Monday, November 26, 2018

A Current AIM Program Small Cap Equity Holding: Johnson Outdoors (JOUT) by: Paul J. Cox. "Adventure Awaits"

Johnson Outdoors (JOUT, $70.38): “Adventure Awaits”
By: Paul J. Cox, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Johnson Outdoors (NYSE:JOUT) : Is a small cap manufacturer and marketer of seasonally branded outdoor recreation products that offers equipment for recreational activities focused on fishing, paddling, diving, hiking and camping based out of Racine, Wisconsin.

• Johnson Outdoors has recently increased its annual cash dividend, reflecting the confidence of the firm’s performance and commitment to it’s strategic plans indicated by David W. Johnson, Vice president and Chief Financial Officer.

• Johnson Outdoors has experienced topline growth of 13% increase in revenue from 2016 to 2017, and three quarters into 2018 we have witnessed significant earnings per share growth.

• Consolidated net sales for the three months ended June 29, 2018 were 170,799, a 10 percent increase compared from three months ended June 30, 2017.  The company has seen strong sales increases from its fishing and camping businesses, up 17% during the third quarter of the previous year.  The company asserts strong performance of new, innovative products drove growth over the last year.  Additionally, the companies camping business has seen sales increase by 15% from the sales the same quarter of last year.  Management asserts that the revenues were driven by expansion into military sales and the Eureka tents product line growth.

• Due to the seasonality of the business, with the majority of sales during the year coming from the second and third quarters during the spring and summer months, Johnson Outdoors has dropped from $101.2 on 9/14/18 to $70.38 as of 11/15/18.

Key points:

Johnson Outdoors announced its three strategic priorities this past august, which consist of consumer insights, enhanced innovation processes and digital sophistication.  Johnson Outdoors expects product innovation to maintain its strong growth numbers.  On the earnings conference call on August 7th, 2018, CEO Helen Johnson-Leipold announced that “Next year’s new fishing products include another award-winning first, the Minn Kota Ultrex, with built-in MegaDown Imaging which grabbed the best Boating Accessory honors at the 2018 ICAST, the world’s most prestigious fishing show”.  The company has announced select models of its Minn Kota bow-mounted trolling motors will be available early next year.

In the Q3 earnings call, CEO Johnson-Leipold also announced its progress in targeting sales and marketing programs to leverage company-wide digital transformation and data analytics in order to enhance accelerated growth for all of it’s channels, long term.  Specifically, Johnson-Leipold discussed the importance of expanded e-commerce sales in regards to both the customers and brand strength.  The company has moved into the implementation phase of its desired digital transformation, and have begun to see an uptick in e-commerce sales for every brand the firm offers.

A big concern of Johnson Outdoors’s management has been the Chinese tariffs.  The company imports products from china, mainly raw materials and electric components, and we are yet to see the impact they have had on the cost of operating.  The tariffs pose uncertainty and it is yet to see how the company plans to mitigate the risk.

What has the stock done lately?

The recent market corrections saw the price of JOUT stock dropping from $105 in early September to trading at $71.75 at market close on November, 15 and represents the risks of the high seasonality of the business, as Q4 generally reports the lowest EPS of the fiscal year by quite a substantial margin, as well as the unknown effects of the tariffs, making the stock experience high volatility in the past couple months.

Past Year Performance

JOUT has experienced a 13.35 YTD change in the past year, yet over the past three months the price has dropped by 29.44%, which is a concerning number for current shareholders.  The 52 week change has shown an increase of just 3.36%.  These recent declines in the past couple months could also have been effected by institutional investors like Tredje AP-Fonden closing their position on the stock during the market corrections, dumping 82,000 shares.

My Takeaway:

Management has shown it is committed to it’s corporate strategy, and has shown solid topline growth from quarter to quarter.  It is likely shareholders may see a decline in share price within the next couple of weeks as the fourth quarter has historically had the lowest sales as the business is highly seasonal.  This could offer potential investors a better value as earnings will likely rebound in the second and third quarters of 2019.