Johnson Outdoors Inc (JOUT) Q2 2021 Earnings Call Transcript

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Johnson Outdoors Inc (JOUT 0.43%)
Q2 2021 Earnings Call
May 7, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to the Johnson Outdoors Second Quarter 2021 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, 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 the prepared remarks, the question-and-answer session will begin. [Operator Instructions] 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 Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Patricia Penman -- Vice President, Marketing Services & Global Communications

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors' results for the 2021 fiscal second quarter. If you need a copy of today's news release, it is available on 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 Securities and Exchange Commission.

If you have additional questions following the call, please contact Dave Johnson or me.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen P. Johnson-Leipold -- Chairman and Chief Executive Officer

Thanks, Pat. Good morning, and thank you for joining us. I'll begin with an overview of the quarter and year-to-date results, and then I'll share perspective on the performance and outlook for our businesses. Dave will review key financials, and then we'll take your questions.

Historically, the first six months of the fiscal year is our pre-season ramp up and selling period for the primary retail selling season, but the ongoing impact of the COVID-19 pandemic and the increased interest in outdoor activities have resulted in unprecedented high demand for outdoor recreation products that has continued through our fiscal second quarter.

As both customer and consumer demand remained strong, sales surged to $206.2 million during the second quarter, 26% ahead of last year. Strong operational efforts allowed the Company to deliver these results. At the halfway mark of fiscal year, total Company year-to-date sales stand at $371.8 million, a 28% increase over same period year ago.

Total Company fiscal six-month operating profit increased 54.4% to $59.6 million compared with same period a year ago. For the second fiscal quarter, total operating profit was $36 million versus $31.8 million in the previous year's quarter.

Net income for the quarter was $27.8 million or $2.76[Phonetic] per diluted share. Dave will discuss the key financial drivers in detail later in this call. The pandemic has been a catalyst for people to get outdoors. And as participation in outdoor activities has grown, we've been able to take advantage of the heightened interest by leveraging our portfolio of market-leading brands and innovation.

In Fishing, our largest and most profitable business, participation has always been high, but it's been even higher during the pandemic. Robust demand from Minn Kota and Humminbird technology continued through the second quarter, as both new and seasoned anglers look to Johnson Outdoors for the best fishing experiences possible.

With the strong innovation quality and durability, Minn Kota continues to be the industry leader in trolling motors. Sales continued to impress across all product lines as anglers look to Minn Kota as the trusted brand to help them catch more fish.

We're also seeing continued success with Humminbird's award-winning MEGA 360 Imaging, the only sonar option that provides a high resolution 360-degree view with unmatched detail and coverage, as well as success with MEGA Imaging+. Extending the depth range and expanding the site's coverage areas, MEGA Imaging+ can be found in Humminbird's new generation of HELIX fish finders, providing anglers with the latest and innovative imaging technology in a variety of screen sizes, ensuring there is a HELIX to fit any anglers' needs.

We will continue to invest in building upon our strengths, our knowledge of fishing and fishing consumers, coupled with our technical know-how to maintain our pipeline of exciting new products and to sustain Minn Kota and Humminbird's leadership position in the fishing market.

In Watercraft Recreation, our pedal drive system technology has been expanding to a broader audience as more people are eager to get out in the water, and the fishing kayak segment especially continues to grow. Enthusiasm hasn't slowed down for the innovative line of Sportsman kayaks that was launched last year. From the versatile pedal-powered Sportsman Salty kayak to the award-winning AutoPilot 120 motorized fishing kayak, the Sportsman line offers a watercraft for everyone looking to enjoy the great day outdoors.

Innovation is key to taking the camping experience from good to great, and we're seeing our hard work pay off in understanding consumers' evolving needs and expectations and translating those insights into bigger, better new product success. Since its -- since its launch earlier this year, we've seen consumer excitement for all new super lightweight Jetboil Stash stove. We all know reducing weight on the trail is critical for backpackers. Stash is the lightest all-in-one backpack installed system that Jetboil, the technology leader in portable outdoor cooking systems, has ever made.

And as more people continue to look for ways to spend time outdoors this year, demand for our Eureka! brand of tents and camp cooking technology continues to beat expectations. In Diving, while ongoing travel restrictions and lockdowns in certain countries continue to impact the diving market, we're continuing our work to promote and support local diving, taking steps to simplify our diving business during this challenging time, and enhancing our digital presence globally with new European websites and e-commerce. These efforts, along with sustained innovation, will strengthen SCUBAPRO's position as the most-trusted dive brand in the world.

Looking ahead, our near-term focus is to keep pace with the strong demand in Fishing, Watercraft Recreation and Camping. Longer term, we remain committed to investing in our key strategic drivers, understanding our consumers, sustaining innovation leadership, identifying new sources and pass a growth in our markets, and optimizing our digital consumer experience as more consumers research and purchase online.

Our ongoing hard work on these priorities ensures that our portfolio of market-leading brands is well positioned for success in 2021, 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.

David W. Johnson -- Vice President and Chief Financial Officer

Thank you, Helen. Good morning, everyone. As Helen mentioned, the second quarter was another unprecedented period with strong sales in three of our four businesses. With the market dynamics strong and retail inventories lean, our excellent sales performance was the key driver in increasing profits during the quarter.

For the quarter, gross margin of 45.2% was down slightly versus the prior-year quarter as a $1.1 million increase in tariffs and higher freight costs for raw materials offset overhead absorption benefits from higher volumes.

Operating expenses for the quarter increased $13.9 million, driven primarily by higher sales-driven expenses as well as higher variable and deferred compensation expenses between quarters. Deferred compensation expenses were up $4.7 million due to favorable valuations and were 100% offset in other income.

Net income for the quarter was $27.8 million compared to $20.4 million in the prior fiscal year second quarter. The year-to-date effective tax rate is 24.7% compared to last year's rate of 27.5%. We expect the full-year tax rate to be in the mid-20s.

Looking ahead, we anticipate a strong season and we'll continue to monitor the many marketplace dynamics. While our cost of goods will be pressured, at this time, we don't expect a material impact on our margins from cost increases.

Our balance sheet remained strong and our cash position is healthy, providing us the financial capacity and flexibility to strategically invest in strengthening the business, while continuing to pay out a cash dividend to our shareholders.

Now, I'll turn the call back over to the operator for the Q&A session. Operator?

Questions and Answers:

Operator

Yes. [Operator Instructions] And our first question comes from the line of Anthony from Sidoti.

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Yes. Good morning, and thank you for taking the questions. So first, Dave, you said that the inventory levels at retail are lean. Is that across the board or just wondering if, when you look at your segments, is there one particular area where you think the retail inventories are leaner than others?

David W. Johnson -- Vice President and Chief Financial Officer

Yeah, I would characterize, the three businesses that are growing, that the retailers are still seeing very lean inventory across the board. So I don't think there is any distinction among those three businesses.

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Okay. Thanks for the color, Dave. And then, you mentioned that -- so obviously, demand is high and you're working to increase capacity. So can you give us a sense as to where you are with your capacity now, and what should we look [Technical Issues] of your ability to increase capacity from here?

David W. Johnson -- Vice President and Chief Financial Officer

Yeah, I mean, we're kind of set for the season in a way, when we added shifts early to our factories where we're building product, and that's been very helpful. We're, of course, adding a lot of seasonal labor, which has its challenges, but we've done that as well. So we're working as fast as we can to meet the demand right now, and those are kind of the two short-term levers that we've pulled.

Helen P. Johnson-Leipold -- Chairman and Chief Executive Officer

And just keep in mind that we still are at like 80% in terms of being able to have our workforce in the plant because of the COVID and all the safety rules that are going on. So if we can cross our fingers, hope things change, we will have the ability to staff more during a shift.

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Okay, thank you both for the color. So in terms of the supply chain constraints that have certainly been well publicized, can you give us a sense as to -- as you look now on May 7th versus March 31st at quarter-end, have things gotten better or worse or the same in terms of these supply chain constraints?

David W. Johnson -- Vice President and Chief Financial Officer

Yeah, I would say, it's pretty dynamic, Anthony, right now. I mean, electric parts coming in, we're working very hard to make sure we have adequate supply. I think we've done a good job so far of maintaining that. But as you heard, I'm sure out there in the industry, there are shortages here and there and longer lead times. So we're working very hard to make sure we can maintain that supply. And I would say it's still a pretty delicate balance right now.

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Okay. And then lastly, I guess for me here, so, yeah, how should we think about your ability to offset the higher freight cost, [Technical Issues] price increases you may view, are you thinking about those or anything else as far as some of the cost mitigation strategies?

David W. Johnson -- Vice President and Chief Financial Officer

Sure. Yeah, I mean, I think we'll definitely consider all options to help mitigate cost increases. Cost savings programs are important, and how we price our product, the innovation we bring out into the marketplace, that's all part of the equation. So we'll look at all options for that.

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

Got it. Okay. Well, thank you, and best of luck.

Helen P. Johnson-Leipold -- Chairman and Chief Executive Officer

Thank you.

Operator

And there are no further questions in queue. So, at this time, I would now like to turn it back over to Helen Johnson-Leipold.

Helen P. Johnson-Leipold -- Chairman and Chief Executive Officer

Thanks, everyone, for joining us, and we hope you have a great day. Thank you.

Operator

[Operator Closing Remarks]

Duration: 14 minutes

Call participants:

Patricia Penman -- Vice President, Marketing Services & Global Communications

Helen P. Johnson-Leipold -- Chairman and Chief Executive Officer

David W. Johnson -- Vice President and Chief Financial Officer

Anthony C. Lebiedzinski -- Sidoti & Company, LLC -- Analyst

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