Can These Outdoor Recreation Product Manufacturers Provide Fun, Adventure, and Profits?

In 2012, participation in outdoor recreation reached a six-year high, according to The Outdoor Foundation's "2013 Outdoor Recreation Participation Topline Report." Almost half of Americans six years old and above participated in outdoor activities, nearly 1 million more compared with 2011.

Today we check in on recent results from Johnson Outdoors (NASDAQ: JOUT  ) , Sturm, Ruger & Co  (NYSE: RGR  ) , and Winnebago Industries (NYSE: WGO  ) to see how well each is doing at capturing a larger share of this growing outdoor-recreation market.

Navigating well through choppy competitive waters
Johnson Outdoors manufactures and markets a wide range of outdoor products, including marine electronics, its largest segment, outdoor equipment for hiking and camping, and watercraft and diving equipment. 

The company reported its fourth-quarter and fiscal-year 2013 results in early December. Because of the seasonality in the sales of warm-weather recreational products, the fourth quarter is a slow one for Johnson Outdoors.

More representative of the company's performance is its fiscal-year results. Net sales for the year rose 3.4% versus 2012. The company achieved record sales in its marine-electronics segment and strong growth in outdoor-gear sales. Watercraft sales, however, sank 13% from prior-year levels. 

An operating profit of $25.6 million was a 20-plus year high and increased 20% versus 2012. The gains were due to higher sales volumes, excellent operating expense control, and the tremendous $32.2 million operating profit in the marine-electronics segment. 

Product innovation is key to the company's growth strategy, and for the ninth year in a row new products accounted for more than one-third of total sales. To continue building out its camping-products line, the company acquired Jetboil, a leading brand in personal outdoor-cooking systems.

Not a one-shot wonder
Earlier in the year when there was quite a political dust-up over the issue of whether to implement stiffer gun laws, firearm makers such as Sturm, Ruger got a sales boost from customers who were concerned they may not be able to purchase firearms in the future, whether for hunting or simply for personal protection. The question many analysts had was if the company could keep its momentum going when the political world lurched onto the next controversy.

Ruger has definitely been able to put those fears to rest. In the third quarter, net sales were $171 million compared with $118 million in the same quarter a year ago -- an outstanding increase of nearly 45%.

The company's new product innovations were very well received by its target markets (so to speak) as sales of new products accounted for almost one-third of total firearm sales for the first nine months of the year.

The company increased its gross profit percentage by 80 basis points in the third quarter while reducing total operating expenses as a percentage of revenue by more than two full percentage points.

With this sales growth and operating efficiency, it's no surprise that operating income soared 64% in the quarter to almost $45 million. Operating income as a percentage of sales was an eye-opening 26.2%.

And these profits were not just a quarterly phenomenon. For the first nine months of the year, operating income jumped 66% compared to the first nine months of last year.

Home sweet home, wherever you want to go
Winnebago Industries calls its brand "the most recognized name in motorhomes." Results reported for the fiscal first quarter of 2014 ending Nov. 30 showed the company is gaining recognition, popularity, and profits. Revenue increased 15% compared to the same quarter a year ago. Winnebago reported higher dealer and retail-consumer demand as well as firmer pricing.

Winnebago, like Ruger, showed masterful margin management for the quarter, as the gross profit percentage rose 100 basis points, and total operating expenses as a percentage of sales fell 110 basis points.

The net result was a 61% year-over-year increase in operating income to more than $16 million. This means operating income as a percentage of sales was 7.2% -- making Ruger's 26.2% look even more amazing.

What we learned
The brilliant merchandising strategies of sporting-goods retailers such as publicly-traded Cabela's and privately-held Bass Pro Shops -- which are like theme parks for outdoor enthusiasts -- are contributing to the success of companies such as Johnson Outdoors and Sturm, Ruger because consumers get to see the products in the context of the overall adventure experience these items facilitate. You can see and almost feel the fun you will have from using the products.

This encourages individuals to take up new outdoor sports or upgrade the sports equipment they have. Hunters, for example, can try on hunting gear and imagine themselves out there in the wilderness with their Ruger firearm at the ready. This is a much more visually appealing way to market products compared to say, how firearms are sold at the local "gun shop."

Winnebago has been able to widen the demographic groups it appeals to -- both by age and income level. The more people learn about the world of adventure -- while still having all the comforts of home -- that awaits them in a recreational vehicle, the more the market for Winnebago's high-quality and technologically advanced products will continue to grow.

In terms of coming up with popular product innovations that please its customer base, Winnebago excels. Its new "Winnebago Trend" product was named 2014's Top RV Debut by RV Business Magazine.

Johnson Outdoors offers products in diverse markets so that when one segment struggles, the others can pick up the revenue slack. This also allows the company to leverage its brand recognition to capture more business from each customer. If you need a fishfinder for your boat, Johnson makes them. You may also need a tent to sleep in after you finish the day's fishing, which Johnson can provide as well.

Each of these companies has proven its ability to introduce new products that precisely match customer needs -- and steadily improve operational efficiency. You might consider all three and create an "Outdoor Enthusiast's Portfolio." 

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