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.
Summary:
• 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.
