Not all outdoor activities were created equal. While the outdoor industry performed very well during the pandemic, the dive industry was the black sheep with drastically shrinking sales.
During the last 3 months of 2020, Johnson Outdoors’ net income was more than 3 times better than its 2019 results (19.8M vs. 6.4M). Not everybody suffered during the pandemic. Some got richer.
But it’s a totally different story in the scuba diving division of Johnson Outdoors.
Scubapro Worldwide Financial Results — A Recap & Expectations
Scubapro is one of the few scuba diving gear manufacturers for which we can obtain official sales results. As such, it can give us an idea of the state of the dive industry. Scubapro is own by Johnson Outdoors, a publicly-traded company (NASDAQ:JOUT). Johnson Outdoors’ financial results also provide us an insight into other outdoor activities. We obtain JOUT’s financial reports through their filings with the U.S. Securities and Exchange Commission (SEC).
During the first quarter of 2020 (January to March), we only witnessed a slight drop in dive gear sales and open water certifications. The pandemic only started to have an economic impact toward the end of this period.
We hit a brick wall during the second quarter of 2020 (April to June) as economies around the world came to a stop. Travel was particularly hit hard with countries shutting down their borders. Since scuba diving is usually correlated to vacationing in tropical locations, the dive industry was hit as hard as the travel industry.
For the scuba diving industry, the following 3 months (July to September) were much better than the 2nd quarter as businesses and people started to adapt to life during a pandemic.
The drop in entry-level scuba diving certifications was much less in the 3rd quarter of 2020 than in the 2nd quarter. A drop of 33% in open water certifications in the 3rd quarter is not a cause for celebration, but it was much better than the 73% drop during the 2nd quarter.
Sales of scuba gear performed even better than entry-level scuba certifications, as we've seen in Johnson Outdoors’ results for July to September 2020, with a drop of only 4.9%.
Our analysis of scuba diving certifications during the COVID-19 pandemic found an increase in advanced open water certifications and a renewed interest in local diving. People were looking for activities to do “near their home” or, at the very least, activities that didn’t require international travel. This helped Florida and Hawaii, where scuba diving certifications were up during the 3rd and 4th quarters of 2020 — two destinations with excellent local diving.
However, Florida and Hawaii are the exceptions, not the rule. They have access to ocean diving. In most other states, the only way scuba diving can grow is if the dive industry manages to make inland diving interesting to more outdoor enthusiasts. Since we have, for years, focused on churning new scuba divers to send them on fly-away vacations, it is not easy to retool ourselves for local activities with repeat customers.
Furthermore, in most states, local diving is not much of an option during the winter months. Ice diving is not quite mainstream!
Therefore, our expectations called for scuba diving equipment sales in Q4 to be worse than during Q3 but better than entry-level open water certifications.
Let’s have a look at what happened.
Scubapro Worldwide Financial Results for The 4th Quarter of 2020
Please note that we are using Scubapro’s financial results as an indication of what is happening in the dive industry. As such, we are referring to the 4th quarter of 2020 as covering October, November, and December. However, Johnson Outdoors’ fiscal year ends in September. Therefore the last quarter of 2020 is actually the 1st fiscal quarter for Johnson Outdoors.
Scubapro’s sales of dive gear during the last 3 months of 2020 were in line with our expectations, with a drop of 14.4% compared to 4.9% in the prior quarter which is worse than Q3 but better than the drop in open water scuba certifications.
Surprisingly, Scubapro’s operating profits were much more catastrophic in the last 3 months of 2020, with a drop similar to the 2nd quarter.
Instead of $205K in profits, Scubapro generated a loss of $341K for Johnson Outdoors in the last 3 months of 2020.
You cannot always reduce your costs at the same rate as your drop in revenues. It is a problem most businesses face during a slowdown. In all 4 quarters, the drop in operating profit was much worse than the drop in revenues.
Sales of Scuba Diving Equipment Compared to Other Outdoor Sports
Johnson Outdoors’ financial results give us an insight into other outdoor recreational activities because Johnson Outdoors is also active in fishing, camping, and watercraft recreation with brands like Minn Kota, Cannon, Humminbird, Eureka!, Jetboil, Old Town, Ocean Kayak, and Carlisle.
These financial numbers are astonishing. Johnson Outdoors had a better year during the pandemic compared to the year before! They are part of those who got richer during the COVID-19 pandemic.
In the last 3 months of 2020, Johnson Outdoors revenues grew from $128M to $16.8M with an increase in operating profits of 7.3M (from 6.8M to 23.6M). Scubapro is now barely maintaining its #2 position within Johnson Outdoors.
Johnson Outdoors’ financial results are consistent with what we discussed numerous times in Scubanomics regarding the impact of the COVID-19 pandemic on outdoor activities. People want to do stuff outdoor — it just needs to be closer to home without crossing international borders.
To grow during this pandemic, the dive industry needs to significantly boost its efforts to promote local diving activities. It will be good for everybody, even after the pandemic!
“We saw favorable impact of COVID-19 on our results due to increased participation in fishing, camping and watercraft recreation and related demand for our products, largely driven by consumer desire to engage in socially distant and safe activities in the great outdoors.” ~Johnson Outdoors, Form 10K for the fiscal year ended October 2, 2020.
Sales of Scuba Gear Compared to Open Water Diver Certifications
Traditionally, in the dive industry, sales of dive gear have been highly correlated to the number of entry-level scuba diving certifications. Does it still hold?
Let’s compared sales variations in scuba gear based on Scubapro’s financial results to the changes in open water scuba diving certifications in the USA during the same period.
During Q1, results were fairly aligned. The pandemic only started hitting the economy toward the end of this first quarter of 2020.
During the last 9 months of 2020, we see a significant difference between the drop in open water certifications and dive gear sales. Scubapro outperformed the market in that regard. But we have to be very cautious about these numbers, for numerous reasons.
- We are comparing scuba diving certifications in the USA to worldwide sales of Scubapro dive equipment. Fluctuations in the number of scuba certifications may be different in markets outside North America.
- During the COVID-19 pandemic, we’ve witnessed a shift in scuba diving activities from entry-level scuba diving certifications to advanced courses and more local diving. Presumably, an increase in advanced scuba diving certifications and more local diving activities helped boost sales of scuba diving equipment. We do not have statistics on scuba diving certifications beyond entry-level.
- We do not know much about inventory levels in retail stores. Scubapro’s sales are at the wholesale level. It tells us how much gear was purchased by Scubapro dealers, but we don’t know how much ended up increasing retailers’ inventory instead of being sold to end-users.
On this last point, it appears that inventory was, indeed, accumulating inside local dive shops during the 3rd quarter of 2020 because William Cline’s survey reports a drop of 47.8% in scuba gear sales in dive shops during Q3 while Scubapro was only down 4.9%.
If that is so, the beginning of 2021 will be tough on dive gear manufacturers. We suspect that very few dive shops were willing to commit to big ‘booking orders’ for 2021 during the virtual online DEMA Show, especially if they were already sitting on a fair amount of dive gear inventory.
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