator (participant)

Please stand by.

Anthony Lebiedzinski (Senior Equity Analyst)

Thank you.

Operator (participant)

Again, please remain on the line. Your conference will resume shortly. Again, please remain on the line. Your conference will resume shortly. I see that you've rejoined.

Helen Johnson-Leipold (Chairman and CEO)

Hello. Yep, we're here.

Operator (participant)

You may proceed.

Helen Johnson-Leipold (Chairman and CEO)

Sorry, Anthony, I think we had a little technical problem, but your question was on trends this year versus what we've seen versus last year. All I can say, it's still, from a market standpoint, it's tough, but we do have new products that we are launching that we didn't have last year. Again, we're hoping that those will deliver some positive results during the rest of the season.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay. Yeah. Thanks, Helen. Okay. Just wondering, since the new tariffs were announced on April 2, obviously, there's been some back and forth, some changes. Just wondering if you've seen any notable change since then in terms of your ordering patterns from retailers, what's been the response? Curious to get your at least high-level thoughts on that.

David Johnson (VP and CFO)

Yeah. I mean, it's still early for us in terms of retailer reaction, I'd say. I mean, we came in with the quarter with a good plan in place, and I think the reaction will be the rest of the year. We haven't seen initially a big pullback from retailers. As Helen alluded to, I think the marketplace is going to be challenged for the balance of the season.

Anthony Lebiedzinski (Senior Equity Analyst)

Thanks, Dave. Just thinking about the impact of tariffs, maybe first, if you could address how much you guys have exposure to China, which is getting hit the hardest in terms of the tariff rates. Just how do we think about the response from you, whether I know you guys talked about potential pricing actions, so it sounds like those have not yet been implemented. Maybe walk us through your China and other countries' exposure, just rough estimates, and then how do you respond to that? I would love to hear your thoughts on that.

David Johnson (VP and CFO)

Sure. I mean, as you know, we manufacture and assemble almost all of our products in the United States, which is great. I mean, we're very proud of that. I mean, we do import a fair amount of product from China, electronic components and other raw materials from China and Southeast Asia. We do have exposure. I mean, it's real. It's there. We are now working—we've been working a few months on mitigation strategies, and we talked about that already. Everything's on the table for us. We're looking at supply chain, getting more efficiencies, pricing where it makes sense. Everything's on the table for us to mitigate, and we're very, very focused on that.

Anthony Lebiedzinski (Senior Equity Analyst)

Thanks, Dave. Okay. Just following up as far as the quarter that you reported, part of the gross margin puts and takes were the, I guess, on the negative side, the discounting, on the positive side, the cost savings program. Can you provide any more details as to how much you suffer from those things? Just wanted to understand the magnitude of that, especially this cost savings program, and whether there's still more to be realized from the cost savings as we look towards the key summer months here.

David Johnson (VP and CFO)

Yeah. I think I said before that we were looking at cost savings between one and two points of benefit for us as we came into this year, and that's consistent with the quarter. That helped offset some discounting that we did in the quarter kind of across the board there. That's kind of the magnitude we're looking at. Importantly, we're looking at expanding that cost savings. It's a critical piece of what we're trying to do going forward.

Anthony Lebiedzinski (Senior Equity Analyst)

Gotcha. Okay. Do you think it could be more than that, one to two points of gross margin when you're done with this cost savings program?

David Johnson (VP and CFO)

The savings program is going to—it's a medium-term and longer-term program. I can't give you any guidance more than what I've already said. Yeah, we hope to get more.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay. Okay. Lastly, for me, it looks like the tax rate in the quarter was unusually high. Can you comment on what happened there and what is your outlook for the fiscal year?

David Johnson (VP and CFO)

Yeah. I mean, there's a couple of things happening. One is we've got income and expense in different jurisdictions, and when you kind of get down to a smaller number, the rate kind of looks wonky. We also had an accrual from some tax audits in Europe that we took in the quarter that affected that quarterly tax rate. That's kind of a one-off thing. Given what's happening with everything in the macro environment, I'm even hesitant to tell you what the full year is going to look like. We'll be managing it pretty carefully.

Anthony Lebiedzinski (Senior Equity Analyst)

Understood. Okay. Thank you very much and best of luck dealing with this crazy world here.

David Johnson (VP and CFO)

Thanks, Anthony.

Helen Johnson-Leipold (Chairman and CEO)

Thank you.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'd like to turn it back to Helen Johnson-Leipold for closing remarks.

Helen Johnson-Leipold (Chairman and CEO)

Thank you for joining us today, and I hope everyone has a very good day. Thank you.

Operator (participant)

This concludes today's conference call. Thank you for participating, and you may now disconnect.