JOUT - Johnson Outdoors Inc.: Out Of Favor Under The Radar

2024-04-18 15:01:28 ET

Summary

• Johnson Outdoors' run of disappointing results has continued into fiscal 2024.
• Consumer demand for outdoor recreation goods will eventually recover from current subdued levels, but an imminent turnaround in fortunes is unlikely.
• Inventory balances have increased further, and it is just a matter of time before the company is forced to write down the carrying value of excess raw materials and finished goods.
• The market is pricing in a lot of negativity already, however near-term downside risks support a continued Sell rating.

Downgrade Call Paid Off, Time To Revisit

After publishing a Sell rating for Johnson Outdoors ( JOUT ) in early January 2024, I felt zero regrets about that downgrade (from Buy) after my initial read of JOUT's 1Q24 earnings release. For holders of the stock, JOUT's first quarterly update of fiscal 2024 must have been very depressing reading. 1Q24 sales were extremely soft, and management's commentary regarding segmental performance and market conditions offered little in the way of hope regarding a near-term improvement. Total net sales for 1Q24 came in a whopping -22% below the 1Q23 print. Here's management’s rather downbeat summary of the quarter's sales performance:

• Fishing sales declined by approximately 20 percent driven by high retail inventories and lower consumer demand
• Diving sales decreased 8 percent over the prior year quarter, mainly due to a 6 percent negative impact on sales due to foreign currency translation
• Camping revenue declined 49 percent, of which approximately half was due to the sale of the Military and Commercial tents business last year. The remainder was due to high retail inventories and a decline in consumer spending
• Watercraft Recreation revenue declined 50 percent, reflecting continued significant reductions in the overall market demand

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