Columbia Sportswear Sees 3 Percent Q2 Revenue Gain

Columbia Sportswear Co. announced record second-quarter net sales of $398.9 million for the quarter ended June 30, 2017, a 3 percent increase compared with net sales of $388.8 million for the second quarter of 2016.

Second quarter 2017 net loss totaled $11.5 million, or 17 cents a share, including expenses of approximately $2.5 million net of tax, or 4 cents per share, related to the company’s operating model assessment that was commenced during the first quarter, compared to second quarter 2016 net loss of $8.2 million, or 12 cents.

Through the first six months of 2017, net sales grew $28.8 million, or 3 percent (4 percent constant-currency), to $942.7 million, compared to $913.9 million in the first half of 2016. First half 2017 net income increased 4 percent, to $24.5 million, or 35 cents per diluted share, including expenses of approximately $3.3 million net of tax, or 5 cents per diluted share, related to the company’s operating model assessment, compared to first half 2016 net income of $23.6 million, or 33 cents per diluted share.

President and Chief Executive Officer Tim Boyle commented, “We delivered solid first half financial results featuring growth from three of our four brands and all four geographic regions. First-half sales growth of 3 percent and earnings growth of 4 percent are on pace with our full-year expectations.

“The operating model assessment we launched earlier this year led to a realignment of our senior leadership team in June. This newly-aligned team is now focused on the second phase of the initiative – which we have named ‘Project CONNECT’ – to build on our strengths as a brand-led, consumer-first organization and accelerate performance against our top four strategic priorities:
• Drive brand awareness and sales growth in our wholesale and direct-to-consumer channels through increased, focused demand creation;
• Enhance consumer experience and digital capabilities;
• Expand and improve global direct-to-consumer channels, with supporting processes and systems; and
• Invest in our people and optimize the organization across our portfolio of brands.

“We have embarked on Project CONNECT from a position of strength, including a current outlook that anticipates sales and earnings growth and a fortress balance sheet with more than $600 million in cash and no long-term debt.”

Boyle concluded, “In the midst of an evolving consumer marketplace, our portfolio of powerful brands, strong balance sheet, and talented teammates around the world are significant competitive advantages to executing our strategic plan and delivering sustainable, profitable growth.”

Second Quarter Results

The second quarter is the company’s smallest revenue quarter, historically accounting for a mid-teens percentage of annual net sales. As a result, year-over-year regional, brand and category net sales comparisons often produce large percentage variances in relation to the prior year’s comparable period due to the small base of comparison and shifts in the timing of shipments which, when coupled with the company’s fixed cost structure, can have an amplified effect on operating results.

Second quarter consolidated net sales increased 3 percent, driven by:
• 4 percent net sales growth in the U.S. to $238.2 million, consisting of mid-teen percentage growth in direct-to-consumer net sales, partially offset by a high-single-digit percentage decline in wholesale net sales;
• 14 percent net sales growth in the EMEA region (16 percent constant-currency), to $67.3 million, including growth in net sales to EMEA distributors and in the company’s Europe-direct business; and
• 2 percent net sales growth in Canada (5 percent constant-currency), to $13.9 million;
partially offset by:
• a 9 percent net sales decline in the LAAP region (8 percent constant-currency), to $79.5 million, primarily due to lower net sales in China and Korea.

Global Columbia brand net sales increased 2 percent (3 percent constant-currency) to $340.5 million. Global Sorel brand net sales increased 71 percent (74 percent constant-currency) to $6.0 million. Global Prana brand net sales increased 9 percent to $35.0 million. Global Mountain Hardwear brand net sales decreased 5 percent to $16.1 million.

Global Apparel, Accessories and Equipment net sales increased 3 percent to $329.7 million. Global Footwear net sales increased 3 percent (4 percent constant-currency) to $69.2 million.

Second quarter loss from operations totaled $17.3 million, or (4.4) percent of net sales, including expenses of approximately $4.0 million related to the company’s operating model assessment, compared to $11.8 million, or (3.0) percent of net sales, for the same period in 2016.

The effective income tax rate was 28.6 percent in the second quarter of 2017, compared to 29.1 percent for the same period in 2016.

Second quarter net loss totaled $11.5 million, or $(0.17) per share, including expenses of approximately $2.5 million net of tax, or $0.04 per share, related to the company’s operating model assessment, compared with second quarter 2016 net loss of $8.2 million, or $(0.12) per share.

Balance Sheet and Cash Flow

Consolidated inventories of $559.5 million at June 30, 2017 were 14 percent lower than the $653.6 million balance at June 30, 2016.

The company generated $157 million in operating cash flow in the first half of 2017, ending the quarter with $622.2 million of cash and short-term investments, compared with $428.8 million at June 30, 2016.

Share Repurchases and Dividends

During the second quarter, the company repurchased 48,943 shares of common stock for a total price of $2.5 million. During the first half, the company repurchased 665,095 shares of common stock at an aggregate purchase price of $35.5 million. At June 30, 2017, approximately $137.9 million remained available under the current stock repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

The board of directors authorized a regular quarterly cash dividend of $0.18 per share, payable on August 31, 2017 to shareholders of record on August 17, 2017.

Updated 2017 Financial Outlook

The company currently expects 2017 net sales growth of approximately 3 percent compared with 2016 net sales of $2.38 billion, including less than 1 percentage point negative effect from changes in foreign currency exchange rates. The company’s U.S. direct-to-consumer channel is expected to account for a majority of the projected full year 2017 global net sales increase.

The company expects fiscal year 2017 gross margins to improve by approximately 30 basis points, and for selling, general and administrative (“SG&A”) expenses to increase at a rate slightly higher than net sales, resulting in approximately 30 basis points of SG&A expense deleverage, including a planned increase in global demand creation spend. The full year effective tax rate is expected to be approximately 23 percent.

Based on the above assumptions, the company expects 2017 operating income to increase approximately 3 percent, to between $256 million and $265 million, resulting in anticipated 2017 operating margin of approximately 10.8 percent.

Net income after non-controlling interest is expected to increase up to 4 percent to between approximately $193 million and $200 million, or approximately $2.74 to $2.84 per diluted share. All of the company’s anticipated growth in full year 2017 operating income and net income is expected to occur in the fourth quarter.

The updated guidance is virtually the same given in late April when Columbia released first-quater results although net earnings are expected to be slightly higher. At that time, Columbia predicted net income after non-controlling interest is expected to increase up to 4 percent to between approximately $192 million and $199 million, or approximately $2.72 to $2.82 per diluted share.

Photo courtesy Columbia Sportswear