Johnson Outdoors Inc.

Hello, everyone, and welcome to the Johnson Outdoors Fourth Quarter 2021 Earnings Conference Call. Today's call will be led by Helen Johnson-Leopold, 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 prepared remarks, the question and answer session will begin. If you would like to answer a question during this time, please press star then the number one on your telephone keypad. 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 Tennant, Johnson Outdoors. Please go ahead, Ms. Tennant.

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors results for the 2021 fiscal fourth quarter. If you need a copy of today's news release, it is available at 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 Security and Exchange Commission. If you have any questions following the call, please contact Dave Johnson or me. It is now my pleasure to turn the call over to Helen Johnson Leopold.

Thanks, Matt. Good morning, and thank you for joining us. I'll begin with an overview on the quarter and year-to-date results, and then I'll share perspective on the performance and outlook for our businesses. Dave will review financial highlights, and then we'll take your questions. In fiscal 2021, total company revenue grew 26% to $752 million, profit surged 57% to $111 million, and net income was $83 million, or $8.21 per diluted share, a 51% improvement from the prior fiscal year. We had an exceptional year. Our fishing, camping, and watercraft recreation businesses saw strong sales throughout the year, and our diving business began to recover in the third and fourth quarters. During our fiscal fourth quarter, total company net sales were $166 million, which was an increase versus last year's strong quarter. Overall, as people's desire to spend time outdoors continued to fuel demand, our performance this year reflects the value of our sustained focus and investment in translating deep, rich consumer insights into innovative products that deliver the best outdoor experience possible. In fishing, our largest business, robust demand across all product lines, continued throughout the year as anglers looked at Johnson Outdoors for the best fishing experiences possible. In our hummingbird 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 bites and anglers' lures. 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 Hummingbird and Minn Kota products to work together in unison, giving anglers an effortless command of their boat. And for some anglers, fishing is an all-weather sport, and Hummingbird is also a leader in ice fishing technology. The award-winning Mega Live imaging also launched in Ice Helix 9 this year, joining our popular Mega360 imaging technology. MegaLive imaging gives ice anglers the ability to see fish moving below the ice in real time and reacting to the lure, and Mega360 allows ice anglers to quickly understand what structure is under the ice so they can more easily locate productive fishing holes. In Minn Kota, the award-winning Raptor Shallow Water Anchor continues to do well in its first full year on the market. The Raptor has two industry leading 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. And in trolling motors with a strong heritage of innovation, quality and durability, Minn Kota is the industry leader. In watercraft recreation, our fishing kayak segment continues to grow and we've outpaced the strong market with the ongoing enthusiasm for our innovative sportsman line that we launched last year. Both retailers and consumers are enthusiastic about the innovation, and our Sportsman Autopilot 136 motorized fishing kayak was recently awarded Paddling Magazine's Best Fishing Boat for 2022. Old Town Sportsman Autopilot 136 leverages the game-changing SpotLock technology from its 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 any type of water. In camping, cooking continues to be an integral part of camping experience. Demand for a Eureka camp cooking technology continues to beat expectations, and in Jetboil, consumers continue to be excited about our super light stash stove that we launched earlier this year. Reducing weight on the trail is critical for backpackers, 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, in our diving business, we start to see markets begin to recover from pandemic-related restrictions in the latter half of the fiscal year. Diving at a strong fiscal fourth quarter, Our work to promote and support local diving as well as enhance our global digital presence and strengthen e-commerce are all working to help this positive growth. We remain focused on these efforts along with sustained innovation to ensure Scuba Pro's position as the most trusted dive brand in the world. While the ongoing global supply chain environment remains challenging and unpredictable, we have taken the time to understand opportunities and have invested in capacity and additional tools to help us manage our supply chain. We remain focused on continuing to work hard to manage supply chain issues and fill orders. In summary, we had an exceptional year which wouldn't have been possible without the hard work and dedication of our employees who worked tirelessly to meet the incredible demand for our product. As we continue to navigate the challenges ahead, our company 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, understanding our consumer, 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.

Thank you, Helen. Good morning, everyone. I want to highlight a few items from the quarter of the year. As Helen mentioned, we had continued strong demand in three of our four businesses through fiscal 2021. Like the challenging supply environment that many companies are operating in, we're facing ongoing disruptions in our supply chain that must be managed on a daily basis. We've taken action to mitigate our supply chain challenges, including finding alternative sources and doing everything possible to secure inventory and raw components to fill demand. Total inventory levels are higher than last year by 71%, and raw material inventory is up by 100%. In addition, we've invested in adding capacity and incremental resources where appropriate. Despite higher raw material and freight costs, gross margins only dip slightly due to volume efficiencies and favorable product mix. Now, in the near term, we expect gross margins to be pressured due to supply chain issues, and we're taking appropriate mitigation actions. Operating expenses were $28.9 million higher versus the prior year due to largely volume-related expenses, as well as increased headcount and people costs, but it declined as a percentage of sales versus fiscal 2020. Net income for the year was $83.4 million, up 51% from the prior fiscal quarter. The effective tax rate is 26.2% compared to last year's rate of 25.1%. Next year, we expect the tax rate to be in the mid-20s. Looking ahead, demand remains healthy, and we're focused on managing ongoing supply chain pressures, including maintaining higher-than-normal inventory levels to meet demand. Our strong balance sheet and healthy cash position continues to enable us to invest in strategic opportunities to strengthen the business, while consistently paying dividends to our shareholders. Now I'll turn the call back over to the operator for the Q&A session. Operator?

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then one on your touch-tone telephone. One moment, please. Our first question comes from Anthony from Sedoti. Your line is open.

Yes, good morning, and thank you for taking the questions. So, yeah, first I just wanted to follow up. You know, Dave, you mentioned that the current demand outlook is healthy. Are you seeing that across the board in all your categories, or does one – particular categories stand out versus others?

You know, I'll take that question. We are definitely seeing, you know, strong demand still across the board. I would say with the diving is the one that is a little less consistent, but we see positive upward movement in that business. But, you know, as far as we can tell in, you know, we have we certainly have our shipment data, but we get a limited amount of point of purchase data. But as far as we can tell, the demand is still very healthy across the other three businesses and growing in diving.

Got it. Okay. And is the diving, is that perhaps because of the new variant for COVID or is that something else you think?

No, I, well, I think we are still the aftermath of COVID in general would shut down travel, and that's a very travel-sensitive business. But we've got programs going for local diving, and we are launching some new products as well, which tend to help us gain some volume and break through some of the negative pressure that's resulting from COVID. So we feel good that we will continue to see some rebound in that business.

Okay, that's great to hear. And then which segments should we expect to see the most margin pressure? You know, again, is it kind of across the board or does one category kind of stand out where you think you'll see a hit to margins more so than the others?

You know, I would say it's across the board. I mean, where we are importing Product tends to have more pressure, but we tend to kind of do that across the board. So we're importing electronic components, and we're sourcing some finished good product from Asia. Those tend to have the most pressure on them. But that's a long answer, but I think it's pretty much across the board.

Got it. Okay. And have you done any price increases, or do you plan to do price increases to offset some of these headwinds?

Yeah, I mean, we're looking at everything, and, yes, we have taken price increases to help offset. It's a pretty dynamic environment, so we continue to evaluate that, and we won't be afraid to continue to take appropriate actions where necessary.

Got it. Okay. And then do you have a sense as to what the inventory levels are at retail?

You know, I – we – you know, it continues to be a thin inventory level because, you know, the demand is significantly, you know, higher than it has been historically. So we've got, you know, still a lot of room to grow and pipeline to fill.

Got it. Okay. That's great to hear. And then, you know, lastly, just a quick housekeeping question here. So you mentioned the tax rate will be in the mid-20s. Should that you know, vary much throughout the year or kind of, you know, more or less you think you'll be consistent? And then second part to that housekeeping question is just what you expect for CapEx for fiscal 22.

Yeah, for the tax rate, I mean, it's hard to say quarter by quarter just because the profitability varies so much seasonally, usually. So that's a difficult one to answer. But, you know, mid-20s is probably a fair bet on that. For CapEx, yeah, we ended this year at about 21 and change in CapEx. I would expect that to increase next year as we add capacity. It could be up, you know, 30% to 40% versus this year.

Okay. Got it. All right. Well, thank you very much and best of luck. Thank you, Anthony.

Thank you. Again, if you would like to ask a question, please press star then 1 on your touchtone telephone. One moment, please. Again, to ask a question, please press star then 1. I'm showing no further questions at this time. I would like to turn the call back over to Helen Johnson-Leopold for any closing remarks.

Okay. Well, thanks, everyone, for joining us, and I hope you have a great holiday season. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Thank you. you Thank you. Thank you. you Hello, everyone, and welcome to the Johnson Outdoors Fourth Quarter 2021 Earnings Conference Call. Today's call will be led by Helen Johnson-Leopold, 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 prepared remarks, the question and answer session will begin. If you would like to answer a question during this time, please press star then the number one on your telephone keypad. 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 Tenen, Johnson Outdoors. Please go ahead, Ms. Tenen.

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors results for the 2021 fiscal fourth quarter. If you need a copy of today's news release, it is available at 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 Security and Exchange Commission. If you have any questions following the call, please contact Dave Johnson or me. It is now my pleasure to turn the call over to Helen Johnson-Leopold.

Thanks, Matt. Good morning and thank you for joining us. I'll begin with an overview on the quarter and year-to-date results, and then I'll share perspective on the performance and outlook for our businesses. Dave will review financial highlights and then we'll take your questions. In fiscal 2021, total company revenue grew 26% to $752 million, profit surged 57% to $111 million, and net income was $83 million, or $8.21 per diluted share, a 51% improvement from the prior fiscal year. We have an exceptional year. Our fishing, camping, and watercraft recreation businesses saw strong sales throughout the year, and our diving business began to recover in the third and fourth quarters. During our fiscal fourth quarter, total company net sales were $166 million, which was an increase versus last year's strong quarter. Overall, as people's desire to spend time outdoors continued to fuel demand, our performance this year reflects the value of our sustained focus and investment in translating deep, rich consumer insights into innovative products that deliver the best outdoor experience possible. In fishing, our largest business, robust demand across all product lines, continued throughout the year as anglers looked at Johnson Outdoors for the best fishing experiences possible. In our hummingbird 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 bites and anglers' lures. 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 Hummingbird and Minn Kota products to work together in unison, giving anglers an effortless command of their boat. And for some anglers, fishing is an all-weather sport, and Hummingbird is also a leader in ice fishing technology. The award-winning Mega Live imaging system also launched in Ice Helix 9 this year, joining our popular Mega360 imaging technology. MegaLive imaging gives ice anglers the ability to see fish moving below the ice in real time and reacting to the lure, and Mega360 allows ice anglers to quickly understand what structure is under the ice so they can more easily locate productive fishing holes. In Minn Kota, the award-winning Raptor Shallow Water Anchor continues to do well in its first full year on the market. The Raptor has two industry leading 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. And in trolling motors with a strong heritage of innovation, quality and durability, Minn Kota is the industry leader. In watercraft recreation, our fishing kayak segment continues to grow and we've outpaced the strong market with the ongoing enthusiasm for our innovative sportsman line that we launched last year. Both retailers and consumers are enthusiastic about the innovation, and our Sportsman Autopilot 136 motorized fishing kayak was recently awarded Paddling Magazine's Best Fishing Boat for 2022. Old Town Sportsman Autopilot 136 leverages the game-changing SpotLock technology from its 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 any type of water. In camping, cooking continues to be an integral part of camping experience. Demand for Eureka Camp cooking technology continues to beat expectations, and in jet fuel, consumers continue to be excited about our super light stash stove that we launched earlier this year. Reducing weight on the trail is critical for backpackers, 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, in our dining business, we start to see markets begin to recover from pandemic-related restrictions in the latter half of the fiscal year. Dining at a strong fiscal fourth quarter, Our work to promote and support local diving as well as enhance our global digital presence and strengthen e-commerce are all working to help this positive growth. We remain focused on these efforts along with sustained innovation to ensure Scuba Pro's position as the most trusted dive brand in the world. While the ongoing global supply chain environment remains challenging and unpredictable, we have taken the time to understand opportunities and have invested in capacity and additional tools to help us manage our supply chain. We remain focused on continuing to work hard to manage supply chain issues and fill orders. In summary, we had an exceptional year which wouldn't have been possible without the hard work and dedication of our employees who worked tirelessly to meet the incredible demand for our product. As we continue to navigate the challenges ahead, our company 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, understanding our consumer, 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.

Thank you, Helen. Good morning, everyone. I want to highlight a few items from the quarter of the year. As Helen mentioned, we had continued strong demand in three of our four businesses through fiscal 2021. Like the challenging supply environment that many companies are operating in, we're facing ongoing disruptions in our supply chain that must be managed on a daily basis. We've taken action to mitigate our supply chain challenges, including finding alternative sources and doing everything possible to secure inventory and raw components to fill demand. Total inventory levels are higher than last year by 71%, and raw material inventory is up by 100%. In addition, we've invested in adding capacity and incremental resources where appropriate. Despite higher raw material and freight costs, gross margins only dip slightly due to volume efficiencies and favorable product mix. Now, in the near term, we expect gross margins to be pressured due to supply chain issues, and we're taking appropriate mitigation actions. Operating expenses were $28.9 million higher versus the prior year due to largely volume-related expenses, as well as increased headcount and people costs, but it declined as a percentage of sales versus fiscal 2020. Net income for the year was $83.4 million, up 51% from the prior fiscal quarter. The effective tax rate is 26.2% compared to last year's rate of 25.1%. Next year, we expect the tax rate to be in the mid-20s. Looking ahead, demand remains healthy, and we're focused on managing ongoing supply chain pressures, including maintaining higher-than-normal inventory levels to meet demand. Our strong balance sheet and healthy cash position continues to enable us to invest in strategic opportunities to strengthen the business, while consistently paying dividends to our shareholders. Now I'll turn the call back over to the operator for the Q&A session. Operator?

Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone telephone. One moment, please. Our first question comes from Anthony from Sedoti. Your line is open.

Yes, good morning, and thank you for taking the questions. So, yeah, first I just wanted to follow up. Dave, you mentioned that the current demand outlook is healthy. Are you seeing that across the board in all your categories, or does one – particular category stand out versus others?

You know, I'll take that question. We are definitely seeing, you know, strong demand still across the board. I would say with the diving is the one that is a little less consistent, but we see positive upward movement in that business. But, you know, as far as we can tell in, you know, we have We certainly have our shipment data, but we get a limited amount of point-of-purchase data. But as far as we can tell, the demand is still very healthy across the other three businesses and growing in diving.

Got it. Okay. And is the diving, is that perhaps because of the new variant for COVID, or is that something else you think?

No. Well, I think we are still the aftermath of COVID in general would shut down travel, and that's a very travel-sensitive business. But we've got programs going for local diving, and we are launching some new products as well, which tend to help us gain some volume and break through some of the negative pressure that's resulting from COVID. So we feel good that we will continue to see some rebound in that business.

Okay, that's great to hear. And then which segments should we expect to see the most margin pressure? You know, again, is it kind of across the board or does one category kind of stand out where you think you'll see a hit to margins more so than the others?

You know, I would say it's across the board. I mean, where we are importing product tends to have more pressure, but we tend to kind of do that across the board. So we're importing electronic components, and we're sourcing some finished good product from Asia. Those tend to have the most pressure on them. But that's a long answer, but I think it's pretty much across the board.

Got it. Okay. And have you done any price increases, or do you plan to do price increases to offset some of these headwinds?

Yeah, I mean, we're looking at everything, and, yes, we have taken price increases to help offset. It's a pretty dynamic environment, so we continue to evaluate that, and we won't be afraid to continue to take appropriate actions where necessary.

Got it. Okay. And then do you have a sense as to what the inventory levels are at retail?

You know, I – we – you know, it continues to be a thin inventory level because, you know, the demand is significantly, you know, higher than it has been historically. So we've got, you know, still a lot of room to grow and pipeline to fill.

Got it. Okay. That's great to hear. And then, you know, lastly, just a quick housekeeping question here. So you mentioned the tax rate will be in the mid-20s. Should that you know, vary much throughout the year or kind of, you know, more or less you think you'll be consistent? And then second part to that housekeeping question is just what you expect for CapEx for fiscal 22.

Yeah, for the tax rate, I mean, it's hard to say quarter by quarter just because the profitability varies so much seasonally, usually. So that's a difficult one to answer. But, you know, mid-20s is probably a fair bet on that. For CapEx, yeah, we ended this year about 21 and change in CapEx. I would expect that to increase next year as we add capacity. It could be up, you know, 30% to 40% versus this year.

Okay. Got it. All right. Well, thank you very much and best of luck. Thank you, Anthony.

Thank you. Again, if you would like to ask a question, please press 5 and 1 on your touchtone telephone. One moment, please. Again, to ask a question, please press star then 1. I'm showing no further questions at this time. I would like to turn the call back over to Helen Johnson-Leopold for any closing remarks.

Okay. Well, thanks, everyone, for joining us, and I hope you have a great holiday season. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.