Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2022 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.

[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 call.

I would now turn the call over to Allison Kitzerow from Johnson Outdoors. Please go ahead, Ms. Kitzerow.

Allison Kitzerow - Global Communications Manager.

Thank you, operator. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors' results for the 2022 fiscal first quarter. If you need a copy of today's news release, it is available on our website at www.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 Pat Penman.

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

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

Thanks, Allison. 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 the outlook for our businesses. Dave will review financial highlights, and then we'll take your questions.

Sales in our first fiscal quarter ending December 2021 declined 7% to $153.5 million compared to $165.7 million in prior years unprecedented first quarter. Operating profit of $13.8 million was down versus $23.6 million in the prior year first quarter. As we continue to monitor the inflationary environment, we've been taking price increases for our products where appropriate.

Net income was $10.9 million or $1.07 per diluted share versus $19.8 million or $1.96 per diluted share. I think it's valuable to note that compared to the pre-pandemic December 2019 quarter, our net sales are 20% higher and our profit more than doubled. Overall, we are seeing continued strong demand for our products as people continue to be eager to recreate outdoors, but the ongoing global supply chain environment and uncertainties associated with the pandemic continue to be challenging and unpredictable. We remain laser focused on working hard to manage supply issues and fill orders while protecting the health and safety of our employees.

In Fishing, our largest business, demand across all product lines remain strong, while managing supply chain issues and component delays continue to be critical to helping us fill orders as anglers look to Johnson Outdoors for the best fishing experiences as possible.

In our Humminbird brand, our most recent innovation, the award winning MEGA Live Imaging delivers the clarity and detail of MEGA Imaging in live-action, allowing anglers to see fish and structure in real time, even watching fish on screen as they move into strike an anglers lure. With the release of MEGA Live, anglers have access to the most complete package of industry-leading technologies and products offered in our One Boat Network platform, which enables our Humminbird fish finders and Minn Kota Motors to work together in unison, giving anglers an effortless command of their boat. Also in Minn Kota, the award winning Raptor Shallow Water Anchor continues to do well in its second year on the market. The Raptor has two industry-first technology: 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. And in trolling motors with a strong heritage of innovation, quality, and durability, Minn Kota is the industry leader.

Both our Watercraft Recreation and Camping businesses are experiencing continued strong sales growth and outperforming the market. In Watercraft Recreation, growth in our Fishing Kayak segment continues as we've outpaced the strong market with the ongoing enthusiasm for our innovative Sportsman line that is starting its third year in the market. We are constantly looking for ways to integrate our products in the pipe with Sportsman Autopilot 136 leverage of the game-changing smart technology from our sister brand Minn Kota to hold position while anglers fish.

From the award winning autopilot motorized fishing kayak to the versatile pedal-powered Sportsman Salty kayak, the Sportsman line offers a watercraft for anglers in every type of water.

And in Camping both our Jetboil and Eureka brands continued to benefit from the surge of participation in the activity. Demand for Eureka tents and stoves continues to be strong. And in Jetboil, consumers continue to be excited about the superlight Stash stove that is entering its second year in the market. Reducing weight on the trail is critical for backpacking and the Stash is the lightest, all in one backpacking stove system that Jetboil, the technology leader in portable outdoor cooking systems has ever made.

Finally, regarding businesses, we saw dive markets primarily in the U.S. and other regions in the world experienced some recovery. Our work to promote and support local diving and to enhance our global digital presence and e-commerce are all working to help this positive growth. We remain focused on these efforts, along with sustained innovation to ensure SCUBAPRO's position as the most trusted dive brand in the world.

In summary, we are encouraged by the continued strong demand for outdoor recreation products and the team remains focused and working hard to meet demand. Our company's purpose, which is to inspire people to get out there to experience and value the great outdoors for generations to come continues to guide everything we do and we remain committed to investing in our key strategic drivers, which are: understanding our consumers, sustaining innovation leadership, identifying new sources and paths of growth in our markets, and continually optimizing our digital consumer experience. Our ongoing hard work on these priorities ensures that our portfolio of market-leading brands is well positioned for success and that we continue to deliver sustained profitable long-term growth for Johnson Outdoors.

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

David W. Johnson - Vice President & Chief Financial Officer

Thank you, Helen. Good morning, everyone. I wanted to highlight a few items from the quarter. As Helen mentioned, demand remained strong. But like many companies, we continue to face ongoing disruptions in our supply chain that must be managed on a daily basis. We continue to take action to mitigate our supply chain challenges. For example, we continue to maintain higher than normal inventory levels and we're also working closely with all of our vendors and planning for alternate sources of supply for critical components where feasible. We've also invested in adding capacity and incremental resources where appropriate.

Capital expenses for the quarter were up $1.9 million due to our additional capacity investments, primarily in our Fishing business. Each business has implemented price increases in response to increased input costs. We will continue to monitor the inflationary environment and we'll take pricing adjustments as appropriate.

Operating profit was down 5.2 points versus the prior year's record-setting quarter. Gross margin of 39.5% is down 5.8 points from last year's first quarter and continues to be pressured due to cost increases. Operating expenses decreased $4.6 million versus the prior year, primarily due to lower sales volume driven expenses.

Net income for the quarter was $10.9 million, down 45% from the prior year quarter. The effective tax rate is 25.6% compared to last year's rate of 23.7%. We expect the full year tax rate to be in the mid 20s.

Our strong balance sheet and healthy cash position continue to enable us to invest in strategic opportunities to strengthen the business while consistently paying dividends to shareholders.

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

Question & Answers

Operator

Thank you. [Operator Instructions] Our first question comes from Anthony of Sidoti. Your line is open.

Anthony - Sidoti - Analyst

Yes, good morning and thank you for taking the questions. So first in terms of the strong demand outlook and customer orders that you talked about. Is there any way you can quantify that as to what you've seen so far as you enter the critical season here now of - in terms of the March and June quarters?

David W. Johnson - Vice President & Chief Financial Officer

Yes. I mean, it's an interesting phenomenon. We're seeing a strong book of orders right now compared to last year. So I hesitate to quantify it, but it's still really strong right now. So we'll have to see how things shake out in the season.

Anthony - Sidoti - Analyst

Got it. And is that in all segments you're seeing the strong book of orders?

David W. Johnson - Vice President & Chief Financial Officer

Yes.

Anthony - Sidoti - Analyst

Okay. That's great to hear. And then as far as pricing, can you give us a sense as to how much pricing benefited the quarter and how should we think about price increases on a go-forward basis?

David W. Johnson - Vice President & Chief Financial Officer

Yes, I mean it didn't really benefit this first quarter a lot. Some of the price increases were effective January 1st. Some are effective even a little bit later than that. So it wasn't a big driver for the first quarter, which is - hence, we're seeing the cost inputs kind of being the story for the gross margin. Yes, we'll continue to look at that and adjust as necessary. So I would expect more benefit kind of the rest of the fiscal year from the increases we're putting in place.

Anthony - Sidoti - Analyst

Got it. Okay. Thanks for that. And then just overall in terms of the inventory increase, so is that mostly for raw materials, or finished goods as well?

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

Well, the inventory increase is just so that we are prepared to meet the demand. However, we still have a lot of inventory due to the components that we're waiting to get from a supply chain standpoint and then we can be ready to really produce the product and get it in market. So that's really the - the challenge there is waiting for one component, but yet having everything else ready to go. So, we are prepared. When the supply - those specific pieces show up, we're ready to go.

Anthony - Sidoti - Analyst

Got you. Okay. And then a couple of more questions if I may, here. So as far as the camping sales, how much of the increase was driven by military tent sales?

David W. Johnson - Vice President & Chief Financial Officer

Yes, it's a small piece of the increase. Most of it's in the consumer business, that growth. Yes.

Anthony - Sidoti - Analyst

Got you. Okay. And then, given your strong balance sheet and the current share price, how should we think about potential share repurchases and any other usages of cash? I know in the past you've talked about acquisitions as well. So just overall, how should we think about capital allocation, keeping in mind your current share price and cash position and other needs for the business?

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

Well, from an acquisition standpoint, as we've always said, we are always looking for acquisition opportunities. And the key is that, it's strategic and it brings value to our focus. So we're out there, and obviously we're in good shape with the balance sheet to go after something when it does occur. So we're very actively looking and always are. But Dave, you can talk to -

David W. Johnson - Vice President & Chief Financial Officer

Yes. I mean, that continues to be at the forefront and then obviously our dividend strategy is important and, to your point, Anthony, share repurchases and other alternate uses of cash has continued to be a discussion item. But as you know, they all have their pros and cons. So - but we continue to look at everything.

Anthony - Sidoti - Analyst

Okay. Great. Well, that's great to hear. And thank you, and best of luck.

David W. Johnson - Vice President & Chief Financial Officer

Thanks, Anthony.

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

Thank you.

Operator

Thank you. [Operator Instructions] I'm showing no further questions at this time. I'd like to turn the call back over to Helen Johnson-Leipold for any closing remarks.

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

I just wanted to say thanks to everybody for joining us today and I hope everyone has a great day. Thank you.

Operator

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JOHNSON OUTDOORS INC

Q1 2022

Earnings Transcript

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