Johnson Outdoors Inc. Class A Aktie

Hello, everyone, and welcome to the Johnson Outdoors Second Quarter 2026 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, 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 Allison Kitzerow from Johnson Outdoors. Please go ahead, Ms. Kitzerow.

Good morning, and thank you for joining us for our discussion of Johnson Outdoors' results for the 2026 fiscal second quarter. If you need a copy of today's news release, it is available on our website at www.johnsonoutdoors.com under Investor Relations.

I also need to remind you that this conference call 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 Pat Penman.

It is now my pleasure to turn the call over to Helen Johnson-Leipold.

Thanks, Allison. Good morning, everyone. I'll begin by sharing perspective on our second quarter and year-to-date results as well as give an update on each business. Dave will review the financial highlights, and then we'll take your questions.

Improved retail conditions and ongoing success of our product innovation helped drive a 15.5% revenue growth in the second quarter with all business segments contributing to the improvement. Operating income for the second quarter was much improved versus the prior year second quarter due to the increased sales volume and our cost savings initiatives continuing to boost profitability as well.

Year-to-date, our net sales are 21.5% higher than last year's fiscal 6-month period with operating income and gross margin also up for the fiscal year-to-date period. We are pleased with our second quarter and year-to-date results and are particularly proud of our market-leading brands, which continue to resonate with consumers and reinforce our leadership positions across our portfolio.

Our Fishing business delivered strong results in the second quarter, driven by improved trade conditions, continued robust demand for Humminbird's XPLORE Series and MEGA Live 2 fish finders and Minn Kota's full lineup of trolling motors as well as pricing actions. These factors combine to reinforce our momentum and position in the marketplace.

We remain focused on investing in innovation to deliver fishing technology that sets the standard for anglers worldwide. In Camping & Watercraft, growth during the quarter was supported by our expanding digital and e-commerce capabilities with Old Town and Jetboil maintaining their leadership position in competitive categories. During the quarter, Jetboil also launched TrailCook, a new innovation designed to expand the brand beyond boiling water into broader back country cooking. In both brands, we will continue to build on our strength to drive sustained growth through innovation and deeper engagement with outdoor enthusiasts.

Lastly, in our Diving business, improved conditions across the global markets and continued growth in e-commerce helped drive a solid increase in second quarter sales. Digital engagement continues to play an increasingly important role, enhancing connectivity between our SCUBAPRO brand, retail partners and consumers. As we continue to lean into digital channels and strengthen our global footprint, we are optimistic about SCUBAPRO's ability to grow and further reinforce its position in the market.

Overall, we are pleased with the quarter and year-to-date results. By investing in and executing our strategic priorities, consumer-driven innovation, digital and e-commerce excellence and operational efficiencies, we are strengthening our market position and taking the right steps to navigate macroeconomic uncertainty while building long-term resilience.

Now I'll turn the call over to Dave for more details on the financials.

Thank you, Helen. Good morning, everyone. Our strategic cost savings program remains critical and continues to deliver meaningful benefits to our bottom line.

Gross margin for the second quarter improved to 38.8%, up 3.8 points from the prior year quarter. Overhead absorption from higher volumes and cost savings were the main drivers of the improvement in gross margin. Year-to-date, gross margin is 37.9%, up 4.9 points from the prior year-to-date period.

Operating expenses increased $11.2 million from the prior year second quarter, due primarily to increased sales volume-related costs as well as increased variable compensation costs. Profit before income taxes for the second quarter was $10.2 million compared to $4.2 million in the previous year quarter, driven mostly by the improvement in operating income.

As we prepare for the upcoming selling season, we modestly increased inventory levels. Our inventory balance at the end of the second quarter was $186.9 million, up about $6.8 million from the previous year second quarter.

Our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders with the Board approving our most recent dividend announced in February.

Looking ahead, despite ongoing economic uncertainties, we remain firmly focused on financial discipline and actively managing the business to balance near-term pressures while continuing to invest in priorities that support sustainable growth.

Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Anthony Lebiedzinski with Sidoti.

Certainly nice to see the really strong revenue growth, especially in Fishing. So as it relates to Fishing, how much was revenue helped by pricing versus better market conditions and a stronger competitive position?

Yes. I mean we saw strong unit volume growth in our business. So that was a big driver for the quarter. Pricing certainly helped. But -- and we're also seeing just really strong demand for our -- with the broad line of trolling orders that we have. That's very helpful.

Got you. So do you think this is perhaps the sort of a replacement cycle after the bump from COVID? Or is there something else you think going on?

The market is very hard to predict. But I think we have innovation that is really driving -- continues to drive purchase. And I do think there will be -- I think consumers are a little cautious with all the things going on, but innovation still is the catalyst to get things moving. We're hoping that this is the beginning of an upward trend, but I think it's going to be challenging and innovation will be the key going forward.

Got you. Okay. So as far as the other 2 segments, you highlighted the increased sales through e-commerce. So can you expand on that a little bit? And then maybe give us, if possible, some numbers as it relates to the growth that you saw in the quarter? And how are you thinking about the rest of F '26 as it relates to Diving and Watercraft & Camping?

Well, there's a few questions in there. But e-commerce is one of our growth initiatives. And we put a hard court press on that, and it does reach a much broader consumer base. So we are really excited about it. And not to mean that our bricks and mortar aren't important. I think it's -- they both complement each other.

We are just -- we've been up and running on a true digital mode for only about -- actually, it was a year. And so it's early on, and we're -- we've got a lot to learn, but it's a good opportunity to reach a broader audience. I think it will continue to grow. It's a smaller piece of the pie than our other sales. But I think from a growth standpoint, it is helping us.

I think, again, the -- as you -- we don't do a lot of forward-looking, but as we look at the third quarter, the signs in the second are good, and they're better than they've been in the past. But again, there's -- the world is complicated and the consumers have a lot going on.

So -- but we -- again, it's back to the product line, the brand, the positioning in the market, and we feel really good about where we are as a brand and as a company. And we're hoping that the markets also cooperate as well. So it's good to have a quarter that is -- feels very strong. So hopefully I've answered your question.

Yes. That's definitely very helpful context. So as far as the world out there, just wondering, as you talk to your retail customers. Since the Iran conflict started in late February, gas prices have gone up quite a bit. So as it relates to that, I mean, from the point-of-sale data that you can get your hands on, I mean, have you seen any notable impact for your brands? Anything you can talk about that?

I mean I would say not yet, Anthony. We haven't seen a direct impact. But like a lot of companies, we're looking at inflationary pressure, higher input costs.

Worried consumers.

Consumers that their confidence levels are down. So I think so far, it's okay. We haven't seen a direct impact, but we're looking at things kind of in a neutral fashion over the next couple of quarters.

Okay. Understood. Okay. And then -- so yes, so I guess as far as the gross margin, so I guess a 2-part question here. So first, in the quarter itself, you did have a strong improvement versus last year. You talked about fixed cost absorption, but also some cost savings. So was that kind of a 50-50 split between that?

And then my second part to that question is as it relates to cost pressures, how should we be thinking about the gross margins for the rest of the fiscal year?

Yes. So most of the improvement was operating leverage, so fixed cost absorption, but our cost savings program is critical to that -- helping that as well. We're seeing cost pressure going forward. I think like a lot of companies in the electronic industry, component costs are dynamic for us. And so that's something we've got our eye on and we're monitoring. So I just think going forward, that will be something that will be a little bit of a headwind for us maybe over the next coming quarters, if you will. So it's a good thing we have our cost savings efforts in place now to help try to offset that.

Got it. Okay. And then in terms of the operating expenses, they did come in higher than what we had expected. Just roughly speaking, how much of the year-over-year increase came from your sales volume-related costs versus the incentive compensation piece. And then again, just kind of maybe help us understand like how should we be thinking about operating expenses going forward for the rest of the fiscal year?

Yes. I mean a decent portion was volume related and probably -- I can't give you the numbers, but let's say maybe 1/3 was volume related, and then we had some variable compensation accruals adjustments in there that made up about 1/3. And then there's some other cats and dogs in there, too, that we didn't call out, but there's other costs that were -- that we have in that operating expense, like some health care costs and some other consulting expense. So -- but the 2 big ones were the volume related and then the variable compensation.

Okay. And you expect that to continue, you think, here at least near term or just any general comment there?

Well, I think the expense structure will settle down probably a little bit. I mean, obviously, the volume drives some of that. But in terms of kind of where we are, in terms of our spending and our ability to manage that, I think it will kind of settle down probably going forward over the next couple of quarters.

But Anthony, we are investing, and we're putting foundational systems. And so -- and we're investing against our key priorities. So I would say it's good spend and it may not be long term, but as Dave said, it will settle down. But I feel we're investing in the right things to set us up for success long term. And that will eventually -- it will get more efficient on the other side of this.

Okay. And then lastly for me, the tax rate came in lower than what we had expected. Maybe, Dave, you can address that. And again, any sort of commentary as to how we should be thinking about the tax rate for the balance of the fiscal year?

Yes. I mean because we have the valuation allowance on the U.S. income right now, it's -- the tax rate is going to kind of be up and down. So it just depends on the mix of profits that we're seeing in the quarter and what we're forecasting for the full year.

So I mean, I think the way to think about that is probably a $4 million to $5 million tax expense for the year and how we divide that up over the quarters just kind of depends on the mix of profit. So it's just hard for me to give you a rate quarter-by-quarter just because of that mix.

And I'm not showing any further questions at this time. I turn the call back over to Helen.

Okay. Well, thank you, everybody, for joining us today and questions, you can call Dave or Pat, but have a good day. Thank you.

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.

Hello, everyone, and welcome to the Johnson Outdoors First Quarter 2026 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] The call is being recorded your participant 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.

Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2026 fiscal first 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 call 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 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.

Good morning, everyone. I'll be given by sharing perspective on our start to fiscal 2026 as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll be happy to take your questions. In the first quarter of fiscal 2026, we saw markets stabilize and solid reception to our new products.

That combination helped drive double-digit growth in the quarter, which is encouraging given that this quarter is typically a slower period as we ramp up for the primary selling season. Additionally, the ongoing hard work we've been doing to improve our profitability has been showing results.

Our operating loss for this first quarter was much improved versus the prior year quarter. While there are still uncertainties in the broader environment, we're encouraged by how the fiscal year has started and feel good about the execution of our plans to accelerate the growth of our business in brands.

Starting with Fishing, both our Minn Kota and Hummingbird brands delivered solid performance in the quarter, with the category benefiting from improved trade dynamics. Demand remains strong for Hummingbird's Explorer series and MEGA Live 2 fish binders, which launched last fiscal year, and we saw healthy demand across encodes full lineup of trolling motors.

Turning next to Camping and Watercraft. This is an area where our investments in digital and e-commerce are really paying off across Jetboil and Old Town, we've been focused on meeting consumers where they are, which is online and making it easier for them to discover and purchase our products.

These efforts helped drive growth in the quarter. Both Oldtown and Jetboil remain strong leaders in their respective markets. Jetboil continues to see strong demand for its fast oil cooking systems, which has exceeded our expectations.

Finally, in diving, improved conditions across the global markets and our innovation helped drive an increase in sales for the quarter, we continue to see positive momentum for SCUBAPRO's new HydrosPro product that we began shipping in December, HydrosPro 2 builds on the award winning legacy of our original Hydros Pro incorporating meaningful innovation of comfort, fit and performance needed in the buoyancy control device.

Digital engagement is becoming increasingly important in diving as well from educating drivers on new technologies to supporting dealers with better digital tools and active. We see this as another opportunity to strengthen the connection between our products, our retail partners and consumers.

Overall, we are pleased with the start of fiscal 2026, while it's too still too early to predict how the rest of the fiscal year will unfold. Our priorities remain clear across all our businesses, maintaining a strong and robust innovation pipeline building a growing momentum in digital and e-commerce and continuing to improve product cost and operating efficiency with our cost savings initiatives.

These are the right drivers to position Johnson Outdoors for sustainable growth and long-term success. Now I'll turn the call over to Dave for more details on financials.

Thank you, Helen, and good morning, everyone. Loss before income taxes for the first quarter was $1.3 million compared to a pretax loss of $18.9 million in the previous year quarter. The improvement is driven mostly by revenue growth and improving margins. Gross margin for the first quarter improved to 36.6%, up 6.7 points from the prior year. Overhead absorption from higher volumes was the main driver of the improvement in gross margin. .

Additionally, price increases and our ongoing progress on cost savings initiatives helped to offset increases in material costs. Operating expenses increased $2.1 million from the prior year first quarter due primarily to increased sales volume-related expense, partially offset by decreased warranty expense.

Tax expense for the quarter was about $2 million, driven mainly by an adjustment related to our U.S. valuation allowance on deferred tax assets. We continue to make good progress on our inventory levels. Our inventory balance at the end of the first quarter was $183.9 million, down about $17.7 million from the previous year quarter.

I want to highlight that our balance sheet remains debt-free, and we continue to pay a meaningful dividend to shareholders, with the Board approving our most recent dividend announced in December. We remain confident in our ability and plans to create long-term value for shareholders.

Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions] And our first question comes from the line of Anthony Lebiedzinski of Sidoti.

Certainly a great start to the fiscal year, so first, just a general kind of question in terms of pricing versus unit volumes. I don't need specific numbers, but just kind of maybe if you could just talk about what you saw as far as pricing versus unit volumes, that would be a good start.

Well, yes, most of the increase in the quarter was unit volume driven, but we did take pricing across the businesses to react to the cost increases we had. But I would say most of the increase we're seeing is unit volume related.

That's encouraging here -- so you guys have for years focused strongly on innovation. Can you share broadly as far as your sales are concerned, what's coming from new products versus a few years ago? Has there been a meaningful change in terms of the new product component of your sales?

I mean innovation has always been critical for us and we have been focusing on improving our success rate. So competition is strong and our main way of maintaining leadership is innovation.

So I would say we continue to make it stronger. And I don't know about the -- Dave, you can comment on the percept volume, but it truly is the driver of growth.

Absolutely. And we've seen improvement in our new product success over the last couple of years. I think during the COVID cycle, that may have come down a little bit, but we're seeing improvement in that area.

Got you. And then you also talked about the growth in the e-commerce channel. Can you share with us what percentage of your revenue is now related to e-commerce? And do you guys have a goal in mind as far as what you want to get to in the next few years?

What we can say is that it's the fastest growing channel we have, and it's definitely expansive growth for us. our goal is to continue to grow that at a faster pace than our -- across our businesses. It's a key contributor to growth year-on-year.

Got you. All right. And then -- so you had a great start here to the fiscal year, strong sell-in to retailers in the December quarter. What is your sense now about the current trade inventory levels?

Well, we were glad that the -- what we said, stabilized is more that the trade was in a good position from an into standpoint to react to good sell-in. We had a good cylinder in the first quarter, and so they are in a good position. Hopefully, we get the consumer takeaway as the season begins. So I think that the trade is in a healthy position right now.

Okay. That's good to hear. You've done a lot with your cost savings efforts, and it's clearly evident in the gross margin improvement.

I know there was some fixed cost absorption component to that as well. But as it relates to the cost savings initiatives, should we expect to come on that program as we look forward to the rest of the fiscal year?

Yes. It's a key strategy for us going forward, especially in these volatile times with the supply chain. So it will be critical for us to continue to work on optimizing product costs, being as efficient as possible. We've got a whole slew of initiatives that we're working on to make that happen.

Okay. And then in terms of the warranty expense, how significant was that as far as the adjustment to the OpEx.

Yes. I mean it was probably less than 1 point of the operating expense percentage going down. So -- but it did come down in the quarter. So we wanted to point that out.

Got you. Okay. That makes sense. Okay. And lastly for me. I mean, so Dave, you did touch on the tax expense, which we were not expecting for the quarter. going forward, what's the -- where should we expect the tax rate to fall for the balance of the fiscal year?

Yes. I mean, the challenge for us is just the profits in the geographies in which we serve. So we've got the valuation allowance in the U.S. And as we make money in the U.S., that won't -- we won't have tax -- or expense on that because it's all reserved for. So the tax rate will be kind of wacky going forward until we can kind of stabilize our profits.

Okay. Got you. All right. Well, thank you very much, and best of luck.

I'm showing no further questions at this time. I'll now turn it back to Helen Johnson-Leipold for closing remarks.

I just want to thank everybody for joining us is have a great day.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.

Hello, everyone, and welcome to the Johnson Outdoors' Fourth Quarter 2025 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, 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 call.

I would now like to turn the call over to Pat Penman from Johnson Outdoors. Please go ahead, Ms. Penman.

Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2025 fiscal fourth 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 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.

Thanks, Pat. Good morning, everyone. Thank you for joining us. I'll begin by sharing perspective on our fiscal 2025 performance as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll take your questions.

After a slow start to the beginning of the year, new product successes drove double-digit growth in the second half of the year, resulting in a solid finish to fiscal 2025. Total company sales for the full fiscal year were flat compared to the prior year. Although we still have a lot of work to do to get our profitability where it needs to be, our operating loss of $16.2 million improved compared to fiscal 2024. While the marketplace is still uncertain, we feel good about the momentum we're seeing and the execution of our plans to accelerate the growth of our business and brands.

In fishing, demand exceeded expectations for Humminbird's new XPLORE Series and MEGA Live 2 fishfinders. In addition to XPLORE winning best in category marine electronics honors at ICAST this summer, we were also honored to recently receive the Anglers' Choice Award. This is a meaningful award because consumers themselves directly vote for their favorite new fishing product. As always, we're focused on finding out what anglers want and need and then turning those insights into cutting-edge technologies to give them the best fishing experiences possible. We will continue to invest in being an innovation leader to drive future growth.

In our Camping and Watercraft business, sales declined for fiscal 2025, driven primarily by the closeout of Eureka! inventory in 2024 after we exited that brand. Excluding the impact of Eureka! sales in the prior year, this segment grew by 2%. Demand for JetBoil's new fast boil cooking systems continued to outpace expectations. And Old Town's fishing kayak line is doing well in a watercraft marketplace that overall is still struggling. Both Old Town and Jetboil remain strong leaders in their markets, and we are committed to the long-term opportunity in these 2 brands.

In Diving, sales were up for the fiscal year due to modest improvements in certain regional markets. While we continue to work on integrating the acquisition of a long-time supplier during the fiscal year, we also focused our efforts on innovation. Recently, SCUBAPRO launched the new Hydros Pro 2, a buoyancy control device built for ultimate performance in all dive conditions. Hydros Pro 2 builds on the award-winning legacy of our original Hydros Pro, and we've seen great reception so far with lots of enthusiasm at DEMA, the world's largest scuba diving trade show. We look forward to shipping Hydros Pro 2 beginning this month.

Along with diving innovation in all business segments, we focused on strengthening our digital and e-commerce capabilities. Our goal is simple: make our products easy to find wherever consumers choose to shop. The landscape keeps changing, but our efforts to expand our digital footprint are already fueling growth, and we're excited about the progress. Digital and e-commerce continue to be an area of opportunity, and we're committed to building on that momentum.

Finally, our cost savings program remains a priority company-wide, and we continue to work on driving optimal product costs and enhancing operating efficiencies. Cost savings will continue to be a key priority in fiscal 2026. Overall, we're pleased with the solid finish to our fiscal year. While it's still too early to tell if the outdoor recreation marketplace has turned the corner, we do expect global macroeconomic challenges to continue to drive uncertainties and our strategic priorities remain more important than ever.

Heading into fiscal 2026, we feel confident that our ongoing investment in the consumer-driven innovation and digital and e-commerce excellence, along with our continued hard work on operational efficiencies are the right drivers to position Johnson Outdoors for future success.

Now I'll turn the call over to Dave for more details on financials.

Thank you, Helen, and good morning, everyone. Loss before income taxes for 2025 was $9.3 million compared to a pretax loss of $29.9 million in fiscal 2024, with the improvement mainly due to the $11.2 million write-off of goodwill in the prior year as well as an increase in gross margin and decrease in operating expenses versus the prior year.

In fiscal 2025, we saw a tax expense of $25 million compared to a tax benefit of $3.3 million in the prior year. The current year expense was driven by a $25.9 million noncash reserve on U.S. deferred tax assets. This reserve reflects the company's assessment of the realizability of those assets in light of recent operating losses and may be released in future periods when profitability improves.

Gross margin for the fiscal '25 improved to 35.1%, up 1.2 points from the prior year. We're pleased with our progress on cost savings initiatives, which offset increases in material costs. Overhead absorption from higher volumes and reduced inventory reserves added to the improvement in gross margin.

Operating expenses decreased by 8% or $20.2 million from the prior fiscal year. Key drivers of the expense change were the write-off of the goodwill in the prior year, a decrease in promotional spending versus the prior year period and lower deferred compensation costs between years.

For the third year in a row, we were able to drive positive cash flow from operations. We continue to make progress on our inventory levels in fiscal 2025, which was one of the drivers of positive cash flow. Our inventory balance was at the end of the year was $170.7 million, down about $39 million from fiscal '24.

Regarding tariffs, we've made progress on our mitigation strategies, and we'll continue to make adjustments as the tariff situation evolves. Our balance sheet remains debt-free. We have a healthy cash position, and we remain confident in our ability and plans to create long-term value for shareholders.

Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions] Our first question comes from the line of Anthony Lebiedzinski from Sidoti.

Certainly great to see the strong year-over-year sales gain in the fourth quarter along with the gross margin improvements. So as we think about the fourth quarter revenue gain, correct me if I'm wrong, but I think it was mostly volume driven. Just wondering if you have seen this momentum continue into early fiscal '26.

We were really excited about what happened in the third and fourth quarter. And we just -- every month, things grew and the markets looked better than they have. And we don't give too much forward-looking statements. But I would say, so far, at least it's just very early in the year, but there's -- the market momentum is continuing as far as we can see. But there's no -- we're not ready to say the market has turned the corner. This is our sell-in period, and time will tell, but the season -- hopefully, it will be a very good season. So right now, knock on wood, things look pretty good.

That's great to hear. Okay. So it sounds like you are seeing some green shoots, I guess. I know you've put in a lot of focus on product innovation, and I know you highlighted a few products that did very well for you. Just wondering about the pipeline coming up for '26. I know you don't want to share specifics given competitive reasons, but anything you can just talk at a high level as far as new product pipeline for next year?

Well, we did -- yes, in diving, we talked about our new buoyancy compensator. And we've still got momentum in fishing from the launches that we had this past year. And launches are over more than 1 year. So we feel good about the momentum. We're focused on building the pipeline across every business. And again, Jetboil had positive results for their innovation, and that will continue into this season. So innovation is our key priority, and we will always focus on that. And it's critical during the time when it's so competitive out there and consumers are a little bit price sensitive. It's all about innovation. So that is a key focus. And we feel good about that -- it's one of our key priorities.

Got you. Okay. And then as it relates to the tariffs, I know, Dave, you touched on this a little bit, but I think you guys did take some pricing actions a little bit in July, I think more so in October. If you could just comment on the extent of that and what's been the reception from the retail partners that you work with?

Yes. We did take pricing where it made sense. We were very strategic about what we wanted to do there. And so far, it's been okay. I mean the retailers understand our trade partners understand it. It hasn't affected the business right now. And as Helen alluded to, we're preseason right now. So it will be up to the consumer when those [indiscernible] to the shelves and make their decisions. But so far, so good.

Okay. That's good to hear. And then with the work that you've done on improving your operational efficiencies and enhancing your manufacturing processes, is there a way you can perhaps put a number on that in terms of how much it helps your gross margin? And do you think there are more opportunities to further expand on that?

Yes. I mean we felt really good about the progress we made this year, and it was over 1 point of gross margin that we drove to the bottom line through the efforts. And we've got a full portfolio of cost savings initiatives going into fiscal '26. So we're going to continue the efforts, it's across the board. And that will be critical, again, to help manage the tariff situation and help manage the competitive environment.

Got you. Got it. All right. And then I guess lastly for me, I know the tax rate was impacted by the deferred tax valuation. But just kind of going forward here, how do we think about the effective tax rate for fiscal '26?

Yes. I mean with the reserve in place, we would expect the tax rate going forward to be normal in a more normal range. So mid- to high 20s, something like that. So yes, going forward, we would expect that.

At this time, I would now like to turn the conference back over to Helen Johnson-Leipold for closing remarks.

Thank you for joining us today, and I hope everybody has a happy holiday season. Have a good day.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Hello, everyone, and welcome to the Johnson Outdoors Third Quarter 202 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.

Good morning, and thank you for joining us for our discussion of Johnson Outdoors results for the 2025 fiscal third 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 call 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 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.

Good morning, everyone. Thank you for joining us. I'll begin by sharing perspective on our third quarter performance as well as an update on the strategic priorities for our businesses. Dave will review the financial highlights, and then we'll take your questions.

Sales in our third fiscal quarter ending June 2025 increased 5% to $180.7 million compared to $172.5 million in the prior year third quarter. Operating profit was up significantly to $7.3 million versus an operating loss in the previous third quarter. While the marketplace continued to fluctuate, our positive results this quarter reinforce the critical importance of our focus and investment in market-leading innovation to continued growth and success of our brands.

In our Fishing business, demand for Hummingbird's new fish finder technology, MEGA Live 2 Sonar and our new XPLORE fish finder unit has been exceeding expectations. I'm excited to announce that a few weeks ago, our XPLORE series captured Best in Electronics honors at ICAST, the world's most prestigious fishing show. Also, Boating Magazine recently awarded our Minn Kota brand, the Marine Power Innovation Award for our Riptide Instinct brushless trolling motor. We're excited by the response to our innovation in this business, and we will continue to invest in being an innovation leader to drive future growth.

In our Camping and Watercraft business, both our Old Town and Jetboil brands remain strong leaders in their markets. Orders for Jetboil's newest Fast Boil cooking systems with features building on lightened fast boil times and fuel efficiency continue to outpace expectations. And while the watercraft marketplace is still weak and the industry struggles, Old Town remains resilient and continues to build on its industry-leading innovation.

Results in our Diving business were slightly improved amidst stronger market conditions during the third quarter. However, the diving marketplace remains challenged with uncertainties in the global economy and consumer travel, and we continue to work well -- to be well positioned in diving for the future. We continue our integration work with the long-term supplier we purchased at the beginning of this fiscal year, and we are confident it will deliver the benefits we plan for. We are also focused on finding ways to drive more operational efficiencies across the business.

Overall, we are pleased with our positive third quarter results and the success of our innovation. At the same time, global macroeconomic challenges continue to drive uncertainties in the marketplace. We continue to invest and execute on our strategic priorities, innovation, operational efficiencies and e-commerce and our resiliency as a company is further bolstered by our debt-free balance sheet and cash position. We are confident these are the right things to position us for future healthy profitable growth.

Now I'll turn the call over to Dave for more details on the financials.

Thank you, Helen, and good morning, everyone. Profit before income taxes in the third quarter was up significantly due to an increase in sales, gross margin improvements and a reduction in operating expenses versus the prior year. Gross margin in the third quarter was 37.6%, up 1.8 points from last year's quarter. Overhead absorption from higher volumes, improved pricing and cost savings efforts drove the improvements, offset by a modest impact from tariffs.

Operating expenses decreased $1.7 million versus the prior year third quarter. And excluding the $2 million increase from the deferred compensation plan valuation, expenses are down $3.7 million. Lower promotion and professional services expenses contributed to the decline. We continue to make progress on our inventory levels. Our inventory balance as of June was $163.7 million, down about $59.4 million from last year's third quarter and down from our fiscal year-end.

Regarding tariffs, while the current environment remains dynamic, we've made progress on our mitigation strategies. We'll continue to adjust as the tariff situation evolves and we gain more clarity. Our cost savings program remains critical in this environment, and we're committed to driving optimal product costs and enhanced operating efficiency across the company.

Again, I'll reiterate that our balance sheet remains debt-free, and we have a solid cash position. We remain confident in our ability and plans to create long-term value for our shareholders.

Now I'll turn the call over to the operator for the Q&A session.

[Operator Instructions]

And we have a question from Anthony Lebiedzinski of Sidoti.

Certainly nice to see the improved sales and much better profitability in the quarter. So as you alluded to, it's been certainly a dynamic environment to say the least. Can you comment on the cadence of sales that you saw throughout the quarter as you went from April through June? And can you give us maybe some early read or color as to how the month of July was?

Well, certainly, as we look at the quarter, every month, we saw improvement in our sales. So it was a positive trend. It's a little early to talk about the final quarter, but it is towards the end of the season, and we are hoping to end in a good spot looking forward to more stability certainly for next season, but it is good to see some positive results.

Absolutely. Okay. All right. And then I know, Dave, you touched on the impact of tariffs. It sounds like it was a modest impact in the quarter. So as we look to update our models, how should we think about the impact of tariffs going forward? Just curious to get your thoughts on that.

Yes. I mean I do expect more cost coming in, in the fourth quarter. So we're forecasting that to see the tariffs kind of flow through our inventories and get out to be expensed. Beyond that, I mean, as you know -- as everybody knows, it's -- things are changing on a daily, weekly basis. So we're ready to mitigate these tariffs as we head into next season. And we've made -- and like I said, we've made really good progress on the supply chain side of things, and we'll continue to look at other alternatives to mitigate that.

Right. So I guess one of the ways you can mitigate that is through pricing actions. Can you comment on that, what you've done and any potential things that you may want to do?

Yes. We have taken pricing on certain product lines in our portfolio. We'll continue to look at that going forward kind of across the portfolio, keeping in mind the consumer dynamics that we're looking at, competitive situation, et cetera. But that will definitely be something we'll look at.

Got it. Okay. And then you guys have been certainly working on your cost savings program for a while to be more efficient in terms of how you operate the business. Can you give us an update on that, like what was done in the quarter and kind of what's more to come as you look to get into your fiscal '26 year in a couple of months?

Yes. I mean the cost savings program is robust. We last year had a ton of factory efficiencies that we recognized. We continue that work this year, and we are focused on product cost improvements. And that will take a little bit of time to manifest, but we're very excited about the portfolio of initiatives that we've got in the pipeline.

Got it. Okay. And then -- so here, in this quarter, you benefited also from lower discounting promotions. Do you think you can sustain this type of a trend here? I certainly realize that you're kind of getting towards the end of the season, but just broadly thinking about that, whether you think you can sustain this type of reduced promotional activity going forward?

Well, I think we obviously are in very competitive markets. And we put programs together to reflect what we need to do. I think the fourth quarter is normally not a high quarter for us from a seasonal standpoint. But if you're referring to -- as we move forward, we will always have to consider promotions as a tactic depending on what's going on in the market.

Right. Okay. And then as far as the recent awards that you've received, I know at the ICAST show, we did get a Best in Electronics award. So thinking about that, I mean, have you seen -- because of that, have you seen an uptick -- a further uptick in demand because of that? Just wondering how to think about that and how that could translate into sales for you guys?

Well, it certainly is our target audience that pays attention to the ICAST and getting recognition for the XPLORE fish finder unit was -- it just adds to the momentum. So we were very happy about that. But it definitely got off to a very good start.

That's good to hear. All right. And then I guess my last question here is you've done a nice job reducing inventory. Do you think you can further reduce inventory in the next couple of quarters here?

We're working on that for sure. I think there's more improvement to be had. We've made really good progress. We feel good about kind of our ability to put process in place to really manage that. The caveat is just the macroeconomic environment, the tariffs that, of course, will add cost or inventory, et cetera. But we feel good about where we are right now, but we know we got more progress to make.

I'm showing no further questions at this time. I'd like to turn it back to Helen Johnson-Leipold for closing remarks.

I just want to thank all of you for joining us today, and everybody, have a nice day. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.