Johnson Outdoors Inc. (JOUT) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Helen Johnson-Leipold, Chairman and Chief Executive Officer of Johnson Outdoors. On behalf of the Board of Directors and management of the company, welcome to our Annual Meeting of Shareholders. The meeting is now officially called to order. Annual reports and proxy statements were issued to shareholders in January. You can also get copies here today. We will start with some official business. Then Dave Johnson, Chief Financial Officer, will review our fiscal 2019 financial results and first quarter 2020 performance. Following that, I'll discuss key strategic priorities for the future. Before we get started, let me introduce our Board of Directors, my executive team and some guests. First, our outside directors who bring a wealth of experience who provide invaluable insights, please stand when I call your name. Mr. Tom Pyle, Chairman of the Pyle Group, who's Vice Chairman of the Board, Lead Outside Director and Chairman of the company's Compensation Committee; Mr. Terry London, non-Executive Chairman of the Board of Pier 1 Imports, who chairs our Audit Committee; Mr. John Fahey, Regent of the Smithsonian Institution and retired Chairman of the National Geographic Society, who chairs our Nominating and Corporate Governance Committee; Ms. Kathy Button Bell, Senior Vice President and Chief Marketing Officer of Emerson Electric; Mr. Ed Lang, Senior Vice President and CFO of the New Orleans Saints and New Orleans Pelicans; Mr. Casey Sheahan, CEO of Simms Fishing Products and former President and CEO of Patagonia; Mr. Edward Stevens, Founder and CEO of Preciate, and Founder and former CEO of Shopatron. Unable to join us today is Mr. William Perez, Founder of FamGen and the past President and CEO of the Wrigley Company, Nike and S.C. Johnson Companies. Now I'm pleased to introduce the members of our Johnson Outdoors executive team who are with us today. Would the executive team please stand when I call your name. Dave Johnson, Vice President and Chief Financial Officer; John Moon, Vice President and Chief Information Officer; Sara Vidian, Vice President, Human Resources; Pat Penman, Vice President, Marketing Services & Global Communications; Khalaf M. Khalaf, Vice President, General Counsel and Corporate Secretary; Judy Douglas, Group Vice President, Fishing; and Larry Baab, Group Vice President, Camping & Watercraft. Also joining us today are Kevin Howley and Eric Hagemeier from Reinhart Law firm, our outside legal counsel. Scott Wilgenbusch and James Kemmerling with the accounting firm of RSM, which supervise the examination of the company's financial statements. Now let's take care of meeting's official business. There are 4 items to be voted on, which are the election of directors; ratification of the company's independent auditors; an advisory vote on next executive compensation; and the approval and adoption of the Johnson Outdoors' 2020 long-term stock incentive plan. The company has appointed Mr. Khalaf, Corporate Secretary, to serve as Inspector of the Election for the meeting. He will tabulate the votes cast and certify the results. Khalaf?

Thank you, Helen. After initial inspection, I can report that a majority of shares entitled to vote are represented either in person or by proxy at today's meeting. A quorum is present. The polls are opened and voting can proceed. An affidavit attesting that notice of this meeting was mailed on January 10, 2020, to all shareholders of record as of December 20, 2019, will be filed with the minutes of this meeting. A list of our common stockholders of record as of the close of business on the record date is also available for inspection at this meeting for any appropriate business purpose. If you have previously voted by mail, phone or Internet or delivered your proxy when you registered, your shares will be voted in accordance with your instructions. If you are a shareholder as of the record date for the meeting and wish to vote or change your vote, you may do so now. Please raise your hand if you need a ballot. Information on matters to be voted upon was included in the company's proxy statement for this annual meeting. If you wish to submit your ballot, please raise your hand. [Voting]

The polls for balloting are now officially closed. So I will report on the preliminary tabulation of the votes cast. On the proposal to elect 9 directors until the next Annual Meeting, each nominee has received the plurality of votes cast in favor of their election, and all have been elected as directors of the company. Ratification of the appointment of independent auditors required that the number of votes cast for exceed the number of votes cast against. Shareholders voted to ratify the appointment of RSM. Shareholders also cast a nonbinding advisory vote on executive compensation. A majority of shareholders have voted to approve the company's executive comp. Lastly, approval and adoption of the Johnson Outdoors' long-term stock incentive plan required that the votes cast for exceed the number of votes cast against. A majority of shareholders have voted to approve and adapt the stock incentive plan. Dave Johnson, our CFO, will now review our fiscal 2019 financial results and our fiscal 2020 first quarter performance. Dave?

Thank you, Khalaf. Good morning, everyone. Given the exceptional growth over the last 2 years driven largely by our Fishing business, we anticipated top line growth would moderate in fiscal 2019, and it did. Annual sales did grow by 3% to $562.4 million due to unprecedented demand for new products and legacy technologies in fishing. Operating profit was $63.8 million for the year, which compared favorably to operating profit of $63 million in the prior fiscal year. Gross margin remained steady despite the $2.9 million full year negative impact from tariffs. The exclusions and other mitigation efforts throughout the year helped reduce the total impact of tariffs on fiscal 2019 profits from original estimates. For the year, net income improved 26.4% to $51.4 million, resulting in net earnings of $5.11 per diluted share. Net income benefited from a lower tax rate, reflecting a reduction in the U.S. federal corporate income tax. Fiscal 2019's full year effective tax rate was 22.7% compared to prior fiscal year's rate of 40.3%. We closed the books on fiscal 2019 with $172 million in cash and no debt. Heading into fiscal 2020. We had a strong start to the year. First quarter sales increased 23% to $128.1 million. While sales were up across all business units, the total company revenue increase was driven primarily by a delay in the availability of new products in Fishing in the prior year first quarter. However, it's important to note that the first fiscal year results are not predictive for the full year. We continue to expect moderate sales growth for the full fiscal year. Operating profit was up versus the prior year quarter due to increased volume, which was partially offset by additional deferred compensation costs. Gross margin dipped slightly due primarily to an increase in tariff expense versus the prior year period. We expect tariffs on Chinese goods and components to have a $4 million to $5 million impact on fiscal 2020 profits. Net income was $6.4 million or $0.64 per diluted share, which compared very favorably to the previous year's first quarter. The tax rate for the first fiscal quarter was 25.1%, and we expect the tax rate for the full fiscal year to be in the mid-20s. In closing, our balance sheet is strong and our cash position is healthy, enabling us to invest strategically in growing our brands and businesses while continuing to pay a dividend to shareholders. Now it's my pleasure to turn things back over to our Chairman and CEO, Helen Johnson-Leipold.

Thank you, Dave. Okay. Let's talk about the fun stuff now. This year, we are actually celebrating our 50th anniversary. So we thought it was a great time to kind of take a step back and reminisce and remember how and why our company came to be. So we've got a little video for you. [Presentation]

Starting Johnson Outdoors was one of the best adventures my father ever took and one that we're still on today, and what an adventure, it has been. The world is radically different today than it was 50 years ago. A new larger group of outdoor recreation consumers is emerging. Advancements in technology are happening with intense acceleration. And everything from climate change to political unrest are contributing to growing global stability challenges. Adapting to change is critical to building a strong, resilient business into future success of our portfolio of brands. The bar of success continues to rise as new pathways to success constantly change and emerge. Take, for example, outdoor recreation. People's love for the outdoors hasn't changed. What they need, what they want has changed. We aim to give the best outdoor experience possible from the moment someone thinks about heading outdoors to researching, shopping and purchasing to actually using the product. And being the best is a constantly moving target. One important shift in our outdoor consumer demographics is the rapid rise of millennial and Generation Z engagement in outdoor recreation. And while the baby boomer generation as a whole has more wealth, it is the millennials who are doing more spending. Keeping our finger on the pulse of the outdoor consumer in real-time, all the time, will help our brands win with this younger consumer base. This next-generation of outdoor enthusiasts are more than just tech savvy. They are tech dependent. Technology is completely integrated into their everyday lives, and they have the highest expectations for what it can do and how it works. Not only is understanding consumers' evolving needs and expectations a must, but we have to be able to move quickly in translating those insights to new successful innovation. Innovation has always been and will always be the lifeblood of our brands. Pushing the limits of technology to turn big ideas into bigger, better, new product successes will ensure we remain the leader in our increasingly competitive outdoor markets. We have 5 strategic priorities that are driving our businesses to the next level. In addition to our ongoing investment and focus on richer consumer insights and targeted innovation, there are 3 other priorities to our future growth. The third priority is continued accelerated digital sophistication and marketing excellence to maximize growth across all channels. For example, in our Diving business, positive trends in retail and e-commerce sales in the North American market in fiscal '19 were driven by our emphasis on digital marketing. Now we're taking those digital marketing learnings to our European market with new websites on track to launch this year. Our fourth priority is finding new sources and paths of growth in our markets. This includes new applications of existing technology as well as new brands and new technologies. Humminbird Side Imaging was a new application of existing technology, which we refined for anglers to use on their everyday fishing adventures. Wireless technology continually expands the world of opportunities in our space. Additionally, when we bought Jetboil into our Camping portfolio, it infused a wide array of new growth opportunities for today's foodie outdoor consumers. And finally, our fifth priority is attracting and retaining great people to be part of our family of talented, inspired adventures. Our love for the outdoor recreation industry is a unique common bond we share with outdoor adventures everywhere. It is the secret sauce behind our ongoing legacy of growth and success. To be resilient in this fast-paced world, knowing what to change and being able to move quickly are important for shaping our future success. But it's also knowing what not to change. Our family's legacy is defined by a strong purpose and people-focused values. Our history reminds us of who we are: entrepreneurs, risk takers, adventurers, outdoor enthusiasts and talented people who work hard and persevere. We are also reminded of what we stand for, to inspire people to get outdoors and to make the world a better place because we are there. This compromises the unwavering foundation upon which Johnson Outdoors is built, and we're going to continue building on that legacy to inspire off from the next generation of outdoor consumers, and to live our purpose and our values every single day, just like dad envisioned. [Presentation]