JOUT - Johnson Outdoors: Quality Business But Considerable Deterioration Not Over Yet

2024-03-11 19:22:53 ET

Summary

• JOUT’s revenue growth was impressive into FY21 (CAGR: 8%), however, the company has seriously struggled subsequently. Demand is softening and economic headwinds are wreaking havoc.
• We like its business model and the positioning of the business and its brands. However, we do see risks to achieving attractive long-term growth.
• Recent execution has been poor, with inventory accumulating, margins considerably declining, and FCF drying up. With demand unlikely to pick up immediately, further pain is ahead.
• Even if we compare what we estimate to be JOUT’s normalized performance relative to its peers, the company still underperforms, implying unattractive relative fundamentals.
• JOUT’s valuation inherently prices in margin improvement and a return to growth, which although likely, is not imminent. This execution risk should not be borne by new investors.

Introduction and thesis

Johnson Outdoors ( JOUT ) is a leading global manufacturer and marketer of outdoor recreational products. Johnson Outdoors operates through multiple brands, offering a diverse range of outdoor gear and equipment for various recreational activities such as fishing, camping, diving, and water sports.

Whilst our rating of JOUT may not imply such, we consider the company a high-quality business. This is primarily due to it being a global market leader across a number of outdoor recreational verticals. The company has used product innovation and M&A to expand its total addressable market, building numerous brands and awareness among an educated and sticky customer base, allowing for solid growth and market share gains....

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