Columbia Sportswear Says Strong Q4 Sell-Through Sets Stage for Faster Organic Growth in 2014

“Our wholesale customers are exhibiting a greater appetite for broader and deeper assortments of our new Fall 2014 line, which feature our best innovations at more accessible prices,” said CEO Tim Boyle. “As a result, we expect renewed growth in our wholesale businesses, continued expansion of our global DTC business, coupled with incremental contributions from our new joint venture in China, to drive healthy growth in sales and operating income in 2014.”

 

 

COLM reported net sales of $533.1 million in the fourth quarter ended Dec. 31, 2013, up 6 percent compared with the fourth quarter of 2012. Net sales increased 12 percent to $307.9 million in the United States as a 26 percent increase in Direct-to-consumer (DTC) sales more than offset a small decline in wholesale sales. Increased reorders and fewer cancellations of advance orders by wholesale customers during the quarter helped to mitigate the effect of lower advance seasonal wholesale orders. In EMEA, net sales increased 11 percent, or 8 percent currency-neutral (c-n). Sales grew 16 percent (22 percent c-n) in Canada, but declined 11 percent (-2 percent c-n) in LAAP due to economic conditions in Venezuela and Argentina.

 

 

Apparel, Accessories & Equipment net sales increased $23.7 million, or 6 percent, to $416.0 million, and Footwear net sales increased $8.3 million, or 8 percent, to $117.1 million. On a brand basis, Columbia brand net sales increased $27.3 million, or 7 percent, to $427.8 million. Sorel brand net sales grew $9.5 million, or 17 percent, to $66.0 million. Mountain Hardwear net sales declined $5.4 million, or 13 percent, to $37.3 million.

 

 

The company ended the year with $329.2 million in inventory, down 9.4 percent from a year earlier, and down 15 percent excluding $20.6 million in inventory acquired through its new joint venture with Swire Resources in China.

 

COLM’s initial guidance for 2014 calls for net sales growth of between 15 percent and 17 percent compared to 2013 net sales of $1.68 billion, with half of that growth expected to come from the new China joint venture and the remainder from organic growth. Boyle said he expects organic growth to come from outerwear, Sorel and Columbia footwear. Much of it will come from new products that incorporate proprietary technology at lower price points. Boyle cited the example of TurboDown, a blend of down with synthetic fibers that offer high performance at a moderate price point. Many outdoor gear companies are introducing such blends as a way to mitigate the impact of rising demand and shrinking supply of down.

 

COLM expects growth in Europe, but lowered expectation for sales growth by its Chinese joint venture to single digits, citing slowing growth and widespread discounting of outdoor gear. Boyle said an influx of outdoor brands has resulted in excess inventory and higher than normal promotional activity by COLM’s major competitors. It now expects sales by the joint venture to approach $165 million. Excess inventory of athletic goods in the wake of the 2008 Summer Olympics in Beijing resulted in the closing of thousands of stores by China’s domestic athletic brands, but Boyle said he did not expect the current overhang in inventory of outdoor product to last more than two seasons at most. He added that the joint venture’s strong financial position and deep operating experience in China put it in a position to take advantage of the tumult. Russia, thanks in part to the Olympics in Sochi, continues to emerge as a growth market, particularly for Sorel.

 

Growth is not expected to resume at Mountain Hardwear until 2015.

 

“The Mountain Hardwear product needs to be closer to what consumers expect from that brand,” said Boyle. “We probably got ourselves in a position of lofty expectations for the adoption of very expensive product. And the focus there is to getting ourselves compelling high-quality, high-end product as well as what we are calling Gateway price points to allow consumers to enter that brand at a more reasonable price.”

 

COLM’s guidance calls for fiscal year 2014 gross margins to improve by approximately 50 basis points. SG&A expenses are expected to increase approximately 16 percent due to higher spending on operating costs in China, marketing, a U.S. ERP implementation and the company’s global DTC platform. COLM plans to open 18 stores comprising 12 outlets and six Columbia branded stores in North America this year. The six new branded stores will have much smaller footprints designed to showcase various product assortments including a few stores specifically focused on our performance fishing gear or the PFG products. U.S and Canadian wholesale sales are expected to grow in the high-single digits on a c-n basis highlighted by anticipated double digit growth in the second half of the year. DTC is expected to generate 36 percent of revenues in 2014, up from 34 percent last year.
COLM plans to increase spending on demand creation to 5.1 percent of revenue, up 50 basis points from 2013.

 

“We haven’t spent enough on marketing for the company,” said Boyle. “With TurboDown we think we really have a potential product that when marketed properly can be a significant growth channel for the company. So we have got an opportunity today to have something unique and different to talk about and so we are going to take advantage of that.”

 

Based on the above assumptions, COLM expects operating income to grow in the high teens and result in 2014 operating margin of approximately 8.0 percent of net sales.