Johnson Outdoors Inc. ($JOUT)

Hello, everyone, and welcome to the Johnson Outdoors Second Quarter 2026 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, Chief Financial Officer. [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 Allison Kitzerow from Johnson Outdoors. Please go ahead, Ms. Kitzerow.

Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2026 fiscal second 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 any additional questions following the call, please contact Dave Johnson or Pat Penman. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Thanks, Allison. Good morning, everyone. I'll begin by sharing perspective on our second quarter and year-to-date results as well as give an update on each business. Dave will review the financial highlights, and then we'll take your questions. Improved retail conditions and ongoing success of our product innovation helped drive a 15.5% revenue growth in the second quarter with all business segments contributing to the improvement. Operating income for the second quarter was much improved versus the prior year second quarter due to the increased sales volume and our cost savings initiatives continuing to boost profitability as well. Year-to-date, our net sales are 21.5% higher than last year's fiscal 6-month period with operating income and gross margin also up for the fiscal year-to-date period. We are pleased with our second quarter and year-to-date results and are particularly proud of our market-leading brands, which continue to resonate with consumers and reinforce our leadership positions across our portfolio. Our Fishing business delivered strong results in the second quarter, driven by improved trade conditions, continued robust demand for Humminbird's XPLORE Series and MEGA Live 2 fish finders and Minn Kota's full lineup of trolling motors as well as pricing actions. These factors combine to reinforce our momentum and position in the marketplace. We remain focused on investing in innovation to deliver fishing technology that sets the standard for anglers worldwide. In Camping & Watercraft, growth during the quarter was supported by our expanding digital and e-commerce capabilities with Old Town and Jetboil maintaining their leadership position in competitive categories. During the quarter, Jetboil also launched TrailCook, a new innovation designed to expand the brand beyond boiling water into broader back country cooking. In both brands, we will continue to build on our strength to drive sustained growth through innovation and deeper engagement with outdoor enthusiasts. Lastly, in our Diving business, improved conditions across the global markets and continued growth in e-commerce helped drive a solid increase in second quarter sales. Digital engagement continues to play an increasingly important role, enhancing connectivity between our SCUBAPRO brand, retail partners and consumers. As we continue to lean into digital channels and strengthen our global footprint, we are optimistic about SCUBAPRO's ability to grow and further reinforce its position in the market. Overall, we are pleased with the quarter and year-to-date results. By investing in and executing our strategic priorities, consumer-driven innovation, digital and e-commerce excellence and operational efficiencies, we are strengthening our market position and taking the right steps to navigate macroeconomic uncertainty while building long-term resilience. Now I'll turn the call over to Dave for more details on the financials.

Thank you, Helen. Good morning, everyone. Our strategic cost savings program remains critical and continues to deliver meaningful benefits to our bottom line. Gross margin for the second quarter improved to 38.8%, up 3.8 points from the prior year quarter. Overhead absorption from higher volumes and cost savings were the main drivers of the improvement in gross margin. Year-to-date, gross margin is 37.9%, up 4.9 points from the prior year-to-date period. Operating expenses increased $11.2 million from the prior year second quarter, due primarily to increased sales volume-related costs as well as increased variable compensation costs. Profit before income taxes for the second quarter was $10.2 million compared to $4.2 million in the previous year quarter, driven mostly by the improvement in operating income. As we prepare for the upcoming selling season, we modestly increased inventory levels. Our inventory balance at the end of the second quarter was $186.9 million, up about $6.8 million from the previous year second quarter. Our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders with the Board approving our most recent dividend announced in February. Looking ahead, despite ongoing economic uncertainties, we remain firmly focused on financial discipline and actively managing the business to balance near-term pressures while continuing to invest in priorities that support sustainable growth. Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti.

Certainly nice to see the really strong revenue growth, especially in Fishing. So as it relates to Fishing, how much was revenue helped by pricing versus better market conditions and a stronger competitive position?

Yes. I mean we saw strong unit volume growth in our business. So that was a big driver for the quarter. Pricing certainly helped. But -- and we're also seeing just really strong demand for our -- with the broad line of trolling orders that we have. That's very helpful.

Got you. So do you think this is perhaps the sort of a replacement cycle after the bump from COVID? Or is there something else you think going on?

The market is very hard to predict. But I think we have innovation that is really driving -- continues to drive purchase. And I do think there will be -- I think consumers are a little cautious with all the things going on, but innovation still is the catalyst to get things moving. We're hoping that this is the beginning of an upward trend, but I think it's going to be challenging and innovation will be the key going forward.

Got you. Okay. So as far as the other 2 segments, you highlighted the increased sales through e-commerce. So can you expand on that a little bit? And then maybe give us, if possible, some numbers as it relates to the growth that you saw in the quarter? And how are you thinking about the rest of F '26 as it relates to Diving and Watercraft & Camping?

Well, there's a few questions in there. But e-commerce is one of our growth initiatives. And we put a hard court press on that, and it does reach a much broader consumer base. So we are really excited about it. And not to mean that our bricks and mortar aren't important. I think it's -- they both complement each other. We are just -- we've been up and running on a true digital mode for only about -- actually, it was a year. And so it's early on, and we're -- we've got a lot to learn, but it's a good opportunity to reach a broader audience. I think it will continue to grow. It's a smaller piece of the pie than our other sales. But I think from a growth standpoint, it is helping us. I think, again, the -- as you -- we don't do a lot of forward-looking, but as we look at the third quarter, the signs in the second are good, and they're better than they've been in the past. But again, there's -- the world is complicated and the consumers have a lot going on. So -- but we -- again, it's back to the product line, the brand, the positioning in the market, and we feel really good about where we are as a brand and as a company. And we're hoping that the markets also cooperate as well. So it's good to have a quarter that is -- feels very strong. So hopefully I've answered your question.

Yes. That's definitely very helpful context. So as far as the world out there, just wondering, as you talk to your retail customers. Since the Iran conflict started in late February, gas prices have gone up quite a bit. So as it relates to that, I mean, from the point-of-sale data that you can get your hands on, I mean, have you seen any notable impact for your brands? Anything you can talk about that?

I mean I would say not yet, Anthony. We haven't seen a direct impact. But like a lot of companies, we're looking at inflationary pressure, higher input costs.

Worried consumers.

Consumers that their confidence levels are down. So I think so far, it's okay. We haven't seen a direct impact, but we're looking at things kind of in a neutral fashion over the next couple of quarters.

Okay. Understood. Okay. And then -- so yes, so I guess as far as the gross margin, so I guess a 2-part question here. So first, in the quarter itself, you did have a strong improvement versus last year. You talked about fixed cost absorption, but also some cost savings. So was that kind of a 50-50 split between that? And then my second part to that question is as it relates to cost pressures, how should we be thinking about the gross margins for the rest of the fiscal year?

Yes. So most of the improvement was operating leverage, so fixed cost absorption, but our cost savings program is critical to that -- helping that as well. We're seeing cost pressure going forward. I think like a lot of companies in the electronic industry, component costs are dynamic for us. And so that's something we've got our eye on and we're monitoring. So I just think going forward, that will be something that will be a little bit of a headwind for us maybe over the next coming quarters, if you will. So it's a good thing we have our cost savings efforts in place now to help try to offset that.

Got it. Okay. And then in terms of the operating expenses, they did come in higher than what we had expected. Just roughly speaking, how much of the year-over-year increase came from your sales volume-related costs versus the incentive compensation piece. And then again, just kind of maybe help us understand like how should we be thinking about operating expenses going forward for the rest of the fiscal year?

Yes. I mean a decent portion was volume related and probably -- I can't give you the numbers, but let's say maybe 1/3 was volume related, and then we had some variable compensation accruals adjustments in there that made up about 1/3. And then there's some other cats and dogs in there, too, that we didn't call out, but there's other costs that were -- that we have in that operating expense, like some health care costs and some other consulting expense. So -- but the 2 big ones were the volume related and then the variable compensation.

Okay. And you expect that to continue, you think, here at least near term or just any general comment there?

Well, I think the expense structure will settle down probably a little bit. I mean, obviously, the volume drives some of that. But in terms of kind of where we are, in terms of our spending and our ability to manage that, I think it will kind of settle down probably going forward over the next couple of quarters.

But Anthony, we are investing, and we're putting foundational systems. And so -- and we're investing against our key priorities. So I would say it's good spend and it may not be long term, but as Dave said, it will settle down. But I feel we're investing in the right things to set us up for success long term. And that will eventually -- it will get more efficient on the other side of this.

Okay. And then lastly for me, the tax rate came in lower than what we had expected. Maybe, Dave, you can address that. And again, any sort of commentary as to how we should be thinking about the tax rate for the balance of the fiscal year?

Yes. I mean because we have the valuation allowance on the U.S. income right now, it's -- the tax rate is going to kind of be up and down. So it just depends on the mix of profits that we're seeing in the quarter and what we're forecasting for the full year. So I mean, I think the way to think about that is probably a $4 million to $5 million tax expense for the year and how we divide that up over the quarters just kind of depends on the mix of profit. So it's just hard for me to give you a rate quarter-by-quarter just because of that mix.

And I'm not showing any further questions at this time. I turn the call back over to Helen.

Okay. Well, thank you, everybody, for joining us today and questions, you can call Dave or Pat, but have a good day. Thank you.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.