Johnson Outdoors (JOUT) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Johnson Outdoors Inc. for the three months ended December 30, 2022, and December 31, 2021, including statements of operations, comprehensive income, balance sheets, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies and specific financial line items Condensed Consolidated Statements of Operations Consolidated Statements of Operations (Three Months Ended) | (thousands, except per share data) | December 30, 2022 | December 31, 2021 | | :--------------------------------- | :------------------ | :------------------ | | Net sales | $ 178,337 | $ 153,524 | | Gross profit | $ 62,779 | $ 60,631 | | Operating profit | $ 5,472 | $ 13,760 | | Profit before income taxes | $ 8,166 | $ 14,589 | | Net income | $ 5,879 | $ 10,856 | | Net income per common share - Diluted: Class A | $ 0.57 | $ 1.07 | | Net income per common share - Diluted: Class B | $ 0.57 | $ 1.07 | - Net sales increased by $24,813 (16.16%) from $153,524 in Q1 FY2022 to $178,337 in Q1 FY2023[8] - Operating profit decreased by $8,288 (60.23%) from $13,760 in Q1 FY2022 to $5,472 in Q1 FY2023[8] - Net income decreased by $4,977 (45.85%) from $10,856 in Q1 FY2022 to $5,879 in Q1 FY2023[8] Condensed Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Net income | $ 5,879 | $ 10,856 | | Foreign currency translation | $ 2,937 | $ (423) | | Change in pension plans, net of tax | $ 8 | $ 16 | | Total comprehensive income | $ 8,824 | $ 10,449 | - Total comprehensive income decreased by $1,625 (15.55%) from $10,449 in Q1 FY2022 to $8,824 in Q1 FY2023[12] - Foreign currency translation shifted from a loss of $423 thousand in Q1 FY2022 to a gain of $2,937 thousand in Q1 FY2023[12] Condensed Consolidated Balance Sheets Consolidated Balance Sheets (as of) | (thousands) | December 30, 2022 | September 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------- | :------------------ | | Cash and cash equivalents | $ 103,422 | $ 129,803 | $ 167,473 | | Accounts receivable, net | $ 120,553 | $ 91,919 | $ 86,689 | | Inventories | $ 251,525 | $ 248,649 | $ 217,431 | | Total current assets | $ 486,524 | $ 480,316 | $ 486,408 | | Total assets | $ 689,096 | $ 679,931 | $ 672,354 | | Total current liabilities | $ 117,438 | $ 114,713 | $ 128,002 | | Total liabilities | $ 194,875 | $ 191,917 | $ 205,741 | | Total shareholders' equity | $ 494,221 | $ 488,014 | $ 466,613 | - Cash and cash equivalents decreased by $64,051 (38.25%) from $167,473 as of December 31, 2021, to $103,422 as of December 30, 2022[15] - Inventories increased by $34,094 (15.68%) from $217,431 as of December 31, 2021, to $251,525 as of December 30, 2022[15] - Total shareholders' equity increased by $27,608 (5.92%) from $466,613 as of December 31, 2021, to $494,221 as of December 30, 2022[15] Condensed Consolidated Statements of Shareholders' Equity Changes in Shareholders' Equity (Three Months Ended) | (thousands) | Dec 30, 2022 (Balance at Sep 30, 2022) | Dec 30, 2022 (Balance at Dec 30, 2022) | Dec 31, 2021 (Balance at Oct 1, 2021) | Dec 31, 2021 (Balance at Dec 31, 2021) | | :---------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------- | | Common Stock | $ 512 | $ 514 | $ 509 | $ 510 | | Capital in Excess of Par Value | $ 87,351 | $ 86,923 | $ 82,899 | $ 83,869 | | Retained Earnings | $ 402,821 | $ 405,574 | $ 370,501 | $ 378,352 | | Accumulated Other Comprehensive Income (Loss) | $ 620 | $ 3,565 | $ 7,386 | $ 6,979 | | Treasury Stock | $ (3,290) | $ (2,355) | $ (2,790) | $ (3,097) | | Total Equity | $ 488,014 | $ 494,221 | $ 466,613 | $ 466,613 | - Retained earnings increased by $2,753 thousand during the three months ended December 30, 2022, primarily due to net income of $5,879 thousand, partially offset by dividends declared of $3,126 thousand[18] - Accumulated Other Comprehensive Income (Loss) increased significantly from $620 thousand to $3,565 thousand, driven by a positive currency translation adjustment of $2,937 thousand[18] Condensed Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Cash used for operating activities | $ (17,570) | $ (62,773) | | Cash used for investing activities | $ (6,649) | $ (6,244) | | Cash used for financing activities | $ (3,570) | $ (3,466) | | Effect of foreign currency rate changes on cash | $ 1,408 | $ (492) | | Decrease in cash and cash equivalents | $ (26,381) | $ (72,975) | | Cash and cash equivalents, End of period | $ 103,422 | $ 167,473 | - Cash used for operating activities significantly decreased from $62,773 thousand in Q1 FY2022 to $17,570 thousand in Q1 FY2023, primarily due to lower inventory purchases in the current period[20][137] - The company experienced a decrease in cash and cash equivalents of $26,381 thousand in Q1 FY2023, compared to a decrease of $72,975 thousand in Q1 FY2022[20] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, specific financial line items, and other relevant information for the periods presented 1 BASIS OF PRESENTATION - The unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for fair presentation[22] - Results for the three months ended December 30, 2022, are not indicative of the full fiscal year due to seasonality, COVID-19 aftereffects, global supply chain disruptions, and inflationary pressures[23] 2 ACCOUNTS RECEIVABLE - Net accounts receivable increased to $120,553 thousand as of December 30, 2022, from $91,919 thousand as of September 30, 2022, primarily due to the seasonal nature of the Company's business[26] Accounts Receivable, Net of Allowances | (thousands) | December 30, 2022 | September 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------- | :------------------ | | Accounts receivable, net | $ 120,553 | $ 91,919 | $ 86,689 | | Allowances for doubtful accounts | $ 1,151 | $ 1,037 | $ 2,662 | 3 EARNINGS PER SHARE ("EPS") - EPS is computed using the two-class method, with Class A common stock holders entitled to 110% of dividends declared on Class B common stock[27][28] Dividends Declared Per Common Share (Three Months Ended) | | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Class A | $ 0.31 | $ 0.30 | | Class B | $ 0.28 | $ 0.27 | 4 STOCK-BASED COMPENSATION AND STOCK OWNERSHIP PLANS - The Company has 395,018 shares of Class A common stock available for future grant under its 2012 Non-Employee Director Stock Ownership Plan and 2020 Long-Term Incentive Plan as of December 30, 2022[37] Stock Compensation Expense (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Non-vested stock compensation expense | $ 456 | $ 295 | | RSU compensation expense | $ 476 | $ 727 | | Employees' Stock Purchase Plan expense | $ 21 | $ 104 | - Unrecognized compensation cost for non-vested stock was $2,938 thousand and for RSUs was $3,175 thousand as of December 30, 2022[43][46] 5 LEASES - The Company has approximately 200 operating leases with remaining terms up to 16 years, and no finance leases or sublease agreements[56][59] Total Lease Cost (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Operating lease costs | $ 2,430 | $ 2,107 | | Short-term lease costs | $ 529 | $ 414 | | Variable lease costs | $ 41 | $ 45 | | Total lease cost | $ 3,000 | $ 2,566 | - Total lease cost increased by $434 thousand (16.91%) from $2,566 thousand in Q1 FY2022 to $3,000 thousand in Q1 FY2023[57] 6 INCOME TAXES Income Tax Data (Three Months Ended) | (thousands, except tax rate data) | December 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------------ | :------------------ | | Profit before income taxes | $ 8,166 | $ 14,589 | | Income tax expense | $ 2,287 | $ 3,733 | | Effective income tax rate | 28.0 % | 25.6 % | - The effective income tax rate increased to 28.0% for Q1 FY2023 from 25.6% in Q1 FY2022, primarily due to the unfavorable tax expense impact of stock-based compensation awards[61] 7 INVENTORIES Inventories (as of) | (thousands) | December 30, 2022 | September 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------- | :------------------ | | Raw materials | $ 149,986 | $ 166,443 | $ 150,064 | | Work in process | $ 229 | $ 230 | $ 142 | | Finished goods | $ 101,310 | $ 81,976 | $ 67,225 | | Total | $ 251,525 | $ 248,649 | $ 217,431 | - Total inventories increased by $34,094 thousand (15.68%) from $217,431 thousand as of December 31, 2021, to $251,525 thousand as of December 30, 2022[64] - Finished goods inventory saw a significant increase of $34,085 thousand (50.70%) year-over-year[64] 8 GOODWILL Goodwill Changes (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Balance at beginning of period | $ 11,160 | $ 11,221 | | Amount attributable to movements in foreign currency rates | $ 7 | $ (4) | | Balance at end of period | $ 11,167 | $ 11,217 | - Goodwill balance remained relatively stable, with minor adjustments due to foreign currency rate movements[65] 9 WARRANTIES Warranty Activity (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Balance at beginning of period | $ 9,639 | $ 14,073 | | Expense accruals for warranties issued | $ 1,852 | $ 767 | | Current period warranty claims paid | $ 1,793 | $ 2,095 | | Balance at end of period | $ 9,698 | $ 12,745 | - Warranty expense accruals increased significantly from $767 thousand in Q1 FY2022 to $1,852 thousand in Q1 FY2023[68] 10 CONTINGENCIES - Management does not believe the final outcome of any pending litigation will have a material adverse effect on the Company's financial condition, results of operations, liquidity, or cash flows[69] 11 INDEBTEDNESS - The Company had no debt outstanding at December 30, 2022, September 30, 2022, or December 31, 2021[70] - The Company has an unsecured credit facility (Revolver) of $75 million with a $50 million accordion feature, expiring July 15, 2026[71] - The interest rate on the Revolver increased significantly from approximately 1.1% at December 31, 2021, to 5.4% at December 30, 2022[72] 12 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Approximately 12% of the Company's revenues for Q1 FY2023 were denominated in currencies other than the U.S. dollar, primarily euros (5%), Canadian dollars (5%), and Hong Kong dollars (1%)[80] - The Company held no foreign currency forward contracts as of December 30, 2022, or December 31, 2021[81] 13 FAIR VALUE MEASUREMENTS - Rabbi trust assets, classified as trading securities, are measured at fair value based on unadjusted quoted prices in active markets (Level 1 inputs)[85][86] Rabbi Trust Assets Measured at Fair Value (as of) | (thousands) | December 30, 2022 | September 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------- | :------------------ | | Rabbi trust assets (Level 1) | $ 22,684 | $ 21,436 | $ 29,835 | - Net investment gains and earnings on rabbi trust assets were $1,383 thousand for Q1 FY2023, compared to $1,095 thousand for Q1 FY2022[86] 14 NEW ACCOUNTING PRONOUNCEMENTS - The Company does not expect ASU 2020-04 (Reference Rate Reform), as deferred by ASU 2022-06 to December 31, 2024, to have a significant impact on its financial statements[87] 15 REVENUES - Revenue is recognized when control of goods is transferred to the customer, typically at the point of shipment, with consideration for variable elements like incentives and rebates[90] - Estimated costs of returns, allowances, and discounts are accrued as a reduction to sales when revenue is recognized[92] Returns Asset and Accrued Returns Liability (as of) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Right to returns asset | $ 834 | $ 780 | | Accrued returns liability | $ 2,317 | $ 2,092 | 16 SEGMENTS OF BUSINESS Net Sales by Business Segment (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Fishing | $ 137,821 | $ 108,181 | | Camping | $ 11,607 | $ 14,118 | | Watercraft Recreation | $ 9,633 | $ 14,598 | | Diving | $ 19,042 | $ 16,490 | | Total | $ 178,337 | $ 153,524 | Operating Profit (Loss) by Business Segment (Three Months Ended) | (thousands) | December 30, 2022 | December 31, 2021 | | :---------- | :------------------ | :------------------ | | Fishing | $ 15,572 | $ 16,292 | | Camping | $ 753 | $ 2,750 | | Watercraft Recreation | $ (415) | $ 1,531 | | Diving | $ 13 | $ 453 | | Other / Corporate | $ (10,451) | $ (7,266) | | Total | $ 5,472 | $ 13,760 | - Fishing segment sales increased by $29,640 thousand (27.40%) year-over-year, while Camping and Watercraft Recreation sales decreased by 17.78% and 34.01% respectively[99] - Operating profit declined across all segments except for 'Other / Corporate' which saw a larger loss, with Watercraft Recreation shifting from a profit of $1,531 thousand to a loss of $415 thousand[99] 17 ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Changes in Accumulated Other Comprehensive Income (AOCI) (Three Months Ended) | (thousands) | Balance at Sep 30, 2022 | Other comprehensive loss before reclassifications | Amounts reclassified from AOCI | Tax effects | Balance at Dec 30, 2022 | | :---------- | :---------------------- | :---------------------------------------------- | :----------------------------- | :---------- | :---------------------- | | Foreign Currency Translation Adjustment | $ 791 | $ 2,937 | $ — | $ — | $ 3,728 | | Unamortized Loss on Defined Benefit Pension Plans | $ (171) | $ — | $ 11 | $ (3) | $ (163) |\ | Accumulated Other Comprehensive Income (Loss) | $ 620 | $ 2,937 | $ 11 | $ (3) | $ 3,565 | - AOCI increased from $620 thousand at September 30, 2022, to $3,565 thousand at December 30, 2022, primarily due to a positive foreign currency translation adjustment of $2,937 thousand[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition for the three months ended December 30, 2022, discussing net sales, operating profit, liquidity, and the impact of external factors like COVID-19 and inflation Overview - Johnson Outdoors Inc. is a global manufacturer of branded seasonal outdoor recreation products for fishing, diving, paddling, and camping[108] - The COVID-19 pandemic initially increased demand for outdoor recreation products but is now showing a reduction in consumer demand across some segments in fiscal 2023[109] - Supply chain disruptions and inflationary pressures continue to impact raw material costs, component availability, and margins, leading to lower gross margins despite increased sales[111][112][113] Seasonality - The first fiscal quarter traditionally precedes the Company's primary selling season for warm-weather outdoor recreation products[114] - COVID-19 shifted traditional seasonal sales pacing, which typically saw heaviest sales volumes in the second and third fiscal quarters[114] Historical Quarterly Net Sales and Operating Profit Seasonality | Quarter Ended | 2022 Net Sales | 2022 Operating Profit | 2021 Net Sales | 2021 Operating Profit | 2020 Net Sales | 2020 Operating Profit | | :------------ | :------------- | :-------------------- | :------------- | :-------------------- | :------------- | :-------------------- | | December | 21 % | 21 % | 22 % | 22 % | 22 % | 10 % | | March | 26 % | 23 % | 27 % | 32 % | 27 % | 45 % | | June | 27 % | 36 % | 29 % | 34 % | 23 % | 17 % | | September | 26 % | 20 % | 22 % | 12 % | 28 % | 28 % | Results of Operations Net Sales - Consolidated net sales increased by 16% to $178,337 thousand for Q1 FY2023, with an unfavorable foreign currency translation impact of approximately 1%[119] - Fishing segment sales increased by 27% due to increased supply and component availability and price increases[120] - Camping and Watercraft Recreation sales decreased by 18% and 34% respectively, driven by reduced consumer demand post-pandemic[121][122] - Diving sales increased by 16% due to a rebound in destination travel and tourism, partially offset by a 6% unfavorable foreign currency translation impact[123] Cost of Sales - Cost of sales increased by $22,665 thousand, driven by higher sales volumes and increased costs of components, parts, and raw materials in inventory[124] Gross Profit Margin - Gross profit margin decreased to 35.2% for Q1 FY2023 from 39.5% in Q1 FY2022, as increased sales and price increases were insufficient to offset higher inventory costs[127] Operating Expenses - Operating expenses increased by $10,436 thousand to $57,307 thousand, primarily due to higher sales volume-driven expenses, compensation, health insurance, and professional services costs[128] Operating Profit - Consolidated operating profit decreased to $5,472 thousand for Q1 FY2023 from $13,760 thousand in Q1 FY2022, driven by higher operating expenses and lower gross profit[129] Interest - Interest income increased significantly to $827 thousand for Q1 FY2023 from $93 thousand in Q1 FY2022, due to an increase in interest rates[130] Other Expense (Income), net - Other income, net, increased to $1,904 thousand for Q1 FY2023 from $774 thousand in Q1 FY2022[131] - Foreign currency exchange gains were $276 thousand in Q1 FY2023, a positive shift from losses of $366 thousand in Q1 FY2022[131] Income Tax Expense - The effective tax rate increased to 28.0% for Q1 FY2023 from 25.6% in Q1 FY2022, primarily due to the unfavorable tax impact of stock-based compensation awards[132] Net Income - Net income decreased to $5,879 thousand ($0.57 diluted EPS) for Q1 FY2023 from $10,856 thousand ($1.07 diluted EPS) in Q1 FY2022[133] Liquidity and Financial Condition - Cash and cash equivalents decreased to $103,422 thousand as of December 30, 2022, from $167,473 thousand as of December 31, 2021, primarily due to increased inventory purchases[134] - The Company maintained a 0% debt to total capitalization ratio as of December 30, 2022, and December 31, 2021, with no outstanding debt[134] - Inventories increased by $34,094 thousand to $251,525 thousand, reflecting strategic purchases to mitigate supply chain disruptions[135] Contractual Obligations and Off Balance Sheet Arrangements - No significant changes in contractual obligations during the quarter, which include operating leases and open purchase orders[141] - Letters of credit outstanding for workers' compensation insurance were approximately $173 thousand as of December 30, 2022[142] - The Company has no other off-balance sheet arrangements[143] Critical Accounting Policies and Estimates - No significant changes to the Company's critical accounting policies and estimates during the three months ended December 30, 2022[145] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risks, including foreign currency exchange rates, interest rates, commodity prices, and inflation, noting no significant changes during the quarter - The Company is exposed to market risks in foreign currency exchange rates, interest rates, commodity prices, and inflation[146] - There have been no significant changes to the Company's market risk profile during the three months ended December 30, 2022[146] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective at a reasonable assurance level as of December 30, 2022[147] - No material changes occurred in the Company's internal control over financial reporting during the last fiscal quarter[148] PART II OTHER INFORMATION Item 1. Legal Proceedings This section states that the Company is involved in various legal proceedings in the normal course of business but does not anticipate any material adverse effects on its financial statements - The Company is subject to various legal actions and proceedings in the normal course of business[149] - Management does not believe any pending litigation will have a material adverse effect on the Company's financial condition, results of operations, liquidity, or cash flows[149] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's Form 10-K - No material changes to the risk factors disclosed in the Company's Form 10-K filed on December 9, 2022[150] Item 6. Exhibits This section refers to the Exhibit Index for a list of documents filed as exhibits to the Form 10-Q report - The Exhibit Index provides a list of documents filed as exhibits to this Form 10-Q report[151] Signatures This section contains the required signatures of the Company's Chairman and Chief Executive Officer and Vice President and Chief Financial Officer, certifying the report - The report is signed by Helen P. Johnson-Leipold, Chairman and Chief Executive Officer, and David W. Johnson, Vice President and Chief Financial Officer[155] Exhibit Index This index lists all exhibits accompanying the Quarterly Report on Form 10-Q, including articles of incorporation, bylaws, certifications, and XBRL formatted financial statements Key Exhibits Listed | Exhibit Number | Description | | :------------- | :---------- | | 3.1 | Articles of Incorporation | | 3.2 | Bylaws | | 31.1 | Certification by CEO (Section 302) | | 31.2 | Certification by CFO (Section 302) | | 32 | Certification of Periodic Financial Report (Section 906) | | 101 | XBRL Formatted Financial Statements | | 104 | Inline XBRL Cover Page |