Earnings Call Transcript - JOUT Q1 2025

Operator, Operator

Hello, everyone and welcome to the Johnson Outdoors' First 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, Vice President and Chief Financial Officer. Prior to the question-and-answer session, all participants will be placed in listen-only mode. After the prepared remarks, the question-and-answer session will begin. 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’d now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Patricia Penman, Investor Relations

Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2025 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, Chairman and CEO

Thanks, Pat. Good morning everyone. Thank you for joining us. I will begin by sharing perspective on our first quarter performance, as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we will take your questions. We continue to face ongoing marketplace challenges with a cautious retail and trade channel environment and competitive pressures. As we said during our last quarterly call, we are not seeing indicators that these conditions are going away anytime soon and our first quarter results reflect that. We remain focused on aggressively leaning into our strategic priorities, innovation, operational efficiencies and e-commerce, and making the necessary changes for future growth. We are making inroads on these key drivers, and I would like to share some of our progress on each of them. In this highly competitive outdoor recreation marketplace, we are strengthening our innovation capability, as it is one of the most critical elements to driving growth. For example, in our fishing business, we recently launched new technology in our Humminbird brand and we've seen a positive reception from our retail partners so far, with consumer enthusiasm beginning to build as well. These products start shipping in January and are not reflected in our first quarter results. We are excited about the momentum as we continue to work hard to give anglers the best fishing experience possible. In diving, we recently purchased a company that has been a long-time supplier for our SCUBAPRO brand, and it has been an integral part of a number of our past successful innovations in that business. In addition to being a catalyst for future SCUBAPRO innovation, this acquisition is a vertical integration that allows us to accelerate our efforts in simplifying our diving business and enabling a more efficient operational footprint. Improving profitability and strengthening our business operations continue to be a strategic priority, and we've been working hard to drive operational and product cost savings across all of our businesses. In addition, we are focused on managing our inventory levels. Dave will give more details on this. We also have heard the news around the new tariffs. As you know, we are an American company; we pride ourselves on our U.S.-based manufacturing and operations, which we have expanded in the past few years. For example, we have operations or manufacturing in multiple states, including Maine, Georgia, Alabama, California, Minnesota and Wisconsin. Regarding tariffs, we continue to discuss the implications and have already started on our mitigation plans. Leveraging our American footprint will be an important part of this plan. Another key strategic priority is enhancing our ability to drive growth through e-commerce. We are investing in a Digital Commerce Center of Excellence, which adds expertise and capabilities that will allow us to accelerate sales and profitability. As we navigate this tough environment, we’ll continue to invest and execute on our strategic priorities. We’re confident these are the right things to position us for future healthy profitable growth. Now I will turn the call over to Dave for more details on financials.

David Johnson, CFO

Thank you, Helen. To start, I wanted to point out that the first quarter sales results also reflect a challenging comparison between quarters due to the load-in of the Minn Kota QUEST trolling motor line in the previous first quarter. Gross margin in the first quarter was negatively impacted by increased promotional pricing, unfavorable overhead absorption and unfavorable product mix. As Helen mentioned, we continue to expand our cost savings program with the addition of product cost savings initiatives that include investing in resources to drive down costs with improved product design. Operating expenses decreased $400,000 versus the prior year first quarter due primarily to lower sales volumes between quarters and decreased expense on the company's deferred compensation plan, nearly offset by increases in consulting expenses and warranty expenses. We've been working hard to manage our higher than normal inventory levels. Our inventory balance as of December was $201.6 million, down about $66 million from last year's first quarter. I want to continue to highlight that in the midst of our challenging results, our balance sheet remains debt free, which is a strong competitive advantage in today's marketplace and we continue to pay a meaningful dividend to shareholders, with the Board approving our most recent dividend announced in December. 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, Operator

Thank you. Our first question comes from the line of Anthony Lebiedzinski from Sidoti & Company, LLC.

Anthony Lebiedzinski, Analyst

Good morning everyone. And thank you for taking the questions. So first, as far as your revenue, it came in above our estimate which is certainly good to see. So I guess just broad kind of housekeeping question first. So in terms of the quarterly revenue, can you just give us a sense about pricing versus unit volumes? I know you have sort of engaged in more promotional pricing. So again, just wanted to get a sense of the pricing versus unit volume dynamics that happened in the quarter?

David Johnson, CFO

Yes. I mean, we were affected by discounting, obviously in the quarter. So I can't give you an exact breakdown of it. But certainly both units are down, but exacerbated by the discounting that we did in the first quarter.

Anthony Lebiedzinski, Analyst

Okay. Thanks Dave. And then I heard there was a diving acquisition made. So can you give us some more details about this? When was this completed and purchase price or anything like that, that you think you could add to what you said before would be very helpful.

Helen Johnson-Leipold, Chairman and CEO

Well, I'll just start with how excited we are about making the acquisition. It was a partner that we have had for a long time with SCUBAPRO, and they've been making our product and contributing to our innovation and offered the opportunity for a lot more manufacturing efficiency and consolidation of some of our products that we source. So we are very excited, and the integration went very smoothly because we worked with them before and know them. So in general, it was I think, a very positive and added value. And Dave you can go into details.

David Johnson, CFO

Yeah. The operations are located in South Africa and as Helen alluded to, it will increase our efficiency for the diving operation, which we are very happy about. There is also some strong innovation that we'll be able to leverage out of that plant as well. The purchase price is around $14 million. All the details will be in the queue, but that's the approximate price.

Anthony Lebiedzinski, Analyst

Okay. Well, thank you very much for that information. It is certainly very helpful. And congrats on that. It certainly sounds like a value-added acquisition here accretive. So I guess as you enter the busy season now, I know you talked about innovation. It looks like the Humminbird product is off to a good start. Can you give us any other sense of the early indications for incoming orders for the rest of the business? And just broadly speaking, as far as inventory levels at the retail level, what is your side of that?

Helen Johnson-Leipold, Chairman and CEO

Now let us talk inventory levels. It's really – it is a mixed bag and depends on which partner and some are in a healthy position and some may have a little too much inventory, but it depends on which business and what class of train we are talking about. But there is cautious ordering and that's understandable given all the things that are going on, very hard to predict what things will be like. It is good that our new products are getting good reception by the trade. It is still in the sell-in time frame, and we've got some in our Watercraft business, as well as some in Jetboil, but they haven't hit our numbers yet. But we don't expect the market to bounce back in Q2. We are just glad that the innovation and our new products are getting good reception, but it is still very unpredictable and a very cautious environment as far as we can tell.

Anthony Lebiedzinski, Analyst

Understood. Okay. And then I know you also combined Camping and Watercraft Recreation segments together now. But can you just parse out the two and give us some additional information about them? Just curious as to what you saw in the quarter?

David Johnson, CFO

The camping business is performing better than the Watercraft business for the quarter. The paddling market continues to face significant challenges. We are noticing some slight improvement in the camping business, which is a positive sign for that segment. Overall, the first quarter reflects two very different market conditions.

Anthony Lebiedzinski, Analyst

Okay. All right. Thanks for that. And then as far as your cost savings initiatives, can you talk about the impact of that? And then you also talked about expanding these cost savings measures. So how should we think about the impact of what could come going forward here as you look to continue on that path?

David Johnson, CFO

Yes, we are pleased with the progress we've achieved in cost savings. Previously, we focused on improving factory efficiency and reducing scrap rates, which has led to some positive outcomes. We are expanding these efforts and exploring sourcing initiatives while also re-evaluating product design to reduce costs. The benefits from these changes will become more apparent over the mid to long term. Although the cost savings have positively influenced the first quarter, they were somewhat offset by the discounts we offered.

Anthony Lebiedzinski, Analyst

Understood. Lastly, regarding the tariffs, I know you mentioned this briefly. There was a recent announcement that the Mexico tariffs will be paused for a month. As a U.S. manufacturing company, you rely on a significant amount of imported components. Can you provide insight into your exposure concerning tariffs from China or other sources? What are your strategies for mitigating these impacts going forward?

David Johnson, CFO

Yes, it is a dynamic situation. Things change pretty quickly. We do business with China, Mexico, and Canada, and we have exposure to both Mexico and China. I'm hesitant to provide a specific number on that because we are currently working on mitigation strategies. We have discussed our American operations and our plans in the U.S. There are steps we can take to help mitigate some of these issues. We will provide more updates as we gather more information and understand how things will settle. Rest assured, we are actively working on these strategies.

Anthony Lebiedzinski, Analyst

That sounds very good. Okay. Well, thank you very much, and best of luck going forward.

Helen Johnson-Leipold, Chairman and CEO

Thank you.

Operator, Operator

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

Yes. Thank you for joining us today, and I hope everyone has a great day. Thank you.

Operator, Operator

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