Johnson Outdoors - Earnings Call - Q4 2025

Transcript

Operator (participant)

Hello everyone, and welcome to the Johnson Outdoors Fourth 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, 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 the number 11 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 call. I will now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Patricia Penman (CMO)

Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2025 fiscal fourth 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 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 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. Thank you for joining us. I'll begin by sharing perspective on our fiscal 2025 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. After a slow start to the beginning of the year, new product successes drove double-digit growth in the second half of the year, resulting in a solid finish to fiscal 2025. Total company sales for the full fiscal year were flat compared to the prior year. Although we still have a lot of work to do to get our profitability where it needs to be, our operating loss of $16.2 million improved compared to fiscal 2024. While the marketplace is still uncertain, we feel good about the momentum we're seeing and the execution of our plans to accelerate the growth of our business and brands.

In fishing, demand exceeded expectations for Humminbird's new Explore series and MEGA Live 2 fish finders. In addition to Explore winning Best in category, Marine Electronics honors at ICAST this summer, we were also honored to recently receive the Angler’s Choice Award. This is a meaningful award because consumers themselves directly vote for their favorite new fishing product. As always, we're focused on finding out what anglers want and need, and then turning those insights into cutting-edge technology to give them the best fishing experiences possible. We will continue to invest in being an innovation leader to drive future growth. In our camping and watercraft business, sales declined for fiscal 2025, driven primarily by the closeout of Eureka inventory in 2024 after we exited that brand. Excluding the impact of Eureka sales in the prior year, this segment grew by 2%.

Demand for Jetboil's new fast boil cooking systems continued to outpace expectations, and Old Town's fishing kayak line is doing well in a watercraft marketplace that overall is still struggling. Both Old Town and Jetboil remain strong leaders in their markets, and we are committed to the long-term opportunity in these two brands. In diving, sales were up for the fiscal year due to modest improvements in certain regional markets. While we continued to work on integrating the acquisition of a longtime supplier during the fiscal year, we also focused our efforts on innovation. Recently, SCUBAPRO launched the new Hydros Pro 2, a buoyancy control device built for ultimate performance in all dive conditions. Hydros Pro 2 builds on the award-winning legacy of our original Hydros Pro, and we've seen great reception so far, with lots of enthusiasm at DEMA, the world's largest scuba diving trade show.

We look forward to shipping Hydros Pro 2 beginning this month. Along with diving innovation in all business segments, we've focused on strengthening our digital and e-commerce capabilities. Our goal is simple: make our products easy to find wherever consumers choose to shop. The landscape keeps changing, but our efforts to expand our digital footprint are already fueling growth, and we're excited about the progress. Digital and e-commerce continue to be an area of opportunity, and we're committed to building on that momentum. Finally, our cost savings program remains a priority company-wide, and we continue to work on driving optimal product costs and enhancing operating efficiencies. Cost savings will continue to be a key priority in fiscal 2026. Overall, we're pleased with the solid finish to our fiscal year.

While it's still too early to tell if the outdoor recreation marketplace has turned the corner, we do expect global macroeconomic challenges to continue to drive uncertainties, and our strategic priorities remain more important than ever. Heading into fiscal 2026, we feel confident that our ongoing investment into consumer-driven innovation and digital and e-commerce excellence, along with our continued hard work on operational efficiencies, are the right drivers to position Johnson Outdoors for future success. Now I'll turn the call over to Dave for more details on financials.

David Johnson (VP and CFO)

Thank you, Helen. Good morning, everyone. Loss before income taxes for 2025 was $9.3 million compared to a pre-tax loss of $29.9 million in fiscal 2024, with the improvement mainly due to the $11.2 million write-off of Goodwill in the prior year, as well as an increase in gross margin and decrease in operating expenses versus the prior year. In fiscal 2025, we saw a tax expense of $25 million compared to a tax benefit of $3.3 million in the prior year. The current year expense was driven by a $25.9 million non-cash reserve on U.S. deferred tax assets. This reserve reflects the company's assessment of the realizability of those assets in light of recent operating losses and may be released in future periods when profitability improves. Gross margin for the fiscal 25 improved to 35.1%, up 1.2 points from the prior year.

We're pleased with our progress on cost savings initiatives, which offset increases in material costs. Overhead absorption from higher volumes and reduced inventory reserves added to the improvement in gross margin. Operating expenses decreased by 8%, or $20.2 million from the prior fiscal year. Key drivers of the expense change were the write-off of the Goodwill in the prior year, a decrease in promotional spending versus the prior year period, and lower deferred compensation costs between years. For the third year in a row, we were able to drive positive cash flow from operations. We continued to make progress on our inventory levels in fiscal 2025, which was one of the drivers of positive cash flow. Our inventory balance at the end of the year was $170.7 million, down about $39 million from fiscal 2024.

Regarding tariffs, we've made progress on our mitigation strategies and will continue to make adjustments as the tariff situation evolves. Our balance sheet remains debt-free. We have a healthy cash position, and 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)

Please 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 Lebedinsky from Sidoti.

Anthony Lebiedzinski (Analyst)

Good morning, everyone, and thank you for taking the questions. Certainly great to see the strong year-over-year sales gain in the fourth quarter, along with the gross margin improvements. So as we think about the fourth quarter revenue gain, correct me if I'm wrong, but I think it was mostly volume-driven. Just wondering if you have seen this momentum continue into early fiscal 2026?

Helen Johnson-Leipold (Chairman and CEO)

You know, we were really excited about what happened in the third and fourth quarter, and every month things grew, and the markets looked better than they have. We don't give too much forward-looking statements, but I would say, you know, so far, at least it's just very early in the year, but the market momentum is continuing as far as we can see. But there's no, you know, we're not ready to say the market has turned a corner. This is our sell-in period, and you know, time will tell, but the season, hopefully it will be a very good season. So right now, you know, knock on wood, things look pretty good.

Anthony Lebiedzinski (Analyst)

That's great to hear. Okay, so it sounds like you are seeing some green shoots, I guess. Yeah, I know you've put in a lot of focus on product innovation, and I know you highlighted a few products that did very well for you. Just wondering about the pipeline coming up for 2026. You know, I know you don't want to share specifics given competitive reasons, but anything you can just talk at a high level as far as a new product pipeline for next year?

Helen Johnson-Leipold (Chairman and CEO)

Yeah, we did, yeah. Diving, we talked about our new buoyancy compensator, and you know, we've still got momentum in fishing from the launches that we had this past year, and you know, launches are over more than one year, so we feel good about the momentum. We're focused on building the pipeline across every business. You know, and again, at Jetboil had positive results for their innovation, and that will continue into this season, so you know, innovation is our key priority, and we will always focus on that, and it's critical during the time when it's so competitive out there and consumers are a little bit price sensitive. It's all about innovation, so that is a key focus, and we feel good about that. It's one of our key priorities.

Anthony Lebiedzinski (Analyst)

Gotcha. Okay, yeah, thanks for that. And then, you know, as it relates to the tariffs, I know, Dave, you touched on this a little bit, but I think you guys did take some pricing actions a little bit in July, I think more so in October. If you could just comment on the extent of that and what's been the reception from the retail partners that you work with?

David Johnson (VP and CFO)

Yeah, we did take pricing, you know, where it made sense. We were very strategic about what we wanted to do there. And so far, it's been okay. I mean, the retailers understand, our trade partners understand it. It hasn't affected the business right now. And as Helen alluded to, we're pre-season right now, so it will be up to the consumer when those are to the shelves and make their decisions. But so far, so good.

Anthony Lebiedzinski (Analyst)

Okay, that's good to hear. And then with the work that you've done on improving your operational efficiencies and enhancing your manufacturing processes, is there a way you can perhaps put a number on that in terms of how much it helps your gross margin? And do you think there are more opportunities to further expand on that?

David Johnson (VP and CFO)

Yeah, I mean, we felt really good about the progress we made this year, and it was over a point of gross margin that we drove to the bottom line through the efforts. And we've got a full portfolio of cost savings initiatives going into fiscal 2026. So we're going to continue the efforts. It's across the board. And you know, that will be critical again to, you know, help manage the tariff situation and help manage the competitive environment.

Anthony Lebiedzinski (Analyst)

Gotcha. Got it. All right. And then I guess lastly for me, I know the tax rate was impacted by the deferred tax valuation, but just kind of going forward here, how do we think about the effective tax rate for fiscal 2026?

David Johnson (VP and CFO)

Yeah, I mean, with the reserve in place, you know, we would expect the tax rate going forward to be normal, you know, in a more normal range, you know, so mid to high 20s, something like that. So yeah, going forward, we would expect that.

Anthony Lebiedzinski (Analyst)

Got it. Understood. Well, thank you very much and best of luck and happy holidays to all.

Helen Johnson-Leipold (Chairman and CEO)

Thank you.

David Johnson (VP and CFO)

Thank you.

Operator (participant)

At this time, I would now like to turn the conference back over to Helen Johnson-Leipold for closing remarks.

Helen Johnson-Leipold (Chairman and CEO)

Thank you for joining us today, and I hope everybody has a happy holiday season. Have a good day.

Operator (participant)

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