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Johnson Outdoors (NASDAQ:JOUT) Misses Q1 Sales Targets


Full Report / February 02, 2024

Outdoor recreational products company Johnson Outdoors (NASDAQ:JOUT) fell short of analysts' expectations in Q1 FY2024, with revenue down 22.3% year on year to $138.6 million. It made a GAAP profit of $0.38 per share, down from its profit of $0.57 per share in the same quarter last year.

Johnson Outdoors (JOUT) Q1 FY2024 Highlights:

  • Revenue: $138.6 million vs analyst estimates of $140.4 million (1.3% miss)
  • Operating income: roughly breakeven, in-line with expectations
  • EPS: $0.38 vs analyst estimates of $0.15 ($0.23 beat, driven by other income)
  • Gross Margin (GAAP): 38.1%, up from 35.2% in the same quarter last year
  • Market Capitalization: $466 million

Operating in locations worldwide, Johnson Outdoors (NASDAQ:JOUT) specializes in innovative outdoor recreational products for adventurers worldwide.

Johnson Outdoors, established in 1970 by Samuel C. Johnson as a subdivision of SC Johnson, set out to produce outdoor equipment that enhances adventure experiences. The company has built a strong reputation by developing durable equipment that meets the demands of the natural environment and improves user comfort and satisfaction.

The company’s product range is extensive, featuring fishing boats, diving gear, camping supplies, and outdoor clothing, all engineered to address the varied needs of outdoor enthusiasts. Johnson Outdoors aims to provide products that facilitate safer and more accessible outdoor activities, while also improving the enjoyment of such experiences through innovative design and quality.

Johnson Outdoors generates revenue through multiple channels, including direct sales, partnerships with retailers, and online transactions. The company’s focus on continual product innovation has attracted a broad customer base, from casual weekend explorers to seasoned outdoor professionals.

Leisure Facilities and Products

Consumers have lots of choices when it comes to how they spend their free time and extra money, so the companies offering leisure products and experiences must highlight their value proposition. Fitness companies may be riding the wellness trend, for example, while those selling boats and toys may have to lean into innovation to stand out. Either way, all leisure companies must compete against the 800-pound gorilla of social media and streaming entertainment, which offer instant gratification and have been taking share of consumers’ free time for over a decade.

Competitors engaged in manufacturing outdoor recreation equipment include Brunswick (NYSE:BC), YETI (NYSE:YETI), and Vista Outdoor (NYSE:VSTO).

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Johnson Outdoors's annualized revenue growth rate of 3.7% over the last 5 years was weak for a consumer discretionary business. Johnson Outdoors Total RevenueWithin consumer discretionary, a long-term historical view may miss a company riding a successful new product or emerging trend. That's why we also follow short-term performance. Johnson Outdoors's recent history shows a reversal from its 5-year trend, as its revenue has shown annualized declines of 8.1% over the last 2 years.

This quarter, Johnson Outdoors missed Wall Street's estimates and reported a rather uninspiring 22.3% year-on-year revenue decline, generating $138.6 million of revenue.

Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Johnson Outdoors was profitable over the last two years but held back by its large expense base. Its average operating margin of 2.7% has been paltry for a consumer discretionary business. Johnson Outdoors Operating Margin (GAAP)

This quarter, Johnson Outdoors generated an operating profit margin of 0%, down 3 percentage points year on year. This reduction indicates the company was less efficient with its expenses over the last year, spending more money in areas like corporate overhead and advertising.

EPS

Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability and efficiency of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions. Johnson Outdoors EPS (GAAP)

Over the last 5 years, Johnson Outdoors's EPS flipped from negative to positive. This is certainly encouraging for the business and implies that consumer preferences are shifting in favor of the company.

In Q1, Johnson Outdoors reported EPS at $0.38, down from $0.57 in the same quarter a year ago. This print easily cleared analysts' estimates, and shareholders should be content with the results.

Over the next 12 months, Wall Street expects Johnson Outdoors to grow its earnings. Analysts are projecting its LTM EPS of $1.70 to climb to $2.68.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company's revenue growth was profitable. But was it capital-efficient? If two companies had equal growth, we’d prefer the one with lower reinvestment requirements.

Understanding a company’s ROIC (return on invested capital) gives us insight into this because it factors the total debt and equity needed to generate operating profits. This metric is a proxy for not only the capital efficiency of a business but also a management team's ability to allocate limited resources.

Although Johnson Outdoors hasn't been the highest-quality company lately because of its poor top-line performance, it historically did a solid job investing in profitable growth initiatives. Its five-year average return on invested capital was 19.8%, higher than most consumer discretionary companies.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Unfortunately, over the last two years, Johnson Outdoors's ROIC has averaged a 25 percentage point decrease each year. We like Johnson Outdoors's average ROIC but are concerned it has declined recently, perhaps a symptom of waning opportunities to invest profitably.

Key Takeaways from Johnson Outdoors's Q1 Results

Revenue missed and was down meaningfully year on year. Operating profit was roughly breakeven, also a decrease from last year. However, gross margin improved year on year and beat, as did EPS beat, although this was driven by the 'other income' line. Overall, the results could have been better. The stock is up 1.8% after reporting and currently trades at $46.33 per share.

Is Now The Time?

Johnson Outdoors may have had a tough quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Johnson Outdoors, we'll be cheering from the sidelines. First off, its revenue growth has been uninspiring over the last five years. And while its projected EPS growth for the next year implies the company's fundamentals will improve, the downside is its declining EPS over the last five years makes it hard to trust. On top of that, its declining ROIC shows it's struggled to find compelling investment opportunities.

While we've no doubt one can find things to like about Johnson Outdoors, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

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