Watercraft weighs down Johnson Outdoors in Q4

Johnson Outdoors posted a significant drop in fourth-quarter profits, due in part to its struggling Watercraft division.

In a conference call, Johnson Outdoors COO Jerry Perkins said Johnson Outdoors’ total sales for the year were up 7 percent. However, he said operating profits declined 21 percent for the fourth quarter, and “operational issues” with Watercraft were a contributing factor in the losses.

“I want to assure you that losing $9 million on an $80 million business is not going to happen again,” said Perkins. “The fact is that Watercraft is the most complex business in our portfolio, and the complexity drove many of the problems we’ve experienced, such as redundancies, underutilized facilities and equipment, and varying levels of experience and expertise across the operations.”

Watercraft has moved production for Extrasport off-shore, and the company spent $900,000 to close its Extrasport facility in Miami, Fla. The company also spent $700,000 to reorganize its Watercraft and Outdoors Equipment businesses. In a press release, Johnson reported that another $2.4 million in charges resulted from “production and product line changes and associated write-downs of inventory, tooling and equipment.”

Perkins said that Johnson has reorganized Watercraft so that it will be more simple, streamlined and able to get product out the door faster, better and more cost effectively. As part of the reorganization, Watercraft split its brands into two divisions: Paddlesports (Ocean, Necky, Old Town Canoe, Rogue River, Dimension, Carlisle and Extrasport) and Sports and Leisure (Escape and Winterquest).

Within these divisions, operations have been streamlined. Cynthia Georgeson, spokesperson for Johnson Outdoors, gave SNEWS a few examples of this streamlining. She said Watercraft now has centralized marketing and sales for all brands in the paddlesports division. In addition, all R&D for the paddlesports division is now located in Ferndale, where the R&D team can work more closely with marketing personnel. She added that Watercraft has consolidated elements of its production, distribution and sourcing. “Eighteen months ago we had six distribution centers; today we have three,” Georgeson said.

According to Georgeson, the changes go beyond organization. Watercraft is now more mindful that each brand must manufacture products as efficiently as possible. As a result, Watercraft has tasked certain personnel with the sole charge of making sure that “wherever we are manufacturing we have best practices in place.”

Perkins said in the conference call that, going forward, his first priority is to improve performance at Old Town. “A key focus is inventory management, which has been a major issue for Old Town in the past,” he said.

Old Town faced delivery issues earlier in the year due to implementation of the J.D. Edwards operating system. (The J.D. Edwards system ensures that a company’s processes jibe with the way it conducts business — how it purchases materials, forecasts, runs its distribution cycle, keeps records, manages inventory, etc.) As Old Town put the J.D. Edwards system in place, it caused a glitch where Old Town had orders in hand but it did not ship the product. Now that the system is in place, this should not be a problem in the future, the company assures us.

Though Watercraft operations drove losses for the quarter, Georgeson said that the company’s performance was not affected by the restructuring of its sales force. In July, SNEWS reported that Johnson Outdoors terminated reps who handled only the Carlisle or Extrasport brands, and consolidated agencies so that its reps would carry all four brands — Old Town Canoe, Carlisle, Extrasport and Ocean Kayak. Necky reps were not part of the consolidation.

SNEWS View: Investors hammered Johnson during an earnings report conference call, and deservedly so. And while eyes were firmly on the dismal Watercraft performance numbers, the loss of a military contract renewal worth an estimated $45 million to Johnson’s Outdoor Equipment division has many wondering what’s next? Insiders have told SNEWS that military sales accounted for over half the outdoor division’s YTD sales in 2003. What that means for the company as a whole is anyone’s guess, but the loss of that much revenue has to hurt big time. Reading between the lines, we wonder if the changes at Johnson are as much about a drive to build a product more cheaply, sell it at market price, get maximum market penetration and expand the distribution as widely as possible, as they are about simply reorganization to achieve greater efficiencies. That’s great for investors, who all appeared mighty nervous during the conference call, but also carries with it the greater risk of leading to oversaturation and mass discounting. There are a lot of good folk still at Johnson, and the company used to be very focused on the specialty business. We wonder if the times are changing? Like the rest of the industry, and alongside curious investors, SNEWS will be watching closely to see what Johnson, and more specifically, the restructured Watercraft division does next. We can only hope that this means Watercraft will now be focused on the consistent delivery of quality product that specialty retailers can embrace and sell at full margins. If not, the writing is on the wall.

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