Bottom Fishing For Johnson Outdoors

Johnson Outdoors Falls To Key Support On Supply Chain Woe

Johnson Outdoors NASDAQ: JOUT emerged as a pandemic winner early in the rebound and, unlike some others, the COVID-19 inspired tailwinds continue to blow. The problem for the company isn’t demand, because demand remains high in all segments, the problem is global supply chain issues that have it scrambling for materials and chip-requiring components for its core fishing line of products. What this means is that, as strong as demand is, the company is having a hard time meeting its targets and more, the business could have been much stronger than reported. The takeaway is that demand remains high and supply chain issues are being worked on. In our view, this has the business set up for an acceleration later in the year and the stock poised for a reversal. 

“Demand for outdoor recreation products continues to be strong; managing ongoing supply chain challenges and uncertainties associated with the pandemic remain our focus in the near term as we work hard to fill demand,” said Helen Johnson-Leipold, Chairman and Chief Executive Officer.

Johnson Outdoors Steady After Mixed Results 

Johnson Outdoors had a decent quarter despite the impact of supply chain disruptions. The $153.5 million in consolidated revenue is down 7.3% YOY and missed the Marketbeat.com consensus by 250 basis points but there are mitigating factors to be aware of. To start, the company’s revenue is up 20% from pre-pandemic levels with demand strong in the core fishing segments and rising in the other three. The fishing segment saw its revenue fall 15% but not because of demand or order volume, only because of product availability so the lost revenue should be recouped either in the current quarter or the next. As for the Camping, Boating, and Diving segments, they all grew 16% to 17%.

Moving down to the margin, gross margin contracted by 580 basis points to 39.5% but less than expected. This led to strength on the bottom line with GAAP EPS of $1.07 that beat the consensus by $0.17. This puts the company on track to exceed full-year earnings estimates with the possibility of revenue acceleration and margin expansion later in the year. 

“We’ve been taking the necessary steps to mitigate the impact of global supply chain pressures on the business, including maintaining higher-than-normal inventory levels to meet (the) demand for our products and seeking alternative sources of supply for critical components where feasible. We are taking price increases for our products where appropriate, and we will continue to evaluate further pricing actions for the future,” said David W. Johnson, Chief Financial Officer.

Johnson Outdoors’ Dividend Is A Trophy For Your Portfolio 

Johnson Outdoors isn’t a high-yielding stock but it is above the broad market average at 1.4% and incredibly safe. The company is only paying out 15% of its earnings and has a fortress balance sheet. The company is net cash with a total of $16.62 per share compared to the $1.20 it pays out in annual dividends. The company is also a dividend grower having increased the payment for the last 8 years. The distribution CAGR is attractive as well at 25% and we are expecting another solid double-digit increase this year. 

The Technical Outlook: Johnson Outdoors Hits Bottom 

Shares of Johnson Outdoors fell in the wake of the Q1 release but price action confirmed support at the $83 level. Assuming this level holds up we see the stock moving sideways at these levels until supply chain headwinds show obvious signs of dissipating. In that scenario, the dividend safety and expectation for increases should help drive the stock higher. Regardless, the stock is trading at only 11X its earnings outlook while paying a safe dividend.