Johnson Outdoors - Q3 2024

Transcript

Operator (participant)

Hello everyone, and welcome to the Johnson Outdoors Third Quarter 2024 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 this time, please press star 11 on your telephone keypad. This call is being recorded. Your participation implies consent to our recording this call. If you do not agree with these terms, simply drop off the line. I'll now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Patricia Penman (Head of Investor Relations)

Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2024 fiscal third 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 additional 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)

Thanks, Pat. Good morning, everyone, and thank you for joining us. I'll begin by addressing our results and giving perspective on our performance, and then I'll share the outlook for the business. Dave will provide more detailed financial review, and then we'll take your questions. Sales in our third fiscal quarter, ending June 2024, declined 8% to $172.5 million, compared to $187 million in the prior year third quarter. Year to date, company sales decreased 14% over last year's fiscal nine-month period. The company reported an operating loss of approximately $500,000 for the third quarter, compared to an operating profit of $17.4 million in prior year third quarter. For the year-to-date period, total company operating loss declined to approximately $700,000, compared to an operating profit of $34.3 million for the prior year-to-date period.

Net income for the third quarter was $1.6 million, or $0.16 per diluted share, versus $14.8 million, or $1.44 diluted share in the previous year's third quarter. Net income during the fiscal nine-month period was $7.7 million, or $0.75 per diluted share, versus $35.5 million, or $3.47 per diluted share in the prior fiscal year-to-date period. Continued tough marketplace conditions significantly impacted our results for the quarter. Consumer demand for outdoor recreation products remained depressed across all of our categories through the peak season. The down market and soft demand required us to significantly increase our investment in promotional activity. As we continue to operate in this challenging environment, we do believe the outdoor recreation marketplace is resilient and attractive over the long term, and that our brands will be well-positioned once conditions start to even out.

We've been evaluating all aspects of the business to improve our financial results, as well as working to redeploy resources to enable growth for the future. Improving profitability and strengthening our business operations remains a critical focus area. We've been working hard to reduce inventory to more normal levels, although progress has been limited by the lower consumer demand. We are expanding our cost-savings actions and evaluating our cost structure for additional efficiency opportunities. While we have seen some progress from these efforts, we have a lot more work to do to boost our margins and improve our financial performance. As we work to reduce costs and increase efficiency where possible, we will invest in mission-critical initiatives to drive growth, including innovation, digital, and e-commerce capabilities.

Innovation has always been key to our success and continues to be the imperative to winning in an outdoor recreation marketplace that has been changing at a rapid pace. Creating consumer-focused products and technology that deliver the best outdoor experience as possible across all of our categories is a strategic priority, and we are working on a pipeline of new products to drive success. Enhancing our digital and e-commerce capability is one key priority as our online presence provides key consumer touchpoints for our brands, from product research to purchase to post-purchase support. Our investment in e-commerce and digital sophistication is important to the future of all of our brands and businesses. We are confident this will be a meaningful contributor to accelerating our growth and profitability.

While this fiscal year is challenging, we are working hard to improve our financial performance and are committed to investing in revenue and operating initiatives that will position our brands for long-term growth. We feel good about the long-term opportunity of the business, and we are confident that we'll see benefits from these investments in the future. 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. I wanted to highlight a few items from the quarter. Profits in the third quarter were impacted by lower sales volumes, as well as ongoing investment and promotional activity. While we're gaining efficiency benefits and cost savings in our operations, this was offset by lower overhead absorption and product mix. Operating expenses increased 4%, or $2.2 million versus the prior year quarter, due primarily to increased advertising and promotional spending, partially offset by lower sales volumes between quarters. As Helen mentioned, we are expanding our cost savings efforts across all aspects of the business, as it's critical that we improve our financial profile. We'll update you on our progress next quarter. We've been working hard to reduce our inventory back to more normal levels, although lower consumer demand has hindered progress.

Our inventory balance as of June was $223 million, down about $12 million from last year's June quarter, and down $26 million from March. We expect some inventory reductions to the balance of the fiscal year. Our balance sheet continues to have no debt, and our cash position enables us to invest in opportunities to strengthen the business. We remain confident in our ability to deliver long-term value and consistently pay out cash dividends to our shareholders. Now I'll turn the call over to the operator for the Q&A session. Operator.

Operator (participant)

Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Anthony Lebiedzinski. Your line is now open.

Anthony Lebiedzinski (Analyst)

Good morning, and thank you for taking the questions. So, Dave, I know you touched on the lower sales volumes impacting the quarter. Can you also comment about pricing, whether that was a factor in the quarterly sales decline?

David Johnson (VP and CFO)

In that, not really. We've done some discounting in the marketplace. So, any price increases we've taken have been offset by the discounting we've done to shore up our position in the marketplace.

Anthony Lebiedzinski (Analyst)

Understood. Okay. What was the impact of increased advertising spending and promotional activity for operating expenses?

David Johnson (VP and CFO)

Yeah, I've got that number. For the quarter, ad and promo increased about $4.5 million versus last year's quarter.

Anthony Lebiedzinski (Analyst)

Okay. Gotcha. Okay. That's helpful. Okay. Okay. And then as far as inventory levels at retail, what is your sense of that as far as what's going on there? Are you seeing also just retailers being more careful with replenishments? How should we think about that?

Helen Johnson-Leipold (Chairman and CEO)

I think the retail inventory situation is getting better, but we still see our retailers being very conservative on the purchasing end of things and trying to maintain a pretty conservative level of inventory going forward.

Anthony Lebiedzinski (Analyst)

Understood. Okay. Then can you also just talk a little bit more about the cost savings actions that you have taken so far? What was the impact of that in the June quarter? What else are you planning to do in terms of cost efficiencies?

David Johnson (VP and CFO)

Yeah. I mean, the focus historically over this year has been on the factories and the operations and getting efficiencies out of that. And that's borne some fruit for us. It's been good. It has helped offset some of the absorption issues we're seeing with the lower volume. So in that, it's been successful for us. But we're going to look everywhere going forward, and we're going to try to find more efficiencies and try to drive that margin even further, kind of across the board, while we continue to invest in what's important for us.

Anthony Lebiedzinski (Analyst)

Okay. Thanks. That sounds good. And then I guess last question here for me is you've talked about the investing in revenue and profit-generating activities. I know you've always had a strong focus on innovation. It sounds like you do have some things in the pipeline as far as new products. Can you give us any sense of that as to what I know for competitive reasons, I'm sure you don't want to discuss too many details, but can you just kind of talk about maybe as far as the magnitude of new product introductions? Is that greater than what you've seen recently, or maybe other things that you're looking to do to drive the top line to be in better shape in fiscal 2025?

Helen Johnson-Leipold (Chairman and CEO)

We don't give details, obviously, on the future related to new products, but the whole area of innovation has been a key focus and is really our lever to differentiate ourselves. I think the market has changed. It's positive, I think, because the consumer has got some different needs and different motivations, which opens up the door for innovation. So all I can say is that's been our key to leadership in the past, and it's going to be our key going forward. And we feel good about the long term and feel good about our ability to understand the consumer and to be there with the right new products.

Anthony Lebiedzinski (Analyst)

Gotcha. Okay. Well, thank you very much, and best of luck.

Helen Johnson-Leipold (Chairman and CEO)

Okay. Thank you.

Operator (participant)

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

Helen Johnson-Leipold (Chairman and CEO)

Thank you for joining us today. I hope everybody has a great rest of the day. Thank you.

Operator (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.