Earnings Call Transcript - JOUT Q1 2023

Operator, Operator

Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2023 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, Chairman and Chief Executive Officer of Johnson Outdoors. Joining the call is David Johnson, Vice President and Chief Financial Officer. This call is being recorded. By participating, you agree to have your voice recorded. If you do not agree to this, please hang up. I will now hand the call over to Pat Penman from Johnson Outdoors. Please proceed, Ms. Penman.

Patricia Penman, Investor Relations

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors Results for the 2023 Fiscal First 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 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, CEO

Thanks, Pat. Good morning, and thank you for joining us. I'll begin with an overview of the quarter, and then I'll share perspective on the performance and outlook for our businesses. Dave will review financial highlights, and then we'll take your questions. Sales in our first fiscal quarter ending December 2022 rose 16% to $178.3 million compared to $153.5 million in the prior year's first quarter. Net income for the quarter was $5.9 million or $0.57 per diluted share versus $10.9 million or $1.07 per diluted share in the previous year's first quarter. Operating profit decreased 60% to $5.5 million versus $13.8 million in the prior fiscal year first quarter, with increases in inventory costs significantly impacting profitability. We've been working hard to manage the challenging supply chain environment, while evaluating all avenues to mitigate cost pressures, including pricing strategies and cost reduction efforts. In our Fishing business, supply and component availability continued to ease, allowing us to fill more customer orders. We still have a solid pipeline of orders that we're working through, and continuing to manage supply chain challenges remains our priority. In guiding, we continued to see momentum as the market rebounds from the depressed pandemic levels, and we continue to benefit from our SCUBAPRO equity as the most trusted dive brands in the world. In our Camping and Watercraft recreation businesses, we are seeing some softening in market demand and higher inventory levels at retail. The good news is that we continue to have strong brand positions, especially in Old Town and Jetboil. Innovation continues to be critically important to our growth and success of our brands. The last few years have brought new participants into outdoor recreation, which is a good thing for us. Our ongoing investment into understanding both new and existing consumers' evolving needs and translating them back into new product success remains our focus. In all of our businesses, we're working on an exciting pipeline of new products. While it's still too early to tell how the season will end up, we're monitoring consumer buying behavior and focused on filling customer orders and supporting our brands as we head into our primary selling season. As always, our team takes a long-term view positioning our brands and business for long-term growth. Now I'll turn the call over to Dave for a review of the financial highlights.

David Johnson, CFO

Thank you, Helen. Good morning, everyone. I want to highlight a few items from the quarter. As Helen mentioned, we're seeing supply availability continue to improve, allowing us to fill more customer orders, especially in Fishing. The quarter's gross margin of 39.5% is down 4.3 points from last year's first quarter due primarily to the increased cost of sales from high material and freight costs that are in inventory. We're starting to see our costs ease somewhat, but we expect margins to continue to be challenged in the coming months as we work through our higher cost inventory. Inflation remains a concern. And as Helen mentioned, we continue to evaluate all options to improve profitability. Operating expenses in the first quarter increased $10.4 million versus the prior year's first quarter. Higher sales volume-driven expenses drove some of the increase. We also experienced higher compensation expenses, an increase in health care costs, and higher professional services costs between the quarters. Profit before income taxes was $8.2 million versus $14.6 million in the prior year quarter, driven by the lower gross margin and increased operating expenses. Net income for the first quarter was $5.9 million, down 46% from the prior fiscal first quarter. The effective tax rate was 28% compared to the prior year's first quarter rate of 25.6%. It still feels too early to tell how the season will shake out, but we're focused on monitoring demand and proactively managing our inventory levels. We continue to have no debt on the balance sheet 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

Our first question will come from Anthony Lebiedzinski from Sidoti.