Earnings Call Transcript - JOUT Q2 2021

Operator, Operator

Hello everyone, and welcome to the Johnson Outdoors Second Quarter 2021 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. 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.

Patricia Penman, Vice President

Thank you. Good morning everyone. Thank you for joining us for our discussion of Johnson Outdoors Results for the 2021 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.

Helen Johnson-Leipold, CEO

Thanks, Pat. Good morning and thank you for joining us. I'll begin with an overview of the quarter and year-to-date results and then I'll share perspective on the performance and outlook for our businesses. Dave will review key financials and then we'll take your questions. Historically, the first six months of the fiscal year has been our preseason ramp-up and selling period for the primary retail selling season. But the ongoing impact of the COVID-19 pandemic and the increased interest in outdoor activities has resulted in unprecedented high demand for outdoor recreation products, which has continued through our fiscal second quarter. As customer and consumer demand remained strong, sales surged to $206.2 million during the second quarter, 26% ahead of last year. Strong operational efforts allowed the company to deliver these results at the halfway mark of the fiscal year. Total company year-to-date sales stand at $371.8 million, a 28% increase over the same period a year ago. Total company fiscal six-month operating profit increased 54.4% to $59.6 million compared with the same period a year ago. For the second fiscal quarter, total operating profit was $36 million versus $31.8 million in the previous year's quarter. Net income for the quarter was $27.8 million or $2.76 per diluted share. Dave will discuss the key financial drivers in detail later in this call. The pandemic has been a catalyst for people to get outdoors. As participation in outdoor activities has grown, we've been able to take advantage of the heightened interest by leveraging our portfolio of market-leading brands and innovation. In Fishing, our largest and most profitable business, participation has always been high, but it's been even higher during the pandemic. Robust demand from Minn Kota and Hummingbird technology continued through the second quarter, as both new and seasoned anglers looked to Johnson Outdoors for the best fishing experience possible.

David Johnson, CFO

Thank you, Helen. Good morning everyone. As Helen mentioned, the second quarter was another unprecedented period with strong sales in three of our four businesses, with market dynamics strong and retail inventories lean. Our excellent sales performance was the key driver in increasing profits during the quarter. For the quarter, gross margin of 45.2% was down slightly versus the prior year quarter as a $1.1 million increase in tariffs and higher freight costs for raw materials offset overhead absorption benefits from higher volumes. Operating expenses for the quarter increased by $13.9 million, driven primarily by higher sales-driven expenses as well as higher variable and deferred compensation expenses between quarters. Deferred compensation expenses were up $4.7 million due to favorable valuations and were 100% offset in other income. Net income for the quarter was $27.8 million compared to $20.4 million in the prior fiscal year second quarter. The year-to-date effective tax rate is 24.7% compared to last year's rate of 27.5%. We expect the full year tax rate to be in the mid-20s. Looking ahead, we anticipate a strong season and we'll continue to monitor the many marketplace dynamics. While our cost of goods will be pressured, at this time, we don't expect a material impact on our margins from cost increases. Our balance sheet remains strong and our cash position is healthy, providing us the financial capacity and flexibility to strategically invest in strengthening the business while continuing to pay out a cash dividend to our shareholders. Now I'll turn the call back over to the operator for the Q&A session.

Operator, Operator

And our first question comes from the line of Anthony from Sidoti.

Anthony Lebiedzinski, Analyst

Got it. Okay. You mentioned that demand is high and you're working to increase capacity. Can you provide an update on your current capacity and what we should expect regarding your ability to increase it moving forward?

David Johnson, CFO

Yes. I mean, we're kind of set for the season in a way where we added shifts early to our factories where we're building product and that's been very helpful. Of course, adding a lot of seasonal labor has its challenges, but we've done that as well. So, we're working as fast as we can to meet the demand right now. And those are kind of the two short-term levers that we've pulled.

Helen Johnson-Leipold, CEO

And just to keep in mind that we still are at approximately 80% in terms of being able to have our workforce in the plant because of COVID and all the safety rules that are in place. So, if we can, cross our fingers and hope things change, we will have the ability to staff more during the shift.

Anthony Lebiedzinski, Analyst

Got it. Okay. Thank you for the color. So, in terms of the supply chain constraints that have certainly been well publicized. Can you give us a sense as to how you look now on May 7 versus March 31 at quarter end? Have things gotten better or worse or stayed the same in terms of the supply chain constraints?

David Johnson, CFO

Yes. I would say it's pretty dynamic right now, Anthony. I mean, electric components are coming in and we're working very hard to make sure we have an adequate supply. I think we've done a good job so far of maintaining that. But as you've heard, I'm sure, in the industry there are shortages here and there and longer lead times. So, we're working very hard to ensure we can maintain that supply. And I would say it's still a pretty delicate balance right now.

Anthony Lebiedzinski, Analyst

Got it. Okay. Lastly, how should we think about your ability to offset the higher costs? Are you considering price increases or other cost mitigation strategies?

David Johnson, CFO

Sure. Yes. I mean I think we'll definitely consider all options to help mitigate cost increases. Cost savings programs are important, as well as how we price our product and the innovation we bring into the marketplace. That's all part of the equation. So, we'll look at all options for that.

Anthony Lebiedzinski, Analyst

Got it. Okay, and well thank you and best of luck.

Helen Johnson-Leipold, CEO

Thank you.

Operator, Operator

And there are no further questions in queue. So, at this time, I would now like to turn it back over to Helen Johnson-Leipold.

Helen Johnson-Leipold, CEO

Thanks everyone for joining us and we hope you have a great day. Thank you.

Operator, Operator

This does conclude today's conference. You may all now disconnect.