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.

[Operator Instructions] 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, Marketing Services & Global Communications

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 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 me.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

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, a 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 who got outdoors during the warm weather months of the pandemic continued their participation post Labor Day, and we were able to take advantage of the extended season, leveraging our market-leading brands and innovation.

Participation in fishing has always been high, but it has been even higher this year as it has been an activity that is accessible and lends itself to social distancing, and both seasoned anglers and new anglers looked to Johnson Outdoors for great fishing experiences.

In Fishing, our largest business, we are continuing to build on a powerful legacy of innovation that transformed Minn Kota and Humminbird into the market-leading brands they are today.

The latest innovation from our Humminbird brand is the award winning MEGA 360 Imaging. It began shipping this year and consumer response has been very favorable. MEGA 360 Imaging is the only sonar option that provides a high resolution 360-degree view with unmatched detail and coverage.

Before MEGA 360, anglers were limited to a sonar view either below or to the side of their boats, while moving. Now, with MEGA 360, anglers can make accurate cast in any direction, even if the boat is anchored. When MEGA 360 Imaging is used to gather with Minn Kota Spot-Lock technology, this provides anglers with an effortless command of their boat and an uncompromising view of fish in the world below.

And this year, Minn Kota debuted our award-winning Raptor shallow water anchor with two industry first technologies; Auto Bottom Mode, which detects bottom density to determine the right anchoring force; and active anchoring, which continuously monitors anchoring force and adjusts automatically for stable bottom pinning. It's still early but consumer response to the Minn Kota Raptor has also been favorable.

Looking ahead, sustaining our innovation and technology leadership position in fishing market is a top priority and we have an exciting pipeline of new products on the horizon.

Moving on to Watercraft. The fishing kayak segment is the fastest growing segment, and our Old Town Sportsman Line in power, pedal and pedal fishing kayaks has generated a lot of enthusiasm since its launch earlier this year. The flagship model of this innovative new line, the award-winning Sportsman Autopilot 120, utilizes a GPS-enabled Minn Kota trolling motor to propel, steer and anchor the kayak with its unique Spot-Lock technology, providing kayak anglers with hands-free fishing.

The Sportsman Line had a great start in its first year on the market and we hope to continue that momentum going into year two.

As more people desire to get out in the water, we saw strong demand across our entire Watercraft Recreation portfolio. Additionally, the increase in use of eCommerce as a buying channel allowed us to leverage the investment we made in growing our digital and eCommerce capabilities.

Going forward, our digital presence and eCommerce are key priority, and we will continue to optimize our online consumer experience.

Camping is an important gateway into the outdoor recreation and one of the most accessible outdoor activities that people have been able to do safely. Once state and national parks began to open, both our Jetboil and the Eureka brands benefited from the surge of interest and participation in the activity. Camp cooking is an integral part of the experience, and Jetboil, the technology leader in portable outdoor cooking systems, continues to be the top choice among tech-savvy outdoor enthusiasts. Consumer-driven innovation is key to providing the best camping experience as possible and we'll keep investing in that.

SCUBAPRO is the most trusted dive brand in the world, and while the diving market has experienced pandemic-related headwinds due to travel restrictions, our team has been working hard to continue to focus on sustained innovation, enhancing our digital presence globally and promoting local diving. These efforts will ensure SCUBAPRO is in a strong position for the future.

Looking ahead, at Johnson Outdoors, we are always investing and understanding our consumers like no one else and turning these deep consumer insights into pioneering innovation. We take the long view, working to position our brands and businesses for growth well beyond the next quarter or the next year to continue being a thriving enterprise that is built to last and deliver long-term value creation.

Our company purpose, which is to inspire people to get out there to experience and value the great outdoors for generations to come has never been more important.

Now, I'll turn the call over to Dave for a review of the financial highlights.

David W. Johnson - Vice President and Chief Financial Officer

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 more shifts 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, helped 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 percent of the sales. Volume-related expenses along with increases in headcount, compensation costs and R&D expenses were partially offset by lower discretionary spending.

Net income for the year was $55.2 million, up 7% from prior fiscal year. The effective tax rate is 25.1% compared to last year's 22.7%. Higher state and local taxes were the primary drivers behind the rate increase. Next year, we expect the tax rate to be in the mid-20s.

We ended the fiscal year with net working capital of about $19 million versus the prior year. Trade receivables are up about $23 million, and inventory up $3 million.

Looking ahead, while demand remains high and this gives us a good start to the season, we'll continue to monitor marketplace dynamics and related supply chain pressures caused by increased demand and COVID-related capacity constraints.

Our balance sheet is strong. Our healthy cash position will continue to provide a competitive advantage as we make smart investments to strengthen the business and drive value for our shareholders.

Now, I will turn the call back over to the operator for the Q&A session. Operator?

Question & Answers

Operator

[Operator Instructions] We have a question from the line of Anthony Lebiedzinski with Sidoti & Company. Your line is now open.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Thank you and good morning, everyone. So looking back, I'd say a stronger quarter. Can you give us a sense as to the progression of the revenue trends throughout the quarter?

David W. Johnson - Vice President and Chief Financial Officer

Are you talking about month by month or –?

Anthony Lebiedzinski - Sidoti & Company - Analyst

Yes, I mean if you could - camping business, if you could start with that, that'd be great.

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

Let me - this is Helen. During that quarter, we were - in the beginning of it, we were making up for some of the pent-up demand that got kind of pushed from the third quarter, and so it was a pretty steady increase. I would say it just - the momentum just continued going into the fourth quarter, and I think it was - people were trying to stay outdoors as long as they could and make sure they got the product when it was available, because it was tough, product availability across the board in our industry.

So, I would say it was - it started ramping up as soon as the - people could go out and recreate and the demand just kept going. I think also there is no anticipation of being prepared and not missing out on buying the product. I think it's a mixture of being prepared and wanting to continue to recreate. So, it was the best quarter - fourth quarter - we've had.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Got it, of course. Okay. So, could 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 - sounds like you're off to a good start here. So, 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. So, if you - just wondering if you could just talk about the inventory levels and your commentary in the press release about scaling your operations?

David W. Johnson - Vice President and Chief Financial Officer

Yes, I mean, right now, demand is strong still. And from what we can tell, retail inventory is pretty lean. So, we're continuing to ship products, and I think a lot of retailers are also. They are looking to buy product in anticipation of the season. So, it seems to still be a pretty lean retail environment out there.

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

And our comment about scaling, we have done what we can to add, shift 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 pull forward and do more build before, to be prepared for the season, it kind of kept us always producing as much as we can 100% of the time, so.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Got it, okay. And then as far as the availability of component parts there 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 W. Johnson - Vice President and Chief Financial Officer

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 a challenge. We're doing everything we can to keep our pipeline going with the supply chain, but frankly it's difficult right now.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Okay, got it. Okay. And then 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 P. Johnson-Leipold - Chairman and Chief Executive Officer

We know that we - our current consumer base is certainly purchasing more, but we know that there is some new consumers jumping in these activities. I think - so, we're benefiting from that for sure and it's a shot in the arm for the whole industry, they have new consumers trying out our activities.

I think the question is how - I think there will be increased participation because of COVID. But how - what level that is or and when the world gets back to kind of normal and normal activities become available, that's the big question, is - is what will be the long-term positive impact. We don't know and yet to be - we'll have to see how things pan out.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Got it. Okay. And then last question from me is, looking at your very strong balance sheet, you do have a lot of cash. What's the priorities for usage of that cash position?

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

Well, let me just say that we are just constantly looking at what's available out there. We have - our industry is being - the demand in our industry obviously didn't make this not a buyer's market and there is a lot of companies that are doing very well. There is also a lot of cash sitting in in private equity companies. There is a lot of cash and not a lot of opportunities to buy.

So, I would say it's a very difficult market. But we are always looking and we're very strategic. And I think one of the reasons we continue to be, have the resiliency, is because we are very strategic about the decisions we make especially with the acquisitions, and we will not do an acquisition to bump our sales or because we have the cash to do so. We have to make sure that there is an acquisition out there that it's going to be beneficial to us and to accelerate our ability to build value over time. So, we are looking and we are being strategic about it.

Anthony Lebiedzinski - Sidoti & Company - Analyst

Got it, okay. I guess as well, 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 W. Johnson - Vice President and Chief Financial Officer

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 the top of the list, but we look at everything in terms of driving shareholder value. So that, yes, that would be an option that we'd do potentially.

Anthony Lebiedzinski - Sidoti & Company - Analyst

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

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

Thank you.

David W. Johnson - Vice President and Chief Financial Officer

Thanks.

Operator

[Operator Instructions] I'm not showing any further questions at this time, I'd like to turn the call back to Helen Johnson-Leipold for closing remarks.

Helen P. Johnson-Leipold - Chairman and Chief Executive Officer

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

Operator

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JOHNSON OUTDOORS INC

Q4 2020

Earnings Transcript

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