Johnson Outdoors (JOUT) Q3 2022 Earnings Call Transcript

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Johnson Outdoors (JOUT 0.64%)
Q3 2022 Earnings Call
Aug 05, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, everyone, and welcome to Johnson Outdoors third quarter 2022 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. [Operator instructions] This call is being recorded.

Your participation implies consent to our recording the call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms.

Penman.

Pat Penman -- Vice President, Marketing Services and Global Communication

Thank you. Good morning, everyone. Thank you for joining us for our discussion of Johnson Outdoors results for the 2022 fiscal third quarter. If you need a copy of today's news release, it is available on our website at www.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 myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

Thanks, Pat. Good morning, everyone, and thank you for joining us. I'll begin with an overview on the quarter and the year, and then I'll share a perspective on the performance and outlook for our businesses. Dave will review financial highlights, and then we'll take your questions.

Sales in our third fiscal quarter ending July 1, 2022, declined 5% compared to the prior-year's record high third quarter. For the year-to-date period, total company sales declined 7% over last year's fiscal nine-month period. Compared to the 2019 pre-pandemic year-to-date period, our net sales are up significantly. Total company operating profit of $23.8 million for the third quarter was down versus $38.1 million in the prior-year's record second quarter.

Year to date, operating profit also declined compared to the prior fiscal nine-month period. The decline is due to lower sales volumes and a decrease in gross margin driven by significant cost increases, particularly in our fishing business. We have implemented price increases across our product lines, and we're focused on fulfilling demand and reducing our expenses where possible. We are seeing markets begin to moderate from the pandemic-driven demand of the past two seasons.

However, solid demand from our trade partners continues while global supply chain disruptions persist. We have strategically invested in building inventories so we can complete products as parts come in, and our team has been working hard to maximize product build and fulfill orders to customers. In fishing, while we have some supply chain challenges, we are not wavering from our focus on innovation to give anglers the best fishing experience as possible. An important part of that focus is looking for new ways that Humminbird Minn Kota products can connect and work together to deliver new benefits to our consumers.

Our most recent innovation in Humminbird, the exciting new MEGA Live Imaging TargetLock sonar technology used in conjunction with Minn Kota Ultrex trolling motor enables full trolling motor control while independently steering and locking MEGA Live on a specific target. This makes it easier for anglers to stay on point and catch more fish. MEGA Live Imaging TargetLock captured Best in Category for Electronics at this year's ICAST, the world's most prestigious fishing show, marking our 11th award in this category in the past 12 years. In watercraft recreation, we continue to have momentum in a moderating market, driven by the innovation of the old town Sportsman line.

Part of the Sportsman line is the wildly versatile lightweight Sportsman Discovery Solo 119, a solo can use the paddles like a kayak and is great for fishing, waterfall hunting and enjoying lakes and slow-moving rivers. The Discovery Solo 119 was recently awarded Field & Stream's Best Overall fishing Canoe for 2022. The Sportsman line offers a Watercraft for everyone looking to enjoy a great day on the water. In camping, while the market has cooled compared to the high demand of last year's unprecedented season, participation remains high, and we continue to see double-digit growth.

Demand for Eureka! consumer stands and stoves is strong as well. And in Jetboil, consumers remain excited about the innovative super light Stash Stove that is in its second year on the market. Finally, in Diving, as more consumers resume travel during the quarter, dive markets are experiencing recovery. The hard work we put in promoting and supporting local diving, enhancing our global digital presence and our sustained innovation has contributed to our growth.

Recently, SCUBAPRO launched the brand-new powerful Seawing Supernova fins. The Supernova is a go-to fin for avid recreational and professional drivers seeking maximum speed, power and kicking control in all diving conditions. The Seawing Supernova was also the winner of the prestigious internationally recognized Red Dot Award for Product Design. Our continued innovation efforts will ensure SCUBAPRO's position as the most trusted dive brand in the world.

In summary, while we face supply chain disruptions and long lead times, we remain laser-focused on working hard to fulfill orders from our loyal customers who seek out our award-winning products. Obviously, we are monitoring the uncertain economic conditions. And as always, we take the long view at Johnson Outdoors, working hard to position our brands and our businesses for growth well beyond the next quarter or next year. Now, I'll turn the call over to Dave for a review of the financial highlights.

David Johnson -- Vice President, Chief Financial Officer

Thank you, Helen. Good morning, everyone. I wanted to highlight a few items from the quarter and the year. As Helen mentioned, sales declined for the quarter compared to last year's record high third quarter.

But sales are significantly higher than the pre-pandemic June '19 quarter. We continue to have a strong order position, but our ability to meet demand is being impacted by ongoing supply chain issues, especially in our fishing business. Now, to help mitigate supply chain disruptions, we've been building significantly higher inventory levels for several quarters. Total inventory is up $120 million compared to last year.

The increase is primarily due to increased raw material and other component purchases and many instances at higher cost in an effort to meet increased demand for products. We continue to work closely with all of our vendors in planning for alternative sources of supply for critical components for our feasible. Moving forward, we'll continue to manage our inventory position actively, balancing sales demand with maintaining a solid balance sheet. The quarter's gross margin of 36.1% is down 9.6 points from last year's third quarter.

We continue to experience significant increases in cost of materials. While we've implemented price increases across product lines, they were not enough to offset the negative impact of component cost increases. Operating expenses for the quarter decreased $9.7 million versus the prior-year third quarter, primarily due to lower sales volume-driven expenses, as well as lower variable and deferred compensation expense between quarters. Unfavorable market conditions on the company's deferred compensation plan assets resulted in approximately $5.3 million of lower deferred compensation expense in the current year quarter versus last year's quarter.

This impact is entirely offset by a loss in other income expense. The quarter's effective tax rate was 26.8% and was 25.9% for the nine-month period. We expect the full year tax rate to be in the mid-20s. Net income for the quarter was $14.1 million, down from the prior-year's quarter of $28.8 million.

In closing, we continue to have no debt on our balance sheet, and our cash position enables us to invest in opportunities to strengthen the business. We remain confident in our ability to deliver long-term value and consistently pay out cash dividends to our shareholders. Now, I'll turn the call over to the operator for the Q&A session. Operator?

Questions & Answers:

Operator

[Operator instructions] And our first question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is open. Please go ahead.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Yes. Good morning, and thank you for taking the questions. So first, I just wanted to get more color about the strong orders. Are you seeing that across the board? And whether it's in each of your segments? And then also just wanted to get more color as far as your backlog is concerned.

And what's your lead times are now compared to the last quarter?

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

We are seeing continued strong demand from our customers across the board. We see -- we do see some of the markets moderating, but our customer orders are still strong. Have lead times changed from last quarter, I think that's not a -- I don't think it's a time frame, have they increased from the beginning of the pandemic, absolutely. And that obviously causes challenges when it comes to forecasting.

But the inventory levels at store is still light. Our orders are -- continue to be solid and we feel we're in a good position.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

OK, got you. Thanks for that. And then so it sounds like you're not really seeing much in terms of order cancellations, is that correct?

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

Yeah, we have not seen order cancels. And in fact, it's just a pretty solid position as far as orders are concerned.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. OK. And then in terms of the price increases, can you review what you did in the quarter? And whether you play -- plan to take additional price increases? And just overall, how should we think about gross margins?

David Johnson -- Vice President, Chief Financial Officer

Yeah. So we took price increases at the beginning of our fiscal year in October, moderate price increases, I would say, in hindsight. We took another slug of increases in April, beginning of April. But as you see, I mean, it's not enough to offset the unfavorable variance from our cost of goods sold.

So -- we'll continue to look at that. I think it's something that remains an arrow in our quiver going forward. And we won't be afraid to continue to price appropriately, but we just have to balance the accessibility of the products with the need to get the gross margin back to where it needs to be.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. So is it fair to assume that near-term gross margins will remain under pressure?

David Johnson -- Vice President, Chief Financial Officer

Yeah. I don't -- I wouldn't expect us to get back to historic gross margins soon. But we'll continue to look at that, and make sure that we've got a better supply chain situation as well as look at the pricing strategies that we have.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. OK. And then so given everything that's going on, when would it be reasonable to assume a decrease in your inventory, which looks like it's at record high levels now?

David Johnson -- Vice President, Chief Financial Officer

Yeah. The supply chain has to get back to similar to normality or normalcy, if you will. So we're actively managing that. I think as we go into next season, we're looking to try to get a little bit more balance in our inventory.

But we got to get the industry supply chains to get back to more normal levels.

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

And we are focused on meeting the orders of our customers. So when components are available, we have invested so that we are ready and we're waiting for one or two key parts, but hopefully, our focus on fulfilling orders is the right priority at this time.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Understood. OK. And then a couple of other questions, if I may here. So you have increased your capex.

How should we think about that? I mean you only have one quarter left in your fiscal year, just overall ballpark estimate if you have that for the year? And kind of going forward, what would you say would be reasonable to assume for capex for next year?

David Johnson -- Vice President, Chief Financial Officer

Yeah. We invested in capacity this year. So that's reflected in the year-to-date capex number. We'll still have a little bit more investment in the fourth quarter.

So we'll see some increase for the year versus last year in capex, but I expect that to come back down to 2021 levels for next year, if that makes any sense. So I think this year was kind of an unusual year.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Yeah, that does make sense. Yeah, absolutely. And then as far as your capital allocation, what are your thoughts as far as dividend increases, which -- you have done a good job of raising those over time. And it's been a while since you've done any acquisitions, but would love to hear any updated thoughts you may have on that.

David Johnson -- Vice President, Chief Financial Officer

Yeah, I mean the strategy remains the same, which is to utilize our capital for growth, invest in the business, both internally as well as looking at acquisitions, we remain still very active in that regard. The dividend is important for us, too. I mean we're paying a good solid regular dividend is important in our capital strategy, and we'll look to see if we need to increase that going into next year. And we continue to look at other alternatives, too, but those are kind of the two main aspects.

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

Got it. Well, thank you very much and best of luck.

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. And I'm showing no further questions. And I would like to turn the conference back over to Helen Johnson-Leipold for any further remarks.

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

Just want to thank everybody for joining us, and have a great day.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Pat Penman -- Vice President, Marketing Services and Global Communication

Helen Johnson-Leipold -- Chairman and Chief Executive Officer

David Johnson -- Vice President, Chief Financial Officer

Anthony Lebiedzinski -- Sidoti and Company -- Analyst

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