Columbia Sportswear’s Q4 Revenues Climb 8 Percent

Columbia Sportswear Company announced record fourth quarter net sales of $776.0 million for the quarter ended December 31, 2017, an eight percent increase, compared with net sales of $717.4 million for the fourth quarter of 2016.

Fourth quarter 2017 operating income was $109.4 million, and non-GAAP operating income was $115.6 million, compared to $100.4 million in the prior year. Operating margin was 14.1 percent, and non-GAAP operating margin was 14.9 percent, compared with 14.0 percent in the prior year. Fourth quarter 2017 net loss was $7.1 million, or $0.10 loss per share, and non-GAAP net income was $92.5 million, or diluted earnings per share of $1.31, compared with fourth quarter 2016 net income of $84.7 million, or diluted earnings per share of $1.20.

Full year 2017 net sales increased four percent, to a record $2.47 billion compared with $2.38 billion in 2016. Full year operating income was $263.0 million, and non-GAAP operating income was $277.8 million, compared with $256.5 million in the prior year. Operating margin was 10.7 percent and non-GAAP operating margin was 11.3 percent, compared with 10.8 percent in the prior year. Full year 2017 net income was $105.1 million, or $1.49 per diluted share, and non-GAAP net income was $210.1 million, or $2.98 per diluted share, compared with full year 2016 net income of $191.9 million, or $2.72 per diluted share.

President and Chief Executive Officer Tim Boyle commented, “We are pleased to report better-than-expected fourth quarter results, including continued growth in Europe, North America, and with our distributor partners around the world. In 2017, we reported record net sales, gross margin and operating income.”

“We are particularly encouraged by the strong results we achieved in Europe-direct in 2017, completing a third consecutive year of double-digit constant-currency net sales growth and continued improvement in operating margin. A relentless focus also drove 2017 net sales growth in the United States, with expansion of direct-to-consumer (DTC) offsetting challenges in wholesale resulting from the effect of bankruptcies, liquidations and stores closures.”

Boyle concluded, “We look forward to a year of continued revenue and earnings growth in 2018, as well as continued execution of our strategic priorities. Our 2018 outlook anticipates revenue growth of 5.5 percent to 7.5 percent, and non-GAAP revenue growth of four percent to six percent. We anticipate diluted earnings per share of $2.88 to $2.98, and non-GAAP diluted earnings per share of $3.17 to $3.27, driven by growth in the Columbia, SOREL, and prAna brands, and in all four of our geographic regions.

With record cash and short-term investment balances of $768.1 million exiting 2017, and no long-term debt, we have the flexibility to adapt our business as our major markets continue to evolve. It is from this position of strength that we are investing in our strategic priorities to:

• drive brand awareness and sales growth through increased, focused demand creation investments;
• enhance consumer experience and digital capabilities in all our channels and geographies;
• expand and improve global DTC operations with supporting processes and systems; and
• invest in our people and optimize our organization across our portfolio of brands.”

Fourth Quarter 2017 Financial Results

(All comparisons are between fourth quarter 2017 and fourth quarter 2016, unless otherwise noted).

Net Sales

Consolidated fourth quarter net sales increased 8 percent to a record $776.0 million with growth in all regions.

Geographies

• U.S. net sales increased 8 percent to $492.6 million, reflecting growth in DTC and benefits from a shift in the timing of shipments of Fall 2017 advance wholesale orders from the third quarter to the fourth quarter.
• Latin America/Asia Pacific (LAAP) net sales increased 2 percent to $154.3 million (3 percent constant-currency), including net sales growth with LAAP distributors, in China, in Japan, and essentially flat net sales in Korea.
• Europe/Middle East/Africa (EMEA) net sales increased 19 percent to $83.5 million (14 percent constant-currency), including an increase in net sales in Europe-direct and to EMEA distributors.
• Canada net sales increased 14 percent to $45.6 million (9 percent constant-currency).

Brands 

• Global Columbia brand net sales increased 9 percent to $602.4 million.
• Global SOREL brand net sales increased 10 percent to $113.9 million (8 percent constant-currency).
• Global prAna brand net sales increased 8 percent to $30.4 million.
• Global Mountain Hardwear brand net sales decreased 9 percent to $28.4 million (10 percent constant-currency).

Product Categories 

• Global Apparel, Accessories & Equipment net sales increased 8 percent to $578.3 million (7 percent constant-currency).
• Footwear net sales increased 9 percent to $197.7 million (8 percent constant-currency).

Profitability

Fourth quarter operating income increased 9 percent to $109.4 million, or 14.1 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales for the same period in 2016.

Excluding $6.3 million in Project CONNECT program expenses and discrete costs, fourth quarter operating income increased 15 percent on a non-GAAP basis to $115.6 million, or 14.9 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales for the same period in 2016.

Fourth quarter net income decreased 108 percent to a net loss of $7.1 million, or a loss per share of $0.10, compared to net income of $84.7 million, or $1.20 per diluted share for the same period in 2016.

Excluding Project CONNECT program expenses and discrete costs of approximately $6.3 million, $3.9 million net of tax, or $0.05 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share, fourth quarter 2017 non-GAAP net income increased 9 percent to $92.5 million, or $1.31 per diluted share, compared to net income of $84.7 million, or $1.20 per diluted share in last year’s fourth quarter.

Full Year 2017 Financial Results

(All comparisons are between fiscal 2017 and fiscal 2016, unless otherwise noted).

Net Sales

Consolidated 2017 net sales increased four percent to a record $2.47 billion, compared with 2016 net sales of $2.38 billion.

Geographies 

• U.S. net sales increased one percent to $1.52 billion, reflecting growth in DTC, partially offset by declines in wholesale.
• LAAP net sales increased five percent to $475.1 million (six percent constant-currency), reflecting net sales growth with LAAP distributors, in China, in Japan and essentially flat net sales in Korea.
• EMEA net sales increased 16 percent to $293.7 million (14 percent constant-currency), reflecting an increase in net sales in Europe-direct and to EMEA distributors.
• Canada net sales increased eight percent to $177.3 million (four percent constant-currency).

Brands 

• Global Columbia brand net sales increased four percent to $1.99 billion.
• Global SOREL brand net sales increased seven percent to $228.8 million (six percent constant-currency).
• Global prAna brand net sales increased one percent to $140.9 million.
• Global Mountain Hardwear brand net sales declined two percent to $101.6 million (three percent constant-currency).

Categories 

• Global Apparel, Accessories & Equipment net sales increased three percent to $1.93 billion.
• Global Footwear net sales increased five percent to $538.1 million.

Profitability

Full year 2017 operating income increased three percent to $263.0 million, or 10.7 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Excluding $14.9 million in Project CONNECT program expenses and discrete costs, full year 2017 non-GAAP operating income increased eight percent to $277.8 million, or 11.3 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Full year 2017 net income decreased 45 percent to $105.1 million, or $1.49 per diluted share. Full year 2016 net income totaled $191.9 million, or $2.72 per diluted share.

Excluding Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax or $0.13 per diluted share, and TCJA-related income tax expense of $95.6 million or $1.36 per diluted share, full year 2017 non-GAAP net income increased nine percent to $210.1 million or $2.98 per diluted share. Full year 2016 net income totaled $191.9 million or $2.72 per diluted share.

Balance Sheet, Cash Flow and Share Repurchase Activity

During the year ended December 31, 2017, the company generated $341.1 million in operating cash flow, invested $53.4 million in capital expenditures, paid dividends of $50.9 million and repurchased 665,095 shares for a total of $35.5 million.

At December 31, 2017, cash and short-term investments totaled $768.1 million, compared to $551.9 million at December 31, 2016.

At December 31, 2017, $378.4 million of cash and short-term investments were held by our foreign subsidiaries, where a repatriation of those funds to the United Stateswould have resulted in significant tax expense before the enactment of the TCJA.

In light of increased cash balances, strong cash flow generation in 2017 and our expectation under revised U.S. tax laws to repatriate approximately $200 million of cash currently held in foreign jurisdictions, the company has chosen to provide additional insight into priorities for use of cash, found in the “CFO Commentary on Fourth Quarter, Full Year 2017 Financial Results and 2018 Financial Outlook,” available on the company’s investor relations website: http://investor.columbia.com/results.cfm.

Consolidated inventories decreased six percent to $457.9 million at December 31, 2017 compared to $488.0 million at December 31, 2016.

As of December 31, 2017, approximately $137.9 million remained available under the current share 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.

Dividend

The board of directors authorized a 16 percent increase in the regular quarterly dividend from $0.19 to $0.22 per share, payable on March 22, 2018 to shareholders of record on March 9, 2018.

Full Year 2018 Financial Outlook

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties which may cause actual results to differ, perhaps materially. Projections are predicated on normal seasonal weather globally. In addition, our 2018 outlook assumes that current macro and market conditions in key markets do not worsen.

The company’s annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the year.

The company currently expects 2018 net sales growth of approximately 5.5 to 7.5 percent, compared with 2017 net sales of $2.47 billion. The company expects non-GAAP net sales growth of approximately 4.0 to 6.0 percent, which excludes approximately $40 million in net sales associated with changes in revenue accounting standards.

The company expects full year 2018 gross margin to improve by up to 140 basis points and non-GAAP gross margin to improve by up to 60 basis points, excluding an approximately $40 million benefit to gross profit associated with changes in revenue accounting standards.

The company expects SG&A expenses to increase at a rate faster than net sales, resulting in approximately 170 to 190 basis point of SG&A expense deleverage, and non-GAAP SG&A expense deleverage of approximately 40 to 50 basis points, excluding approximately $40 million in SG&A expenses associated with changes in revenue accounting standards, and approximately $27 million in Project CONNECT program expenses and discrete costs.

Based on the above assumptions, the company expects 2018 operating income between approximately $263 million and $273 million, and non-GAAP operating income between approximately $290 million and $300 million, resulting in operating margin between approximately 10.1 percent and 10.3 percent, and non-GAAP operating margin between approximately 11.3 percent and 11.5 percent.

The change in revenue accounting standards is expected to have a 15-to-20-basis-point negative effect on reported operating margin rate for 2018, but no effect on reported operating income.

The company expects an estimated full-year effective income tax rate of approximately 22 percent, which reflects a lower U.S. federal statutory income tax rate as a result of the TCJA and may be materially affected by further refinement of our 2017 TCJA provisional estimates, as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.

The company expects 2018 net income between approximately $203 million and $211 million, and non-GAAP net income between approximately $224 million and $231 million, or diluted earnings per share between approximately $2.88 and $2.98, and non-GAAP diluted earnings per share between $3.17 and $3.27.

With respect to our 2018 financial outlook, non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

A more detailed version of the company’s fourth quarter and full year 2017 financial results and 2018 outlook can be found in the “CFO Commentary on Fourth Quarter, Full Year 2017 Financial Results and 2018 Financial Outlook,” available on the company’s investor relations website: http://investor.columbia.com/results.cfm.

Photo courtesy Columbia Sportswear