Updated on Feb. 18, 2021. Subsequent analysis: Johnson Outdoors’ 4th Quarter of 2020.
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). We obtain Scubapro’s financial reports through their filings with the U.S. Securities and Exchange Commission (SEC).
Scubapro Worldwide Financial Results — A Recap & Expectations
When we analyzed Johnson Outdoors' financial results for the first half of 2020, we found a devastating drop in revenues in their scuba diving division (Scubapro) while divisions selling other outdoor-related equipment fared much better.
Across the dive industry, what we’ve seen is a slight drop during the first quarter of 2020. The pandemic only started to have an impact toward the end of this period.
The second quarter of 2020 (April to June) was disastrous as economies worldwide came to a stop. Travel was particularly hit hard with countries shutting down their borders. Since scuba diving is highly 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 the effects of the pandemic.
For instance, entry-level scuba diving certifications were much better 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.
Our analysis of scuba diving certifications during the COVID-19 pandemic also 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 activities that didn’t require international travel. For instance, scuba diving certifications were up in Florida and Hawaii during the 3rd and 4th quarters of 2020 — two destinations with good local diving.
Therefore, our expectations called for a similar pattern in sales of scuba diving equipment in Q3. We’ve been expecting dive gear sales during the 3rd quarter of 2020 (July to September) to have been lower than during the prior year but with a less dramatic drop than what we’ve seen in Q2.
Let’s have a look at what happened.
Scubapro Worldwide Financial Results for The 3rd 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 3rd quarter of 2020 as being July, August, and September. However, Johnson Outdoors’ fiscal year starts in October. Therefore the 3rd quarter of 2020 is actually the 4th fiscal quarter of Johnson Outdoors.
Scubapro’s sales of dive gear during the 3rd quarter of 2020 were in line with our expectations with a drop of only 5% compared to 47% in the second quarter.
Similarly, operating profits were only down 29% in Q3 compared to 280% in the second quarter of 2020.
For its entire 2020 fiscal year, from October 2019 to September 2020, Johnson Outdoors’ scuba diving division (Scubapro) had a drop in revenues (wholesale) of 20%, producing a drop of 184% in operating profits.
Instead of 3M in profits, Scubapro generated a loss of 2.5M for Johnson Outdoors.
It is a problem most businesses face during a slowdown: You cannot always reduce your costs at the same rate as your 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, especially how they performed during the pandemic 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!
Johnson Outdoors revenues grew from 562M to 594M with an increase in operating profits of 7.3M (from 63.8M to 71.1M). This is mainly due to their watercraft and fishing divisions.
This is 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 efforts to promote local diving activities. It will be good 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 first 9 months of 2020.
During Q1, results are fairly aligned. The pandemic only started hitting the economy toward the end of this first quarter of 2020.
During the 2nd and 3rd quarters of 2020, we see a huge difference between the drop in open water certifications and sales of dive gear. 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 the USA.
- 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 the variation in the level of inventory in retail stores. Scubapro’s sales are at the wholesale levels. 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 4th quarter of 2020 numbers (when they are released) and 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, especially if they were already sitting on a fair amount of dive gear inventory.
Who owns Scubapro (Johnson Outdoors)?
There’s at least one outside investor interested in Johnson Outdoors (NASDAQ:JOUT). On December 31, 2020, Royce & Associates purchased an additional 106K shares in JOUT for a total of about 533K shares. At a current price of $109, that’s a 58M investment in Johnson Outdoors.
Royce & Associates is an investment firm specialized in small-cap businesses. It manages about $5B in assets. Their other investments include MasterCraft Boat Holdings, Brunswick Corp, Camping World Holdings, and OneWater Marine. This transaction seems to indicate they have a strong interest in outdoor activities like watercraft recreation, RVing, and fishing. There’s no indication that they are interested in the money-losing Scubapro division of Johnson Outdoors.
The Johnson Outdoors company remains controlled by Helen P. Johnson-Leipold (CEO) and members of her family. Together, they hold approximately 75% of the voting shares.
Scubapro’s Main Competitors
From its annual report, we note that Johnson Outdoors (Scubapro) lists the following brands as its main competitors in scuba diving equipment: Aqua Lung, Suunto, Atomic Aquatics, Oceanic, Cressi, and Mares.
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