What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2024-02-02 · 90 added, 70 removed, 103 unchanged (61% of the section changed)

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This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) includes comments and analysis relating to the results of operations and financial condition of Johnson Outdoors Inc.

and its subsidiaries (collectively, the “Company”) as of and for the three month periods ended December 29, 2023 and December 30, 2022.

and its subsidiaries (collectively, the “Company”) as of and for the three and six month periods ended March 29, 2024 and March 31, 2023.

All monetary amounts, other than share and per share amounts, are stated in thousands.

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This discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related notes that immediately precede this section, as well as the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2023 which was filed with the Securities and Exchange Commission on December 8, 2023.

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Forward Looking Statements

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fluctuations in the prices of raw materials or the availability of raw materials or components used by the Company;

any disruptions in the Company's supply chain as a result of material fluctuations in the Company's order volumes and requirements for raw materials and other components, or the demand for those same raw materials and components by third parties, necessary to manufacture and produce the Company's products including related to shortages in procuring necessary raw materials and components to manufacture and produce such products;

any disruptions in the Company's supply chain as a result of material fluctuations in the Company's order volumes and requirements for raw materials

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and other components, or the demand for those same raw materials and components by third parties, necessary to manufacture and produce the Company's products including related to shortages in procuring necessary raw materials and components to manufacture and produce such products;

the success of the Company’s suppliers and customers and the impact of any consolidation in the industries of the Company's suppliers and customers;

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Johnson-Leipold, the Company’s Chairman and Chief Executive Officer, members of her family and related entities.

Net sales of $138,644 for the first quarter of fiscal 2024 decreased $39,693, or 22%, from the same period in the prior year.

The decrease between quarterly periods generally stemmed from a more challenging market in the current year, with softening consumer demand for the Company's outdoor recreation products across all segments, other than Diving.

In the Diving segment, sales were generally flat when excluding the impacts of foreign currency translation.

Despite the decrease in sales between quarters, material and freight cost reductions helped drive a 2.9 point improvement in gross margin in the current year

JOHNSON OUTDOORS INC.

quarter versus the prior year quarter.

Additionally, operating expenses decreased by 8% between quarters.

However, these expense and cost improvements between quarterly periods were not enough to overcome the decline in sales volume, causing a $5,426 decrease in operating profit from the prior year quarter.

Net sales of $175,856 for the second quarter of fiscal 2024 decreased $26,259, or 13%, from the same period in the prior year.

The decrease between quarterly periods generally stemmed from a continued challenging market in the current year, along with increased competitive pressure, resulting in weaker revenue for the Company's outdoor recreation products across all segments.

Unfavorable overhead absorption due to the lower sales volumes contributed to a 2.4 point decline in gross margin in the current year quarter versus the prior year quarter.

A 4% decrease in operating expenses between quarterly periods was not enough to overcome the decline in sales volume and gross margin between periods, causing a $11,643 decrease in operating profit from the prior year quarter.

The Company’s business is seasonal in nature.

The first fiscal quarter traditionally falls prior to the Company’s primary selling season for its warm-weather outdoor recreation products.

The second fiscal quarter traditionally falls within the Company’s primary selling season for its warm-weather outdoor recreation products.

The table below sets forth a historical view of the Company’s seasonality during the last three fiscal years.

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The Company’s net sales and operating profit (loss) by business segment for the periods shown below were as follows:

Three Months Ended

December 29, 2023 December 30, 2022

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Three Months Ended Six Months Ended

March 29, 2024 March 31, 2023 March 29, 2024 March 31, 2023

Fishing $ 138,608 $ 155,341 $ 249,100 $ 293,382

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See “Note 17 – Segments of Business” of the notes to the accompanying Condensed Consolidated Financial Statements for the definition of segment net sales and operating profit.

Consolidated net sales for the three months ended December 29, 2023 were $138,644, a decrease of $39,693, or 22%, compared to $178,337 for the three months ended December 30, 2022.

Foreign currency translation had an unfavorable impact of approximately 1% on current year first quarter net sales compared to the prior year's first quarter net sales.

Net sales for the three months ended December 29, 2023 for the Fishing business were $110,492, a decrease of $27,549, or 20%, from $138,041 during the first fiscal quarter of the prior year.

In the prior year quarter, as supply chain constraints began to ease, higher sales volumes were fueled by customers replenishing their inventory levels, coming off the peak of pandemic-

Consolidated net sales for the three months ended March 29, 2024 were $175,856, a decrease of $26,259, or 13%, compared to $202,115 for the three months ended March 31, 2023.

Foreign currency translation had a negligible impact on current year second quarter net sales compared to the prior year's second quarter net sales.

Net sales for the three months ended March 29, 2024 for the Fishing business were $138,608, a decrease of $16,733, or 11%, from $155,341 during the second fiscal quarter of the prior year.

The prior year quarter reflected customer replenishment of inventory levels coming off the peak of pandemic-driven consumer demand.

As consumer demand has continued to soften in the current year quarter, customers are conservatively managing their inventory levels in anticipation of the prime retail sales season.

Additionally, the Fishing business is experiencing increased competitive pressure, further contributing to the decrease between quarters.

Net sales for the Camping business were $10,520 for the second quarter of the current fiscal year, a decrease of $3,205, or 23%, from the prior year net sales during the same period of $13,725.

Approximately $1,900 of the decrease from the prior year quarter was related to the previously reported divestiture of the Military and Commercial Tents product lines of its Camping business during the second quarter of fiscal 2023, and the remainder due primarily to general declines in consumer demand in this market.

Net sales for the second quarter of fiscal 2024 for the Watercraft Recreation business were $9,728, a decrease of $3,162, or 25%, compared to $12,890 in the prior year same period.

Reduced demand in the overall watercraft market adversely impacted the Company's sales in this segment versus the prior year.

Net sales for Diving, our most global business, for the second quarter of fiscal 2024 were $16,924, which declined $3,384, or 17%, compared to net sales of $20,308 for the three months ended March 31, 2023.

Soft market demand across all geographic regions drove the decline over the prior year quarter.

Foreign currency translation had a favorable impact of less than 1% on sales in this segment versus the prior year quarter.

For the six months ended March 29, 2024, consolidated net sales of $314,500 decreased $65,952, or 17%, compared to $380,452 for the six months ended March 31, 2023.

Foreign currency translation had an insignificant impact on net sales of the current year to date period versus the prior year to date period.

Net sales for the six months ended March 29, 2024 for the Fishing business were $249,100, a decrease of $44,282, or 15%, from $293,382 during the same period of the prior year.

As noted above for the quarter, a continued challenging market and competitive pressures resulted in lower sales compared to the prior year to date period.

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driven consumer demand.

As consumer demand has softened in the current year quarter, customers are tightly managing their inventory levels in anticipation of the prime retail sales season.

Net sales for the Camping business were $5,913 for the first quarter of the current fiscal year, a decrease of $5,700, or 49%, from the prior year net sales during the same period of $11,613, due primarily to declines in the market.

Additionally, approximately $2,600 of the decrease from the prior year quarter was related to the previously reported sale of the Military and Commercial Tents product lines of its Camping business during the second quarter of fiscal 2023.

Net sales for the first quarter of fiscal 2024 for the Watercraft Recreation business were $4,813, a decrease of $4,845, or 50%, compared to $9,658 in the prior year same period.

Reduced demand in the overall market drove the decline from the prior year.

Foreign currency translation had an unfavorable impact of approximately 1% on current year first quarter net sales compared to the prior year's first quarter net sales.

Net sales for Diving, our most global business, for the first quarter of fiscal 2024 were $17,478, which declined $1,581, or 8%, compared to net sales of $19,059 for the three months ended December 30, 2022.

Foreign currency translation had an unfavorable impact of approximately 6% on sales in this segment versus the prior year quarter.

Excluding the effect of foreign currency translation, the Company experienced modest declines in demand for Diving products between quarters.

Net sales for the Camping business were $16,433 for the six months ended March 29, 2024, a decrease of $8,905, or 35%, from the prior year net sales during the same period of $25,338.

Approximately $4,500 of the decrease from the prior year quarter was related to the previously reported divestiture of the Military and Commercial Tents product lines of its Camping business during the second quarter of fiscal 2023, with the remainder due primarily to general declines in the market.

Net sales for the six months ended March 29, 2024 for the Watercraft Recreation business were $14,541, a decrease of $8,007, or 36%, compared to $22,548 in the prior year same period, due to reductions in demand in the overall watercraft market over the prior year.

Diving net sales were $34,402 for the six months ended March 29, 2024, versus $39,367 for the same period of the prior year, a decrease of $4,965 or 13% due to soft market demand across all geographic regions.

Foreign currency translation had a favorable impact of approximately 2% on sales in this segment versus the prior year.

Cost of Sales

Cost of sales for the three months ended December 29, 2023 of $85,790 decreased $29,768 compared to $115,558 for the three months ended December 30, 2022.

The decrease year over year was driven primarily by decreased sales volumes, as well as decreased costs of certain materials and lower inbound freight between quarters.

Cost of sales for the three months ended March 29, 2024 of $114,425 decreased $12,355 compared to $126,780 for the three months ended March 31, 2023.

The decrease year over year was driven primarily by decreased sales volumes between quarters.

For the six months ended March 29, 2024, cost of sales was $200,215 compared to $242,338 in the same period of the prior year.

The decrease year over year was driven primarily by decreased sales volumes as well as decreases in the costs of certain materials between year to date periods.

Gross Profit Margin

For the three months ended December 29, 2023, gross profit as a percentage of net sales was 38.1% compared to 35.2% in the three month period ended December 30, 2022.

The improvement in gross profit percentage between quarters was primarily due decreased costs of certain materials and lower inbound freight.

For the three months ended March 29, 2024, gross profit as a percentage of net sales was 34.9% compared to 37.3% in the three month period ended March 31, 2023.

The decline in gross profit percentage between quarters was primarily due to unfavorable overhead absorption as a result of lower sales volumes, as well as promotional price reductions between quarters.

For the six months ended March 29, 2024, gross profit as a percentage of sales was 36.3% compared to 36.3% in the prior six month period.

Lower costs of certain materials and components and reduced overhead spending offset unfavorable overhead absorption on lower sales volumes, which contributed to the gross profit percentage remaining flat between quarters.

Operating Expenses

Operating expenses were $52,808 for the three months ended December 29, 2023, compared to $57,307 for the three months ended December 30, 2022.

The decrease of $4,499 was primarily due to lower sales volumes between quarters, as well as lower professional services expense, partially offset by more favorable market conditions on the Company's deferred compensation plan assets, which resulted in approximately $1,300 of higher deferred compensation expense recorded in the Company's Corporate segment in the current year quarter as compared to the prior year quarter.

Operating expenses were $61,684 for the three months ended March 29, 2024, compared to $63,945 for the three months ended March 31, 2023.

The decrease of $2,261 was primarily due to lower sales volumes between quarters, as well as lower incentive compensation and professional services expense, partially offset by increased promotional spending between quarters.

Operating expenses were $114,492 for the six months ended March 29, 2024, compared to $121,252 for the six months ended March 31, 2023.

The decrease of $6,760 was primarily due to lower sales volumes between quarters, as well as lower incentive compensation and professional services expense, partially offset by increased promotional spending and more favorable market conditions on the Company's deferred compensation plan assets, which resulted in approximately $2,200 of higher deferred compensation expense recorded in the Company's Corporate segment in the current year to date period as compared to the prior year to date period.

This increase in expense was entirely offset by a gain in Other (income) expense, net related to marking these deferred compensation plan assets to market.

Operating Profit

Operating profit on a consolidated basis for the three month period ended December 29, 2023 was $46, compared to $5,472 in the first quarter of the prior fiscal year.

Lower sales volumes in the current year quarter, which were partially offset by lower cost of sales and operating expenses between quarters, all as discussed above, was the primary driver of the decrease in operating profit between quarters.

Interest expense was $38 and $37 for the three months ended December 29, 2023 and December 30, 2022, respectively.

Interest income was $1,198 and $827 for the three months ended December 29, 2023 and December 30, 2022, respectively.

The increase in interest income over the prior year periods was driven by increased interest rates, as well as increased investment or cash balances during the first fiscal quarter of 2024.

Other Expense (Income), net

Other income was $4,693 for the three months ended December 29, 2023 compared to $1,904 in the prior year period.

The main drivers of the $2,789 increase over the prior year quarter were a gain of approximately $1,900 on the sale of a building during the current year quarter as well as the $1,300 increase in net investment gains and earnings on the assets related to the

Operating loss on a consolidated basis for the three month period ended March 29, 2024 was $253, compared to operating profit of $11,390 in the second quarter of the prior fiscal year.

As discussed above, lower sales volumes in the current year quarter was the primary driver of the decrease in operating profit between quarters.

Operating loss on a consolidated basis for the six month period ended March 29, 2024 was $207, compared to operating profit of $16,862 in the prior year to date period.

Lower sales volumes in the current year quarter was the primary driver of the decrease in operating profit between year to date periods.

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Company’s non-qualified deferred compensation plan.

For the three months ended December 29, 2023, foreign currency exchange losses were $191 compared to gains of $276 for the three months ended December 30, 2022.

Interest expense was $40 and $38 for the three months ended March 29, 2024 and March 31, 2023, respectively.

Interest expense was $78 and $75 for the six months ended March 29, 2024 and March 31, 2023, respectively.

Interest income was $857 and $735 for the three months ended March 29, 2024 and March 31, 2023, respectively.

Interest income was $2,055 and $1,562 for the six months ended March 29, 2024 and March 31, 2023, respectively.

Other Expense (Income), net

Other income was $2,448 for the three months ended March 29, 2024 compared to $7,861 in the prior year period.

The main drivers of the $5,413 decrease over the prior year quarter were a gain of approximately $6,640 on the sale of the Military and Commercial tents product lines in the prior year quarter, partially offset by a $871 increase in net investment gains and earnings on the assets related to the Company’s non-qualified deferred compensation plan in the current quarter over the prior year quarter.

For the three months ended March 29, 2024, foreign currency exchange gains were $46 compared to losses of $46 for the three months ended March 31, 2023.

For the six months ended March 29, 2024, other income was $7,141 compared to $9,765 in the six months ended March 31, 2023.

The main drivers of the $2,624 decrease over the prior year period were the gain on the sale of the Military and Commercial Tents product lines of approximately $6,640 recorded in the prior year period, partially offset by a gain on the sale of a building of approximately $1,900 in the current period.

Additionally, net investment gains and earnings on the assets related to the Company's non-qualified deferred compensation plan in the six months ended March 29, 2024 were $5,017, compared to $2,824 in the prior year to date period.

Foreign currency exchange losses were $145 compared to gains of $230 for the six months ended March 29, 2024 and March 31, 2023, respectively.

Income Tax Expense

The Company’s provision for income taxes is based upon estimated annual effective tax rates in the tax jurisdictions in which the Company operates.

The effective tax rate for the three month periods ended December 29, 2023 and December 30, 2022, were 33.0% and 28.0%, respectively.

Net income for the three months ended December 29, 2023 was $3,955, or $0.38 per diluted common class A and B share, compared to net income of $5,879, or $0.57 per diluted common class A and B share, for the first quarter of the prior fiscal year.

The effective tax rate for the three and six month periods ended March 29, 2024 were 28.4% and 31.4%, respectively, compared to 25.5% and 26.2% in the corresponding periods of the prior year.

Net income for the three months ended March 29, 2024 was $2,156, or $0.21 per diluted common class A and B share, compared to net income of $14,861, or $1.45 per diluted common class A and B share, for the second quarter of the prior fiscal year.

Net income for the six months ended March 29, 2024 was $6,111, or $0.59 per diluted common class A and B share, compared to net income of $20,740, or $2.02 per diluted common class A and B share for the six months ended March 31, 2023.

Liquidity and Financial Condition

Cash and cash equivalents and short term investments totaled $109,555 as of December 29, 2023, compared to $103,422 as of December 30, 2022.

The Company’s debt to total capitalization ratio was 0% as of December 29, 2023 and December 30, 2022.

The Company’s total debt balance was $0 as of each of December 29, 2023 and December 30, 2022.

Cash and cash equivalents and short term investments totaled $84,270 as of March 29, 2024, compared to $107,648 as of March 31, 2023.

The Company’s debt to total capitalization ratio was 0% as of March 29, 2024 and March 31, 2023.

The Company’s total debt balance was $0 as of each of March 29, 2024 and March 31, 2023.

See “Note 11 – Indebtedness” in the notes to the Company’s accompanying condensed consolidated financial statements for further discussion.

Accounts receivable, net of allowance for doubtful accounts, were $83,043 as of December 29, 2023, a decrease of $37,510 compared to $120,553 as of December 30, 2022.

The decrease is consistent with the decreased first quarter sales volumes year over year.

Inventories were $267,321 as of December 29, 2023, an increase of $15,796, compared to $251,525 as of December 30, 2022.

Accounts receivable, net of allowance for doubtful accounts, were $129,345 as of March 29, 2024, a decrease of $15,255 compared to $144,600 as of March 31, 2023.

The decrease is consistent with the decreased sales volumes year over year.

Inventories were $249,201 as of March 29, 2024, an increase of $12,530, compared to $236,671 as of March 31, 2023.

Lower replenishment volumes to the Company's customers and softening consumer demand resulted in elevated inventory levels, primarily in the Fishing segment.

Accounts payable were $43,403 at December 29, 2023 compared to $57,058 as of December 30, 2022.

Accounts payable were $50,374 at March 29, 2024 compared to $51,855 as of March 31, 2023.

The Company’s cash flows from operating, investing and financing activities, as presented in the Company’s accompanying Condensed Consolidated Statements of Cash Flows, are summarized in the following table:

Three months ended

(thousands) December 29,

2023 December 30,

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Six months ended

(thousands) March 29,

2024 March 31,

Cash (used for) provided by:

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Operating Activities

Cash used for operations totaled $33,687 for the three months ended December 29, 2023 compared to $17,570 during the corresponding period of the prior fiscal year.

The increase in cash used for operations over the prior year three month period was due primarily to decreased sales volumes, higher inventory purchases, and other working capital changes that required greater usage of cash between quarters.

Depreciation and amortization charges were $5,027 for the three month period ended December 29, 2023 compared to $3,763 for the corresponding period of the prior year.

Cash used for operations totaled $51,764 for the six months ended March 29, 2024 compared to $18,095 during the corresponding period of the prior fiscal year.

The increase in cash used for operations over the prior year six month period was due primarily to decreased sales volumes and higher inventory purchases between quarters.

Depreciation and amortization charges were $9,949 for the six month period ended March 29, 2024 compared to $7,829 for the corresponding period of the prior year.

Investing Activities

Cash provided by investing activities totaled $4,685 for the three months ended December 29, 2023 compared to cash used for investing activities of $6,649 for the corresponding period of the prior fiscal year.

Capital expenditures were $5,004 in the three months ended December 29, 2023, compared to $6,649 in the prior year to date period which included investments in expansion of Fishing facilities to accommodate additional production.

Current year cash provided by investing activities reflects maturity of investments of $7,500, as well as proceeds of $2,189 related to the sale of fixed assets, which predominantly

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consisted of the sale of a building, as discussed above.

Cash provided by investing activities totaled $7,031 for the six months ended March 29, 2024 compared to $992 for the corresponding period of the prior fiscal year.

Current year cash provided by investing activities reflects maturity of investments of $15,000, as well as proceeds of $2,234 related to the sale of fixed assets, which predominantly consisted of the sale of a building, as discussed above.

The prior year period included proceeds of $14,990 related to the divestiture of the Military and Commercial Tents product lines, previously discussed.

Capital expenditures were $10,203 in the six months ended March 29, 2024, compared to $13,998 in the prior year to date period which included investments in expansion of Fishing facilities to accommodate additional production.

Any additional capital expenditures in fiscal 2024 are expected to be funded by working capital.

Financing Activities

Cash used for financing activities totaled $3,588 for the three months ended December 29, 2023 compared to $3,570 for the three month period ended December 30, 2022 and represents the payment of dividends and purchase of treasury stock.

The Company had no debt during either three month period ended December 29, 2023 and December 30, 2022.

Cash used for financing activities totaled $6,945 for the six months ended March 29, 2024 compared to $6,710 for the six month period ended March 31, 2023 and represents the payment of dividends and purchase of treasury stock.

The Company had no debt during either six month period ended March 29, 2024 and March 31, 2023.

See Note 11 "Indebtedness" to the accompanying Condensed Consolidated Financial Statements for additional information on our credit facilities.

As of December 29, 2023 the Company held approximately $42,442 of cash, cash equivalents and short-term investments in bank accounts in foreign taxing jurisdictions.

As of March 29, 2024 the Company held approximately $44,024 of cash, cash equivalents and short-term investments in bank accounts in foreign taxing jurisdictions.

Contractual Obligations and Off Balance Sheet Arrangements

The Company has contractual obligations and commitments to make future payments including under operating leases and open purchase orders.

There have been no changes outside of the ordinary course of business in the specified contractual obligations during the quarter ended December 29, 2023.

There have been no changes outside of the ordinary course of business in the specified contractual obligations during the quarter ended March 29, 2024.

The Company utilizes letters of credit primarily as security for the payment of future claims under its workers compensation insurance.

Letters of credit outstanding were approximately $67 and $173 as of December 29, 2023 and December 30, 2022, respectively.

Letters of credit outstanding were approximately $67 and $173 as of March 29, 2024 and March 31, 2023, respectively.

The Company has no other off-balance sheet arrangements.

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The Company’s critical accounting policies and estimates are identified in the Company’s Annual Report on Form 10-K for the fiscal year ending September 29, 2023 in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Critical Accounting Estimates”, which was filed with the Securities and Exchange Commission on December 8, 2023.

There were no significant changes to the Company’s critical accounting policies and estimates during the three months ended December 29, 2023.

There were no significant changes to the Company’s critical accounting policies and estimates during the six months ended March 29, 2024.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis