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EXEC: Johnson Outdoors’ Q3 Hampered By Rising Input Costs And Supply Chain Disruption

Johnson Outdoors reported a sharp decline in earnings in its fiscal third quarter ended July 1 due to supply chain challenges, especially within its fishing segment, as well as rising raw materials costs tied to supply chain dynamics.

On an analyst call, Helen Johnson-Leipold, chairman and CEO, noted that the company was also facing tough comparisons against record results in the year-ago quarter.

Sales in the quarter declined 4.6 percent to $203.8 million. Sales were down 7 percent for the year-to-date period, also against record-year-ago sales. Compared to the 2019 pre-pandemic period, sales were up” significantly,” said Johnson-Leipold.

Operating profits in the latest quarter fell 37.5 percent to $23.8 million from $38.1 million in the prior year’s record-setting quarter. Year-to-date. Operating profits declined 45.8 percent. The decline is due to lower sales volumes and a decrease in gross margin, driven by significant cost increases, particularly in its fishing business.

“We’ve implemented price increases across our product lines, and we’re focused on fulfilling demand and reducing our expenses where possible,” said Johnson-Leipold. “We are seeing markets begin to moderate from the pandemic-driven demand of the past two seasons. However, solid demand from our trade partners continues while global supply chain disruptions persist. We have strategically invested in building inventory to complete products as parts come in. And our team has been working hard to maximize product fills and fulfill customer orders.”

Among its four segments, sales in the fishing segment (Minn Kota, Cannon and Humminbird) declined 12.1 percent in the quarter to $136.6 million, driven primarily by ongoing supply chain disruptions. Operating profits fell 58.0 percent to $16.6 million.

Johnson-Leipold said that while supply chain challenges continue to weigh on the fishing segment’s results, innovation continues to focus, particularly on connecting Minn Kota and Humminbird products to “deliver new benefits” to anglers. Humminbird’s MEGA Live Imaging TargetLock sonar technology, combined with Minn Kota’s Ultrex trolling motor and Humminbird’s MEGA Live Imaging, received the “Best in Category Award for Electronics” at ICAST 2022. Humminbird has captured 11 ICAST “Best of Electronics” awards in the past 12 years.

In the Camping segment (Jetboil, Eureka!), revenue jumped 32.2 percent in the quarter to $23.5 million, including continued strong demand for both tents and stoves. Operating earnings rose 16.1 percent to $5.0 million.

“In camping, while the market has cooled compared to the high demand of last year’s unprecedented season, participation remains high, and we continue to see double-digit growth,” said Johnson-Leipold said. She noted that Jetboil consumers “remain excited about the innovative, superlight Stash stove that is in its second year on the market.” Demand for Eureka’s tents and camping equipment is “strong as well.”

Sales in its Watercraft Recreation segment (Old Town, Ocean Kayak, Carlisle) grew 10.1 percent in the quarter to $21.9 million, driven by higher sales for Old Town’s Sportsman line of products. Operating profits were down 16.0 percent to $2.9 million.

Said Johnson-Leipold, “We continue to have momentum in a moderating market, driven by the innovation of Old Town’s Sportsman lines.” She noted that the Sportsman Discovery Solo 119, shown lead photo, recently earned Field & Stream‘s best fishing canoe for 2022.

Diving segment ScubaPro sales improved 7.4 percent in the quarter to $22.2 million as more consumers resumed travel. Operating earnings rose 21.9 percent to $2.4 million.

Johnson-Leipold said, “As more consumers resumed traveling during the quarter, dive markets are experiencing a recovery. Our hard work in promoting and supporting local diving, enhancing our global digital presence and our sustained innovation has contributed to our growth.” 

ScubaPro’s new Seawing Supernova Fins recently won a Red Dot Award for product design.

Net income in the quarter fell 49.0 percent to $14.1 million, or $1.38, from $28.8 million, or $2.83, in the previous year’s third quarter.

Gross margin of 36.1 percent was 960 basis points below the prior year’s quarter, primarily due to increased materials costs driven by supply chain dynamics. Dave Johnson, CFO, said that while price increases are being implemented across product lines, they were not enough to offset the negative impact of component costs increases

Operating expenses were reduced 16.3 percent to $49.7 million from $59.4 million due primarily to lower sales volume-driven expenses and lower variable and deferred compensation expenses between quarters.

Inventories ended the quarter at $251 million, nearly double the $130.7 million level at the same time a year ago.

“We continue to have a strong order position, but our ability to meet demand is being impacted by ongoing supply chain issues, especially in our fishing business,” said Johnson. “To help mitigate supply chain disruptions, we’ve been building significantly higher inventory levels for several quarters. While inventory is up $120 million compared to last year, the increases are primarily due to increased raw material and other components purchases in many instances at higher costs to meet increased demand for products. We continue to work closely with all of our vendors in planning alternative sources of supply for critical components where feasible.”

In the Q&A session, Johnson said the company continues to manage inventories actively and is “looking to try to get a little bit more balance” on inventories next season. He added, “We’ve got to get the industry supply chains to get back to more normal.”

Johnson-Leipold also noted that fulfilling orders for customers remain a priority.

Asked about margins, Johnson said he doesn’t expect Johnson Outdoors to return to “historic gross margins soon,” given the cost pressures. Moderate price increases were taken last October and again in early April, with potentially additional pricing actions to come. Said Johnson, “I think it’s something that remains an arrow in our quiver going forward, and we won’t be afraid to continue to price appropriately. We just have to balance the accessibility of the products with the need to get the gross margin back to where it needs to be.”

Asked about demand, Johnson-Leipold said bookings are strong across segments, and Johnson Outdoors hasn’t faced any order cancellations. She said, “We do see some of the markets moderating, but our customer orders are still strong.”

Photo courtesy Johnson Outdoors/Old Town

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