Earnings Call Transcript - JOUT Q4 2020

Operator, Operator

Hello everyone. And welcome to the Johnson Outdoors Fourth Quarter 2020 Earnings Conference Call. Today’s call will be held 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 a 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 would now like to turn the call over to Patricia Penman from Johnson Outdoors. Please go ahead, 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 2020 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 releases and filings with the Securities and Exchange Commission. If you have additional questions, following the call, please contact Dave Johnson or me. 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 start off with comments on the quarter and full year results, discuss key performance drivers in each business and outline priorities going forward. Dave will review financial highlights and then we’ll take your questions. In fiscal 2020, total company revenue grew 6% to $594.2 million, profits were $71.1 million and net income was $55.2 million or $5.47 per diluted share, a 7% improvement from the prior fiscal year. The 2020 fiscal year was like no other year in our history. We started the year with a very strong first quarter, but the onset of the pandemic and the initial stay-at-home mandates cut short our momentum and significantly impacted our second and third quarters, which is the heart of our primary selling season. As those mandates eased, we saw demand ramp up and participation grow in Fishing, Camping and Watercraft Recreation. Strong positive momentum continued in our fiscal fourth quarter, the period when the warm weather outdoor recreation industry is historically gearing down for the year. Total company net sales increased to $164.7 million in the fourth quarter, a 58% increase over the prior year’s fourth quarter and profits were up significantly as well. Overall, this year’s performance was fueled by demand created through people’s eagerness to get outdoors. The hard work and dedication of our employees enabled us to meet as much of that demand as possible, while operating under strict health and safety procedures and protocols to reduce the spread of COVID-19. Many people got outdoors during the warm weather months of the pandemic and continued their participation post-Labor Day, and we were able to take advantage of the extended season leveraging our market-leading brands and innovation.

David Johnson, CFO

Thank you, Helen. Good morning, everyone. As Helen mentioned, we came into our historically slow fiscal fourth quarter with strong momentum, driven by high demand in our Fishing, Camping and Watercraft Recreation businesses. We’ve been working hard to produce as much as we can, including adding warships and managing our supply chain to increase capacity where possible. A few other things to highlight from the year, gross margin for fiscal 2020 was 44.6%, up 20 basis points from the prior year. Improved cost absorption through higher volumes and a stronger product mix help offset a $1 million increase in tariff costs. Operating expenses were $7.9 million higher than last year, but down 50 basis points as a percentage of sales. Volume-related expenses along with increases in headcount, compensation costs and R&D expenses were partially offset by lower discretionary spending.

Operator, Operator

We have a question from a line of Anthony Lebiedzinski with Sidoti & Company. Your line is now open?

Anthony Lebiedzinski, Analyst

Thank you, and good morning, everyone. So looking back at your stronger quarter, can you give us a sense as to the progression of the revenue trends throughout the quarter?

David Johnson, CFO

Are you talking about month-by-month or?

Anthony Lebiedzinski, Analyst

Sure, if you could start with that, that would be great.

Helen Johnson-Leipold, CEO

During that quarter, at the beginning, we were addressing some of the pent-up demand from the third quarter, leading to a steady increase. The momentum continued into the fourth quarter as people tried to enjoy outdoor activities for as long as possible and ensured they acquired products when available, given the challenging product availability in our industry. Demand ramped up as soon as people could go out and recreate, and it kept increasing. There was also a strong desire to be prepared and not miss out on purchasing products, combining the need for readiness with the want to continue recreating. As a result, we had our best fourth quarter ever.

Anthony Lebiedzinski, Analyst

Okay. Of course. Okay. So, can you give us a sense as to what the state of inventories is at the retail level? And I know, Dave, you said that you sound like you’re off to a good start here, but if you could just maybe expand on that. There was also a comment in the press release that you’ll continue to scale operations consistent with demand.

David Johnson, CFO

Demand remains strong, and it appears that retail inventory is quite low. We are still shipping products, and many retailers are looking to purchase more in expectation of the upcoming season. Overall, the retail environment seems to be fairly lean.

Helen Johnson-Leipold, CEO

And our comment about scaling, I mean, we have done what we can to add shifts to make sure we can do what we can in the production area, but the COVID and the safety protocols automatically put us at like 80% capacity. So, as that demand continued, even our plans to go forward and do more builds before to be prepared for the season, it kind of kept us always producing as much as we can 100% of the time.

Anthony Lebiedzinski, Analyst

Got it. Okay. And then, as far as the availability of component parts or just the overall supply chain, are you in good shape with that or is there any issues perhaps or how should we think about that?

David Johnson, CFO

It’s a challenge in some of these areas. I mean, we’re shipping electric components from Asia and we’re competing for product with all LCD consumers. So that’s the challenge. We’re doing everything we can to keep our pipeline going through the supply chain, but frankly, it’s difficult right now.

Anthony Lebiedzinski, Analyst

Okay. Got it. Okay. And then a couple of more questions, if I can just squeeze those in. So, as far as what’s happened here with COVID? I mean, do you guys have a sense as to what the magnitude is of the increase in outdoor participation levels for this past season and kind of what your expectation is for next year?

Helen Johnson-Leipold, CEO

We know that our current consumers are definitely purchasing more. However, we also see new consumers getting involved in these activities, which is certainly beneficial for the entire industry; they are trying out our offerings. The key question is how much increased participation we will see as a result of COVID. We are uncertain about the level of this participation or when things will return to a normal state, which makes it challenging to determine the long-term positive impact. It's something we need to observe as time goes on.

Anthony Lebiedzinski, Analyst

Got it. Okay. I guess, if I could just follow up on that, is there any possibility that you guys would consider doing a special cash dividend if you continue to build up this cash?

David Johnson, CFO

Anthony, we look at all options and I think it’s paramount that we are strategic and prudent with this cash. So, I think, as Helen said, acquisitions are kind of at the top of the list, but we look at everything in terms of driving shareholder value. So, yeah, that would be an option in the future potentially.

Anthony Lebiedzinski, Analyst

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

Helen Johnson-Leipold, CEO

Thank you, everyone, for joining us today and hope you enjoy the holidays and try to stay safe and stay healthy. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.