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Johnson Outdoors Inc (NASDAQ: JOUT ) pays dividends 03 February 2023
Company Participants:
Patricia Penman — Vice President, Global Marketing and Communications Services
Helen Johnson-Leipold — Chairman of the Board
David W. Johnson — Head of Finance
Analyst:
Anthony Lebiedzinski — Sidoti & Company — Analyst
Presentation:
Operator
Hello everyone, and welcome to the Johnson Outdoors 2023 First Quarter Earnings Conference Call. Today’s call will be led by Helen Johnson-Leipold, Chairman and Chief Executive Officer of Johnson Outdoors. Also on the phone is David Johnson, Vice President and Chief Financial Officer. Before 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 indicates your consent to record this call. If you do not agree with these terms, just drop a line.
I would now like to turn the phone over to Pat Penman of Johnson Outdoors. Please, please, Ms. Penman. Miss Penman, you may be dumb. Let me try one more time. Ms. Penman, your line is silent. Please, go ahead.
Patricia Penman — Vice President, Global Marketing & Communications Services
thanks. Good morning to you all. Thank you for joining us for a discussion of Johnson Outdoors’ results for the first quarter of fiscal 2023. If you need a copy of today’s news release, it is available on our website at johnsonoutdoors.com under Investor Relations. I should also caution you that this conference call may contain forward-looking statements. These statements are made based on current opinions and assumptions and are not guarantees of future performance. Actual events may differ from these statements due to a number of factors, many of which are beyond the control of Johnson Outdoors. These risks and uncertainties include those listed in press releases and filings with the Securities and Exchange Commission. If you have additional questions after the call, please contact Dave Johnson or myself.
Now I have the pleasure of calling on Helen Johnson-Leipold.
Helen Johnson-Leipold — Chairman of the Board
Thank you, Pat. Good morning, and thank you for joining us. I’ll start with an overview of the quarter and then I’ll share my perspective on our business performance and outlook. Dave will review the financial highlights. Then we will answer your questions.
Sales in the first fiscal quarter ended December 2012 increased 16%, to $178.3 million, compared to $153.5 million in the year-ago first quarter. Net income for the quarter was $5.9 million, or $0.57 per diluted share versus $10.9 million, or $1.07 per diluted share in the first quarter last year. Operating profit fell 60% to $5.5 million versus $13.8 million in the first quarter of the previous fiscal year, with rising inventory costs weighing on profits. We have worked hard to manage a challenging supply chain environment while evaluating all avenues to reduce cost pressures including pricing strategies and cost reduction efforts.
In our fishing business, the availability of resources and components continues to ease allowing us to fulfill more customer orders. We still have a solid pipeline of orders in progress and continuing to manage our supply chain challenges remains a priority. On the dive, we continue to see momentum as the market rebounds from depressed pandemic levels. We continue to benefit from SCUBAPRO’s equity as the world’s most trusted diving brand. In the camping and water recreation business, we are seeing some market demand and higher inventory levels at retail. The good news is that we continue to have strong brands, especially in Old Town and Jetboil. Innovation continues to be critical to the growth and success of our brand. The past few years have brought new participants to outdoor recreation, which is good for us. Continuous investment in understanding the needs of new and existing consumers and translating them into new product success remains our focus.
Across our business, we’re working on an exciting pipeline of new products. While it’s too early to tell how the season will end, we’re monitoring consumer buying behavior and focusing on fulfilling our customers’ orders and supporting brands as we head into the prime selling season. As always, our team takes a long-term view by positioning our brand and business for long-term growth.
Now, I’ll turn the call over to Dave to review the financial highlights.
David W. Johnson — Head of Finance
Thank you, Helen, and good morning, everyone. I want to highlight some items from the quarter. As Helen noted, we are seeing our supply availability continue to increase, enabling us to fulfill more customer orders, particularly in fishing. The quarter’s gross margin of 39.5% was down 4.3 points from last year’s first quarter due primarily to an increase in cost of sales and due to the cost of materials and items in inventory. We are starting to see our costs ease a bit and we expect margins to continue to be challenged in the coming months as we work through higher cost inventory. Inflation remains an issue, and as Helen mentioned, we continue to evaluate all options to improve profitability.
Operating expenses in the first quarter increased by $10.4 million compared to the first quarter of the previous year. Costs driven by higher sales volume led to some of the increase. We also experienced higher compensation costs and increased healthcare costs and higher professional services costs between the quarters. Profit before income tax was $8.2 million versus $14.6 million in the prior-year quarter, driven by lower gross margins and increased operating expenses. Net income for the first quarter was $5.9 million, down 46% from the previous fiscal first quarter. The effective tax rate was 28% compared to the previous year’s first quarter rate of 25.6%. It’s too early to tell how the season will shake out, but we’re focused on monitoring demand and proactively managing inventory levels. We continue to have no debt on our balance sheet and our cash position allows us to invest in opportunities to strengthen our business. We remain confident in our ability to deliver long-term value and consistently pay cash dividends to our shareholders.
I will now turn the call over to the operator for a Q&A session. Operator?
Questions and Answers:
Operator
thanks. [Operator Instructions] One moment for your first question. Our first question comes from the line of Anthony Lebiedzinski from Sidoti. Your line is open.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Good morning, and thanks for taking the question. So, first of all, can you expand on the unfinished order pipeline? Maybe by direction, can you talk about the current versus the end of the fiscal year or a year ago? It looks like the usual – the backlog is mostly for fishing, but maybe if you could give it some additional color it would be very useful.
Helen Johnson-Leipold — Chairman of the Board
yes. We have a continuous pipeline in fishing. As you know, we’ve — we’re working on supply availability. And when that supply comes in, we can continue to fulfill those orders. It’s a good momentum. But as far as the season goes, we’re still in preseason mode. But there is a good solid order that we feel will continue to be there as we move forward. So, good shape behind that.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Yes. And to – are you seeing cancellations of orders or maybe some retailers delaying orders? What have you seen so far? I know it’s still early in the season. Obviously, you’re tied to warm-weather outdoor recreation, so I think, on the consumer side, it’s probably very early days. But as – just wondering what you heard from your retailer?
Helen Johnson-Leipold — Chairman of the Board
Well, I think all retailers are cautious now, and trying to predict the season is difficult. So, be careful – be on their side. I think in watercraft and camping, demand has slowed down and we have a pretty solid inventory at retail. So, who is waiting for the season to come and then read. But I think there is something to be careful about.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Yes. Understand. So, yes, it seems that fishing and diving are better – than the two smaller segments. Yes. And then I think you’re talking about price increases as well. Can you just talk about how much pricing contributed to reporting revenue in the quarter and do you have any plans to increase pricing?
David W. Johnson — Head of Finance
yes. I mean, prices are going up – we’ve taken several tranches of price increases over the last 18 months. So, I don’t have the total number of the effect of price increases this quarter compared to last quarter. But we saw the unit volume up, obviously, significantly for a quarter, just to point out. And as I said, I mean, we’re going to look at everything we’re going to do to get our margins back to where we want them to be. And that will include a pricing strategy as well as cost reduction.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Understand. Yes. And then in terms of your inventory, do you think you’re in a peak inventory position right now? And at what point will you be able to say that you can work with high cost inventory?
David W. Johnson — Head of Finance
yes. We expect the inventory to begin to decrease from the main selling season which can start in April with the inventory numbers. We are working hard to get back to a more balanced level of normalcy. We will start to see unless we see the costs start to increase even more and they have moderated. We will begin to see gross profit begin to increase gradually in the coming quarters. So, that will — that will probably take the entire fiscal year to get through. But we will start to see improvement in the next quarter.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Yes. That’s good to hear. And then on the operating expenses side, you’re talking about health insurance and professional services fees and so on. Just wondering, how much contributed to the overall increase in expenses in the quarter? And going forward, if you write off sales-driven volume costs, how do you think about your cost growth over the course of the fiscal year?
David W. Johnson — Head of Finance
yes. I mean, we will see some moderate increases in the balance of the year in our expenses. I don’t expect anything significant this quarter. The good part is, almost half of the increase in operating costs is related to volume. So, we’re not talking big numbers here for the quarter. But – and the cost of compensation, it’s probably increased more this year than last year just because of the number of heads and services and so on.
Anthony Lebiedzinski — Sidoti & Company — Analyst
Understand. Yes. well. Well, I have. Thank you very much and good luck.
Helen Johnson-Leipold — Chairman of the Board
thanks.
David W. Johnson — Head of Finance
Thank you, Anthony.
Operator
And I don’t show other questions in the queue. I would like to return the call to Helen Johnson-Leipold for any closing comments.
Helen Johnson-Leipold — Chairman of the Board
Yes. Well, thank you, everyone, for joining us today and I hope you have a great day.
Operator
[Operator Closing Remarks]
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