In 2012, outdoor recreation reached a six-year high in participation, according to the Outdoor Foundation's 2013 report. The number of Americans ages six and above enjoying the great outdoors increased by 800,000 to 142 million, a participation rate of 49.4%. Outdoor excursions reached an all-time high of 12.4 billion, an increase of 900 million.
Although my own wilderness excursions are usually limited to retrieving a golf ball, allow me to be your guide in analyzing three outdoor-products manufacturers that serve a diverse cross-section of recreational enthusiasts, including hunters, hikers, fishermen and boaters.
Sturm, Ruger (NYSE: RGR ) is one of America's leading manufacturers of firearms. It has more than 30 product lines and 400 product variations, and this company is enjoying a spectacular year. In the first six months of the year, Sturm, Ruger generated net sales of $335 million compared to $232 million in the comparable 2012 period -- a 44% increase. Net income soared 67% to $56 million.
The company lowered operating expenses as a percent of revenue from nearly 15% in last year's first half to 13.4% this year. Ruger clearly understands operational efficiency.
Much has been made in the press about Americans rushing out to buy guns this year because they feared the government was going to restrict gun ownership. So should we look at Ruger's outstanding financial performance as a one-shot thing?
Not at all. Ruger is committing its capital into expansion. It recently announced it is building a new manufacturing facility in Rockingham County, N.C. By the end of 2017, the company intends to invest $26 million in the plant and create 450 new well-paid manufacturing and supervisory jobs. In the last five years -- during the recession -- Ruger managed to create 900 jobs. A company that actually creates manufacturing jobs--what a novel concept in 2013, America!
Calm waters, steady profits
Johnson Outdoors (NASDAQ: JOUT ) manufactures and markets outdoor recreation products in four categories: marine electronics, which accounted for 62% of sales for the first nine months of the fiscal year; outdoor equipment (including camping and hiking), 10% of sales; watercraft, which contributed 11% of sales; and diving equipment, 17%.
This company recorded solid but not spectacular results for the first nine months of the year. Revenue was up 3.5% over the same period of 2012. Bright points were strong sales growth in marine electronics and outdoor gear, while watercraft and diving unit sales declined.
Operational efficiencies boosted the bottom line:
- The gross profit percentage was up 0.5%.
- Operating expenses as a percentage of sales were down 1%.
As with Ruger, Johnson's new products were the growth engines. Almost half of total sales were generated by these innovations. Two of its products took "Best in Show" awards at a premier fishing product show, ICAST.
The company's 71% increase in net income to nearly $23 million was only partially due to operational results. Of the $9.5 million increase, $4.5 million resulted from lower income taxes and $900,000 from lower interest expenses. Overall, though, a steady performance for the first nine months.
Is Columbia well-insulated from competition?
Columbia Sportswear (NASDAQ: COLM ) manufactures apparel and footwear designed to protect you from the elements and keep you comfortable -- thereby increasing outdoor enthusiasts' enjoyment of their favorite sports such as skiing, hiking and fishing.
At first glance, the company's performance during the first half of 2013 seems average at best. Worldwide sales were up just 1%, although sales in the U.S. rose 5%, a $15 million increase over the previous year. This was offset by a $14 million sales drop in Europe, the Middle East and Africa.
Columbia's full-year outlook is that sales will fall around 2.5% -- seemingly not too promising given the rebound in consumer confidence and willingness to spend. But with this company, you have to look beyond these near-term numbers to see the potential for the future.
Columbia incorporates advanced technology into its products. In fact, one of its innovations, Omni-Freeze Zero fabric, is designed to keep the wearers cool when they sweat from the exertion of outdoor activities.
Columbia's strategy to deal with the unsatisfactory growth rates of the U.S. and European economies has been to expand to emerging markets, such as India -- where participation in outdoor activities is surging -- and China, where it will begin operations in 2014.
Columbia is also becoming a more efficient company. It was able to boost its gross profit percentage year-to-date by nearly one point, and reduced SG&A expenses as a percentage of sales from 44.5% last year to 43.7% in 2013.
What we learned
Johnson Outdoors has an enviable mix of product segments that allows the company to achieve growth even if one or two segments are struggling, such as its diving segment doing a recent belly flop.
Columbia Sportswear should reach a higher growth trajectory as the positive effects of its overseas initiatives kick in and the U.S. economy improves. Like Johnson Outdoor, it manages costs very well. Columbia's also laser-focused on bringing innovative products to market.
Sturm, Ruger may not be able to sustain the revenue and profit increases it achieved in the first half of the year. Nonetheless, because of brand strength, its ability to deliver new products, and the continued demand for firearms by the American public, the company should do very well. Its new products accounted for more than 30% of sales in the first half of the year.
My own view on this industry is bullish because increasing numbers of people are taking up outdoor activities as a way of improving their fitness and dealing with stress. Considering any one of these fine companies as an investment can help reduce the stress on your portfolio as well.