JOHNSON OUTDOORS INC.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") includes comments and analysis relating to the results of
operations and financial condition of Johnson Outdoors Inc. and its subsidiaries
(collectively, the "Company") as of and for the three and six month periods
ended March 31, 2023 and April 1, 2022 . All monetary amounts, other than share
and per share amounts, are stated in thousands.
Our MD&A is presented in the following sections:
•Forward Looking Statements •Trademarks •Overview •Results of Operations •Liquidity and Financial Condition •Contractual Obligations and Off Balance Sheet Arrangements •Critical Accounting Policies and Estimates This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes that immediately precede this section, as well as the Company's Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2022 which was filed with theSecurities and Exchange Commission onDecember 9, 2022 . Forward Looking Statements Certain matters discussed in this Form 10-Q are "forward-looking statements," and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company "expects," "believes," "anticipates," "intends," use of words such as "confident," "could," "may," "planned," "potential," "should," "will," "would" or the negative of such words or other words of similar meaning. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include the matters described under the caption "Risk Factors" in Item 1A of the Company's Form 10-K which was filed with theSecurities and Exchange Commission onDecember 9, 2022 and the following: changes in economic conditions, consumer confidence levels and discretionary spending patterns in key markets; uncertainties stemming from political instability (and its impact on the economies in jurisdictions where the Company has operations); uncertainties stemming from changes inU.S. trade policies, tariffs, and the reaction of other countries to such changes; the global outbreaks of disease, such as the COVID-19 pandemic which has affected, and may continue to affect, market and economic conditions, along with wide-ranging impacts on employees, customers and various aspects of our operations; the Company's success in implementing its strategic plan, including its targeted sales growth platforms, innovation focus and its increasing digital presence; litigation costs related to actions of and disputes with third parties, including competitors; the Company's continued success in its working capital management and cost-structure reductions; the Company's success in integrating strategic acquisitions; the risk of future writedowns of goodwill or other long-lived assets; the ability of the Company's customers to meet payment obligations; the impact of actions of the Company's competitors with respect to product development or enhancement or the introduction of new products into the Company's markets; movements in foreign currencies, interest rates or commodity costs; fluctuations in the prices of raw materials or the availability of raw materials or components used by the Company; any disruptions in the Company's supply chain as a result of material fluctuations in the Company's order volumes and requirements for raw materials and other components, or the demand for those same raw - 18 - -------------------------------------------------------------------------------- IndexJOHNSON OUTDOORS INC. materials and components by third parties, necessary to manufacture and produce the Company's products including related to shortages in procuring necessary raw materials and components to manufacture and produce such products; the success of the Company's suppliers and customers and the impact of any consolidation in the industries of the Company's suppliers and customers; the ability of the Company to deploy its capital successfully; unanticipated outcomes related to outsourcing certain manufacturing processes; unanticipated outcomes related to litigation matters; and adverse weather conditions and other factors impacting climate change legislation. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this filing. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.
Trademarks
We have registered the following trademarks, among others, which may be used in this report: Minn Kota®, Cannon®, Humminbird®, Eureka!®, Jetboil®, Old Town®, Ocean Kayak®, Carlisle®, and SCUBAPRO®.
Overview
The Company is a leading global manufacturer and marketer of branded seasonal outdoor recreation products used primarily for fishing, diving, paddling and camping. The Company's portfolio of well-known consumer brands has attained leading market positions due to continuous innovation, marketing excellence, product performance and quality. The Company's values and culture support innovation in all areas, promoting and leveraging best practices and synergies within and across its subsidiaries to advance the Company's strategic vision set by executive management and approved by the Company's Board of Directors. The Company is controlled byHelen P. Johnson-Leipold , the Company's Chairman and Chief Executive Officer, members of her family and related entities.
Coronavirus (COVID-19)
The COVID-19 pandemic drove consumer desire to engage in socially distant and safe activities outdoors. As a result, increased participation in outdoor recreation also increased demand for our products across many of our Company segments. During the first two quarters of fiscal 2023, however, demand in certain of our segments has substantially declined from the pandemic-driven market levels in prior periods. Moreover, in addition to impacting demand for Company products, COVID-19 and the resulting macroeconomic dynamics also caused widely-documented supply chain and logistics disruptions across industries, as well as inflationary pressures (especially as it relates to raw material and purchased component prices). These factors have impacted the timing, sourcing, availability and cost of raw materials and components that are necessary to manufacture our products, all of which adversely impacted our margins and inventory levels during fiscal 2022. During the first half of fiscal 2023, the Company saw improvement in the availability of certain components necessary to complete finished products and converted a significant portion of its raw material inventory to finished goods available for shipping. Highlights Net sales of$202,115 for the second quarter of fiscal 2023 increased$12,492 , or 7%, from the same period in the prior year. While sales increased overall, higher operating expenses drove a$4,039 decrease in operating profit over the prior year quarter. During the second fiscal quarter of 2023, the Company sold the Military and Commercial Tents product lines of its Camping business segment to a third party in an asset sale for a purchase price of$14,990,000 which closed onMarch 17, 2023 . The net book value of the assets and liabilities sold was approximately$8,350,000 , resulting in a gain on sale of approximately$6,640,000 , which is recorded in Other (income) expense, net in the Company's accompanying Condensed Consolidated Statements of Operations. The purchase price and the net proceeds received by the Company related to this sale are subject to customary purchase price adjustment provisions and Company indemnity obligations set forth in the definitive purchase agreement.
Seasonality
The Company's business is seasonal in nature. The second fiscal quarter
traditionally falls within the Company's primary selling season for its
warm-weather outdoor recreation products. The table below sets forth a
historical view of the Company's seasonality during the last three fiscal years.
Due to the timing of the COVID-19 outbreak, the Company's traditional seasonal
sales pacing, where our heaviest sales volumes typically occurred during our
second and third fiscal quarters, shifted during fiscal 2020. See "Coronavirus
(COVID-19)" above for additional information regarding the impact of COVID-19.
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Index JOHNSON OUTDOORS INC.
Fiscal Year
2022 2021 2020
Net Operating Net Operating Net Operating
Quarter Ended Sales Profit Sales Profit Sales Profit
December 21 % 21 % 22 % 22 % 22 % 10 %
March 26 % 23 % 27 % 32 % 27 % 45 %
June 27 % 36 % 29 % 34 % 23 % 17 %
September 26 % 20 % 22 % 12 % 28 % 28 %
100 % 100 % 100 % 100 % 100 % 100 %
Results of Operations
The Company's net sales and operating profit (loss) by business segment for the periods shown below were as follows:
Three Months Ended Six Months Ended
March 31, 2023 April 1, 2022 March 31, 2023 April 1, 2022
Net sales:
Fishing $ 155,341 $ 129,323 $ 293,382 $ 237,679
Camping 13,725 19,167 25,338 33,301
Watercraft Recreation 12,890 23,009 22,548 37,609
Diving 20,308 18,194 39,367 34,685
Other / Corporate / Eliminations (149) (70) (183) (127)
Total $ 202,115 $ 189,623 $ 380,452 $ 343,147
Operating profit (loss):
Fishing $ 17,121 $ 11,321 $ 32,693 $ 27,613
Camping 2,071 5,119 2,824 7,869
Watercraft Recreation 569 3,164 154 4,695
Diving 1,444 1,209 1,457 1,662
Other / Corporate / Eliminations (9,815) (5,384) (20,266) (12,650)
Total $ 11,390 $ 15,429 $ 16,862 $ 29,189
See "Note 16 - Segments of Business" of the notes to the accompanying Condensed
Consolidated Financial Statements for the definition of segment net sales and
operating profit.
Net Sales
Consolidated net sales for the three months ended March 31, 2023 were $202,115 ,
an increase of $12,492 , or 7%, compared to $189,623 for the three months ended
April 1, 2022 . Foreign currency translation had an unfavorable impact of less
than 1% on current year second quarter net sales compared to the prior year's
second quarter net sales.
Net sales for the three months ended March 31, 2023 for the Fishing business
were $155,341 , an increase of $26,018 , or 20%, from $129,323 during the second
fiscal quarter of the prior year. The increase in sales over the prior year
quarter is primarily attributable to increased supply and component availability
versus the prior year quarter, resulting in the ability to fill more orders with
distributors and retail partners, as well as higher sales levels due to product
price increases (which represented approximately 30% of the increase in net
sales between quarters).
Net sales for the Camping business were $13,725 for the second quarter of the
current fiscal year, a decrease of $5,442 , or 28%, from the prior year net sales
during the same period of $19,167 due to decreased sales of Jetboil and Eureka!
consumer camping products, as demand declined from the increased levels seen
during the pandemic. Due to the timing of the transaction, the sale
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Index JOHNSON OUTDOORS INC.
of the Military and Commercial Tents product lines had a negligible effect on the decrease in segment sales quarter over quarter.
Net sales for the second quarter of fiscal 2023 for the Watercraft Recreation business were$12,890 , a decrease of$10,119 , or 44%, compared to$23,009 in the prior year same period. Reductions in demand from the elevated levels seen during the pandemic drove the decline from the prior year. Net sales for Diving, our most global business, for the second quarter of fiscal 2023 were$20,308 , an increase of$2,114 or 12% versus$18,194 for the three months endedApril 1, 2022 . As destination travel has rebounded, sales volumes have increased along with the increase in tourism, partially offset by an unfavorable foreign currency translation impact on sales in this segment of approximately 2% versus the prior year quarter. For the six months endedMarch 31, 2023 , consolidated net sales of$380,452 increased$37,305 or 11% compared to$343,147 for the six months endedApril 1, 2022 . Foreign currency translation had an unfavorable impact of approximately 1% on net sales of the current year to date period versus the prior year to date period. Net sales for the six months endedMarch 31, 2023 for the Fishing business were$293,382 , an increase of$55,703 , or 23% from$237,679 during the same period of the prior year. In addition to price increases (which accounted for approximately 30% of the year over year increase in net sales), the increase over the prior year to date period was driven mainly by improved supply and component availability over the prior year to date period, resulting in our ability to satisfy demand for product orders. Net sales for the Camping business were$25,338 for the six months endedMarch 31, 2023 , a decrease of$7,963 , or 24%, from the prior year net sales during the same period of$33,301 , due to decreased demand from the increased levels seen during the pandemic. Due to the timing of the transaction, the sale of the Military and Commercial Tents product lines had a negligible effect on the decrease in segment sales year over year. Net sales for the six months endedMarch 31, 2023 for the Watercraft Recreation business were$22,548 , a decrease of$15,061 , or 40%, compared to$37,609 in the prior year same period. Reductions in demand from the elevated levels seen during the pandemic drove the decline from the prior year. Diving net sales were$39,367 for the six months endedMarch 31, 2023 versus$34,685 for the six months endedApril 1, 2022 , an increase of$4,682 , or 13%. The sales increase was largely due to increased demand for our products as the global tourism industry has started to recover from the pandemic. The impact of increased sales volumes was offset in part by the unfavorable effect of foreign currency translation of 4% versus the prior year to date period.
Cost of Sales
Cost of sales for the three months ended
For the six months endedMarch 31, 2023 , cost of sales was$242,338 compared to$213,931 in the same period of the prior year. The increase year over year was primarily driven by increased sales volumes. Additionally, while the Company began to see some relief in freight and material costs late in the first fiscal quarter of 2023, the cost of components, parts and other raw materials in inventory, in some cases at significantly higher price points than what was historically paid, also contributed to the increase in cost of sales over the prior year to date period. Gross Profit Margin For the three months endedMarch 31, 2023 , gross profit as a percentage of net sales was 37.3% compared to 36.2% in the three month period endedApril 1, 2022 . Factors impacting the change in gross profit percentage between quarters included increased sales volumes and the implementation of price increases across product lines. For the six months endedMarch 31, 2023 , gross profit as a percentage of net sales was 36.3% compared to 37.7% in the prior six month period. Price increases and efficiencies from higher sales volumes were not significant enough to offset the negative gross profit impact of high inventory costs driven by the supply chain and logistics disruptions noted above, particularly in the first fiscal quarter of 2023. Operating Expenses - 21 -
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Index JOHNSON OUTDOORS INC.
Operating expenses were $63,945 for the three months ended March 31, 2023 ,
compared to $53,156 for the three months ended April 1, 2022 . The increase of
$10,789 was primarily due to the impact of higher sales volume-driven expenses,
as well as higher warranty, compensation, professional services and deferred
compensation expense between quarters. More favorable market conditions on the
Company's deferred compensation plan assets resulted in approximately $3,300 of
higher deferred compensation expense recorded in the Company's Corporate segment
in the current year quarter as compared to the prior year quarter. This increase
in expense was entirely offset by a gain in Other (income) expense, net related
to marking these deferred compensation plan assets to market.
Operating expenses were $121,252 for the six months ended March 31, 2023 ,
compared to $100,027 for the six months ended April 1, 2022 . The increase of
$21,225 was primarily due to the impact of higher sales volume-driven expenses,
as well as higher warranty, compensation, professional services and deferred
compensation expense, between periods. For the year to date period, deferred
compensation expense recorded in the Corporate segment increased approximately
$3,500 as compared to the prior year to date period, which was offset by a gain
in Other (income) expense, net.
Operating Profit
Operating profit on a consolidated basis for the three month period endedMarch 31, 2023 was$11,390 , compared to an operating profit of$15,429 in the second quarter of the prior fiscal year. Higher operating expenses in the current year quarter, as discussed above, was the primary driver of the decrease in operating profit between quarters. Operating profit on a consolidated basis for the six months endedMarch 31, 2023 was$16,862 , compared to an operating profit of$29,189 in the prior year to date period. The decrease year over year was driven primarily by higher material costs as well as the increase in operating expenses discussed above.
Interest
Interest expense was$38 and$49 for the three months endedMarch 31, 2023 andApril 1, 2022 , respectively. Interest expense was$75 for the six months endedMarch 31, 2023 compared to$87 or the six months endedApril 1, 2022 . Interest income was$735 and$102 for the three months endedMarch 31, 2023 andApril 1, 2022 , respectively. Interest income was$1,562 for the six months endedMarch 31, 2023 compared to$195 for the six months endedApril 1, 2022 . The increase in interest income over the prior year periods was driven by increased interest rates. Other Expense (Income), net Other income was$7,861 for the three months endedMarch 31, 2023 compared to other expense of$2,272 in the prior year period. The main driver of the increase over the prior year quarter is the gain on the sale of the Military and Commercial Tents product lines of approximately$6,640 recorded in the current year quarter. Additionally, net investment gains and earnings on the assets related to the Company's non-qualified deferred compensation plan were$1,289 in the three month period endedMarch 31, 2023 compared to losses of$2,046 in the three month period endedApril 1, 2022 . For the three months endedMarch 31, 2023 , foreign currency exchange losses were$46 compared to$146 for the three months endedApril 1, 2022 . For the six months endedMarch 31, 2023 , other income was$9,765 compared to other expense of$1,498 in the six months endedApril 1, 2022 . The main driver of the increase over the prior year period is the gain on the sale of the Military and Commercial Tents product lines of approximately$6,640 recorded in the current year period. Net investment gains and earnings on the assets related to the Company's non-qualified deferred compensation plan in the six months endedMarch 31, 2023 were$2,824 , compared to losses of$702 in the six months endedApril 1, 2022 . Foreign currency exchange gains were$230 for the six months endedMarch 31, 2023 , compared to losses of$513 for the six months endedApril 1, 2022 . Income Tax Expense
The Company's provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates.
The
effective tax rate for the three and six month periods endedMarch 31, 2023 were 25.5% and 26.2%, respectively, compared to 25.1% and 25.3% in the corresponding periods of the prior year. Net Income Net income for the three months endedMarch 31, 2023 was$14,861 , or$1.45 per diluted common class A and B share, compared to net income of$9,900 , or$0.97 per diluted common class A and B share, for the second quarter of the prior fiscal year. - 22 - -------------------------------------------------------------------------------- IndexJOHNSON OUTDOORS INC. Net income for the six months endedMarch 31, 2023 was$20,740 , or$2.02 per diluted common class A and B share, compared to net income of$20,756 , or$2.04 per diluted common class A and B share, for the six months endedApril 1, 2022 .
Liquidity and Financial Condition
Cash and cash equivalents totaled$107,648 as ofMarch 31, 2023 , compared to cash and cash equivalents of$113,186 as ofApril 1, 2022 . The Company's debt to total capitalization ratio was 0% as ofMarch 31, 2023 andApril 1, 2022 . The Company's total debt balance was$0 as of each ofMarch 31, 2023 andApril 1, 2022 . See "Note 11 - Indebtedness" in the notes to the Company's accompanying condensed consolidated financial statements for further discussion. Accounts receivable, net of allowance for doubtful accounts, were$144,600 as ofMarch 31, 2023 , an increase of$25,083 compared to$119,517 as ofApril 1, 2022 . The increase is consistent with increased sales volumes year over year. Inventories were$236,671 as ofMarch 31, 2023 , an increase of$1,451 , compared to$235,220 as ofApril 1, 2022 . Accounts payable were$51,855 atMarch 31, 2023 compared to$56,720 as ofApril 1, 2022 . The Company's cash flows from operating, investing and financing activities, as presented in the Company's accompanying Condensed Consolidated Statements of Cash Flows, are summarized in the following table: Six months ended March 31, April 1, (thousands) 2023 2022 Cash (used for) provided by: Operating activities$ (18,095) $ (104,648) Investing activities 992 (15,722) Financing activities (6,710) (6,528)
Effect of foreign currency rate changes on cash 1,658 (364) Decrease in cash and cash equivalents
$ (22,155) $ (127,262)
Operating Activities
Cash used for operations totaled$18,095 for the six months endedMarch 31, 2023 compared to$104,648 during the corresponding period of the prior fiscal year. The decrease in cash used for operations over the prior year six month period was due primarily to higher inventory purchases in the prior year period, due to the Company's decision to build and procure certain raw material and component inventory in its attempt to mitigate against potential pandemic-related shortages in meeting product demand. Depreciation and amortization charges were$7,829 for the six month period endedMarch 31, 2023 compared to$6,914 for the corresponding period of the prior year.
Investing Activities
Cash provided by investing activities totaled$992 for the six months endedMarch 31, 2023 compared to cash used by investing activities of$15,722 for the corresponding period of the prior fiscal year. Capital expenditures were$13,998 in the six months endedMarch 31, 2023 , compared to$15,724 in the prior year to date period. The current year period includes proceeds of$14,990 related to the Big Tents sale previously discussed. Any additional capital expenditures in fiscal 2023 are expected to be funded by working capital.
Financing Activities
Cash used for financing activities totaled
As of
Contractual Obligations and Off Balance Sheet Arrangements
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Index JOHNSON OUTDOORS INC.
The Company has contractual obligations and commitments to make future payments
including under operating leases and open purchase orders. There have been no
changes outside of the ordinary course of business in the specified contractual
obligations during the quarter ended March 31, 2023 .
The Company utilizes letters of credit primarily as security for the payment of
future claims under its workers compensation insurance. Letters of credit
outstanding were approximately $173 and $181 as of March 31, 2023 and April 1,
2022 , respectively.
The Company has no other off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The Company's critical accounting policies and estimates are identified in the Company's Annual Report on Form 10-K for the fiscal year endingSeptember 30, 2022 in Management's Discussion and Analysis of Financial Condition and Results of Operations under the heading "Critical Accounting Estimates", which was filed with theSecurities and Exchange Commission onDecember 9, 2022 . There were no significant changes to the Company's critical accounting policies and estimates during the six months endedMarch 31, 2023 .
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