Operator: Hello, and welcome to the Johnson Outdoors Second Quarter 2024 Earnings Conference Call. Today's call will be led by Helen Johnson-Leipold, Johnson Outdoors' Chairman and Chief Executive Officer. Also on the call is David Johnson, Vice President and Chief Financial Officer. [Operator Instructions] This call is being recorded. Your participation implies consent to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Pat Penman: Thank you. Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2024 fiscal second quarter. If you need a copy of today's news release, it is available on our website at johnsonoutdoors.com under Investor Relations. I also need to remind you that this conference may contain forward-looking statements. These statements are made on the basis of our current views and assumptions and are not guarantees of future performance. Actual events may differ materially from those statements due to a number of factors, many beyond Johnson Outdoors' control. These risks and uncertainties include those listed in our press release and filings with the Securities and Exchange Commission. If you have any additional questions following the call, please contact Dave Johnson or myself. It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Helen Johnson-Leipold: Thanks, Pat. Good morning, everyone, and thank you for joining us. I'll begin by addressing our results and giving perspective on the performance, and then I'll share the outlook for the business. Dave will provide more detailed financial review, and then we will take your questions. Sales in our second fiscal quarter ending March 2024 declined 15% to $175.9 million compared to $202.1 million in the prior year second quarter. Year-to-date, company sales decreased 17% over last year's fiscal 6-month period. The company reported an operating loss of $250,000 for the second quarter compared to an operating profit of $11.4 million in the prior year second quarter. For the year-to-date period, total company operating loss declined to $200,000 compared to an operating profit of $16.9 million for the prior year-to-date period. Net income for the second quarter was $2.2 million or $0.21 per diluted share versus $14.9 million or $1.45 per diluted share in the previous year's second quarter. Net income during the first fiscal six months was $6.1 million or $0.59 per diluted share versus $20.7 million or $2.02 per diluted share in prior fiscal year-to-date period. Continued tough marketplace conditions significantly impacted our second quarter results. While inventory levels at retail are starting to improve, we have been facing increased competitive activity across our categories requiring additional promotion and pricing actions. At the same time, economic uncertainty continues to impact consumer buying behavior, we expect these challenges to continue in the season ahead. In the midst of this tough environment, we are prioritizing critical investments in our businesses to navigate challenges in the short term and position us for marketplace success in the long term. We have strong brands that are leaders in our categories. We believe in the potential of these categories, and we are looking for opportunities to accelerate growth. Innovation is and always has been key to our success in the marketplace and it remains a strategic priority to create consumer-focused products and technology that delivers the best outdoor experience as possible. We are investing in marketing and promotions and supporting our new product launches like the new Minn Kota Quest Trolling Motor line, which is seeing positive response from the trade. Strengthening our business operations and improving profitability are also critical focus. We put cost savings program in place, and we are evaluating our cost structure for additional efficiency opportunities. We have been working hard to reduce inventory to more normal levels. We have a lot more work to do, but we are starting to see progress from these efforts. This is a tough time, and we are not satisfied with where we are, but we are taking actions to improve our position in the market, and we will continue to invest in the long-term profitable growth of our brands. Now I'll turn the call over to Dave for more details on financing.

David Johnson: Thank you, Helen, and good morning, everyone. I want to highlight few items from the quarter. Profits in the second quarter were impacted by reduced overhead absorption from lower volume as well as increases in promotional activity and pricing actions. We continue to take steps to improve our operating margins with an active cost savings program. We are gaining efficiency benefits in our factories and have driven reductions in our logistics costs. We will expand our efforts to reduce our cost and expense structure. Operating expenses decreased 4% or $2.3 million versus the prior year quarter due primarily to lower sales volumes between quarters, lower incentive compensation and professional services expense and was partially offset by increased promotional spending. As Helen mentioned, we've been working hard to reduce our inventory back to more normal levels. Our inventory balance as of March was $249.2 million, up about $12.5 million from last year's March quarter, but down $18.1 million from December. We expect additional inventory reductions throughout the balance of the fiscal year. Our balance sheet continues to have no debt and our cash position enables us to invest in opportunities to strengthen the business. We remain confident in our ability to deliver long-term value and consistently pay out cash dividends to our shareholders. Now I'll turn the call over to the operator for the Q&A session.

Operator: Certainly. One moment for our first question. And our first question comes from the line of Anthony Lebiedzinski from Sidoti & Company. Your question, please.

Anthony Lebiedzinski: Good morning and thank you for taking the questions. So first, can you guys give us at least maybe some directional comment how did the quarter progress from January through March? And maybe perhaps give us an early indication of how your third quarter is trending so far?

Helen Johnson-Leipold: Well, this quarter, as we talked about, I think it's not as good as last year, but we feel good that at least our new products are being accepted by the trade. I think there's -- as we said, it's a challenging uncertainty with the consumer. But it's still reflecting early season activity, and we're hoping for a better season going forward. I can't give you much of an indication of what's going to happen going forward. But as I said, I think this is a challenging time, and it's going to continue to be challenging. We got both marketplace conditions and a lot of competitive activity. So I think that's going to continue.

Anthony Lebiedzinski: Got you. And just a follow-up on the last part about the challenges that you're seeing in your business. What is your view as far as -- is this more driven by the pull forward that we had during the pandemic? Or is it perhaps more because of just macroeconomic uncertainty?

Helen Johnson-Leipold: Well, I think you've got a lot of variables in the mix, which -- so there's not one specific reason, but across all outdoor categories, we are seeing that the demand is depressed. I mean that's -- and some of it is due to the pull forward that happened during the pandemic. But I think we're also seeing a lot of competitors with pricing activities that are putting pressure on. And the trade, I think, is a little bit cautious about over ordering. They've been through the inventory situation, I think that's clearing up. It's still an issue depending on the business you're talking about. But I think it's a combination of a lot of things, which, hopefully, they will start to clear up as we get into the future state when the volatility hopefully gets stabilized.

Anthony Lebiedzinski: Understood. Okay. Got it. And then just as far as the quarter that you reported, can you give us a sense as about unit volumes versus pricing or ASPs?

David Johnson: So with the discounting and promotional activity we've had, that really affected the top line more than unit volume. But having said that, depending on the category, unit volume was down versus last year. I don't have precise numbers for you. But certainly, the discounting affected that top line more than anything else.

Anthony Lebiedzinski: Understood. Okay. Thanks Dave. And then, Helen, I think you said that the inventory levels at retail are starting to improve. Is that across the board? Or are you seeing certain pockets of your business gets better than others as far as the inventory levels that you're seeing from retailers?

Helen Johnson-Leipold: I think it depends on the business for sure. And so I think in general, the inventory levels will get better. I mean everybody has recognized that they were too high and they're working their way through it. But depending on the category, some are moving faster than others. I think our diving business is a little lagged. We've got some buildup in the dealers. So again, it depends. But in general, I think there isn't an issue with the inventory that people have stock and are ready to go over the season.

Anthony Lebiedzinski: And then you talked about seeing good response from Minn Kota Quest Trolling Motors, which is great to hear. So that being said, I mean, do you think this will be incremental to your existing line of products? Or could we perhaps see some cannibalization from your other product lines? How do you -- how should we think about that?

Helen Johnson-Leipold: Well, the good response is really trade oriented. I think innovation in general was a key for this coming season because of innovation tends to drive through some of the depressed demand. But this is -- we did restage our whole Minn Kota line. And we always assume that as you restage product that you've got some cannibalization of the existing. But this is a different motor for a different target. So feel good that it should drive some incremental sales.

Anthony Lebiedzinski: That's great to hear. Okay. That's what I was looking for. So -- and then thinking about the promotional programs and your efforts to reduce inventory, how should we think about that as it relates to your near-term and longer-term profitability?

Helen Johnson-Leipold: Well, I think we do what it takes to drive volume in the market. And I think this is -- we're addressing this situation, which has a lot of competition. And when there's a softer demand and the market is not growing as fast, I think you end up increasing your promotional spend. But as the innovation should, in normal times, be what drives sales and don't have to rely heavily on promotion. So I think we show that we will do what it takes to drive movement at retail. It's just been a little heavier this year given the circumstances.

Anthony Lebiedzinski: Got you. Okay, but it is encouraging to see the inventory decline on a sequential basis. So I hope you guys can further make progress there. And then lastly for me, just switching gears to your cost savings program. So it sounds like it helps to offset some of the pressure points in this last quarter, and I think even the quarter before that. So -- but I guess as you look at that cost savings program, I guess you talked about the improving efficiencies at factories and with your logistics. But I guess maybe in baseball terms, what inning are you in with that initiative? And what else are you looking to do to gain further cost savings?

David Johnson: Yes, I think we're in the middle of it. So I'll use football, we are half time. So I think -- yes, I mean, we started this pretty robustly six to eight months ago, and we continue to look at how we can improve our profit profile. So that will continue.

Helen Johnson-Leipold: Also, we are evaluating all options to look at other cost savings. And -- but it's really about being more efficient and doing things in a more effective and efficient way. And I think that's a heavy focus. We're looking at all aspects of the business. I think the marketplace, obviously, the competition is continuing to increase pressures. So we've got to look at this. And we're in the process of doing that.

Anthony Lebiedzinski: Understood. Well, thank you very much and best of luck.

Helen Johnson-Leipold: Thank you.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Anna Glaessgen from B. Riley. Your question, please.

Anna Glaessgen: Hi, good morning. Thanks for taking my question. I'd like to go back to some of the questions around margin and understanding you have to respond to competitive activity when thinking about pricing. But what's your outlook for promotionality as we think longer term? Is this kind of a new normal as you have to respond to these competitors? Do you see a reversion back to historical levels? Just any more color there would be super helpful.

Helen Johnson-Leipold: I think it is not going to go away. I think we've got some intense competition. It will be -- going forward, but we really rely on innovation to drive the price value so that promotion doesn't become a crux for us, but it certainly is necessary to be right in there during the key promotional time frame as our competitors are promoting as well. But it's a different ball game. And we've got to up our game in innovation, so promotions become as critical factor for us.

Anna Glaessgen: Got it. And as inventory positions are seemingly improving at retail, do you expect a more balance -- greater balance between sell-in and sell-through? Or how do you expect that progressing through the year?

David Johnson: Yes, I think that would become more balanced over the seasons. Just remember, we are seasonal. So quarter-by-quarter, it does change. But yes, I would definitely expect to see that balance out as inventories improve.

Anna Glaessgen: Got it. And just last one for me. The inventory on your balance sheet, is that constant -- that you're trying to work down, is that concentrated to any one segment or is it kind of across the board?

David Johnson: It's across the board based on the sales of the business unit. So obviously, Fishing is our biggest business. It has got the most inventory. And every businesses has been able to reduce their inventory sequentially over the quarter.

Anna Glaessgen: Great. Thanks.

Operator: Thank you. One moment for our next question. And our next question comes from the line of Doug Asiello from Crawford. Your question, please.

Doug Asiello: Good morning. Thanks for taking my call. At the risk of beating a dead horse, I just wanted to double-click on the competitive intensity question a bit. So you -- the press release is truck full of commentary on pricing actions and promotional activity, and you called out the Minn Kota Quest Trolling Motor success. So my question is -- and I think I know the answer, but I want to ask it explicitly, do you think the competitive environment is accelerating in terms of its intensity in this important seasonal third quarter that you're in now versus a year ago and also relative to the quarter you just closed?

Helen Johnson-Leipold: Well, it depends on which business you're talking about. But I think across the board, we've got a lot more activity going on from a promotional standpoint. And that usually happens when you're in a market where the demand is a little soft, and it just increases. I think we've -- because of the, I think, popularity of the outdoor space, we've obviously attracted more competitive players and more competitive activity. And during this kind of time frame where you've got economic uncertainty, there's also -- and we're seeing, depending on the business, but the mix changing a little bit some of the lower price products are gaining a little more traction than some of the premium price. But I would say, in general, outdoor has become a good space to be in I think the reality is that we are going to have competition going forward and pricing and promotions as far as the game.

Doug Asiello: Great. Thank you. I meant fishing specifically, but I think you know that. And then my last question is just on capital allocation. So I wonder first if you think about it this way, but what do you think is the most return on invested capital accretive use of the $84 million in cash that you have on the balance sheet and the free cash that you'll generate over the next handful of years. Is it dividends, special dividends, share repo, M&A, or perhaps investing more aggressively in R&D and innovation such that you can offset some of this competitive threat?

David Johnson: Yes. I mean, our preference is to invest that capital to grow the business and grow it profitably and return that's much better than our cost of capital. And that's the plan. Obviously, as you know, there's a risk profile to everything that we look at. So it just depends on what the project is and what we're going to look at. Yes, we want to take that capital and invest it back into the business either through organic growth or perhaps acquisitions.

Doug Asiello: Great. Thank you.

Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Helen Johnson-Leipold for any further remarks.

Helen Johnson-Leipold: Thank you all for joining us today. I hope everybody has a great weekend. Thank you.

Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.