Columbia Sportswear Co. reported its once struggling European business generated nearly half its revenue growth in the second quarter, led by growth in sales of Columbia-branded lightweight hiking footwear, a category that is playing a key role in establishing Columbia as a four-season brand.



The company reported sales in Europe/Middle East/Africa (EMEA) region surged 37.3 percent during the quarter ended June 30, including a 2 percentage point bump from exchange rates. The increase of $19.8 million accounted for 45 percent of COLM’s revenue growth in the quarter.

 

“We've had just some spectacular results in the light hiking category, which at the end of the day, is where all this business is done,” said Tim Boyle, Columbia’s president and CEO. “We're really thought of mostly as a winter footwear brand, as it relates to Columbia.”

 

COLM’s overall net sales increased $43.7 million, or 15.6 percent to $324.2 million in the quarter, when COLM narrowed its loss by 8.6 percent to $6.3 million. The robust sales helped COLM narrow its loss during the quarter and turn in its most profitable first half since 2008 despite incurring $4.7 million of non-recurring costs related to its May 30 acquisition of Prana.

 

Sales in Latin American/Asia Pacific region increased $14.9 million; accounting for 34 percent of the quarter’s growth. Incremental revenue from COLM’s new joint venture in China easily offset small declines in Japan and South Korea.
“Korea, which has been a solid contributor to profitable growth for us in the past several years, has become one of our most challenging markets,” said Boyle. “The popularity of the outdoor lifestyle and related products has triggered a rush of local and international brands into the market, and the market has now become highly promotional and heavily inventoried.”

 

LAAP growth was also hampered by transition to a new distributor in Australia, import restrictions in Argentina and currency controls in Venezuela. Sales in Latin America, including Central America, have helped push Columbia’s PFG collection of fishing apparel to $100 million in annual sales.
In the United States, sales grew $6.5 million, but $5.5 million of that came from Prana. In Canada, meanwhile, sales increased $2.5 million, including a ? point negative currency impact.

 

 

Apparel, Accessories & Equipment net sales increased by $27.3 million or 12 percent and accounted for 62.5 percent of

growth.  Footwear sales, which grew 36.6 percent, accounted for the remaining $16.4 million in revenue growth.

 

The flagship Columbia brand accounted for 88 percent of new revenue in the second quarter, thanks to incremental revenue from the new joint venture in China and very strong sales of the brand’s trail and hiking shoes in Europe. The brand generated $113.4 of new revenue during the six months ended June 30, or 95 percent of the company’s year-to-date sales growth.

 

“Over the past two seasons, Columbia Trail footwear has gained momentum in key markets around the world,” said Boyle. “This success is beginning to change consumer perceptions of Columbia from being a winter footwear brand to being a broad-based, year-round outdoor footwear brand.”

 

Prana, which contributed $5.5 million sales, essentially accounted for the remainder of the growth. Sales of Sorel, which is a winter footwear brand increased $100,000 while Mountain Hardwear sales declined $700,000.

 

COLM reported gross margin improved 150 basis points to 44.4 percent. SG&A expense rose by $30.3 million, or 22.9 percent, or 50 percent of net sale, up 300 bps from the second quarter of 2013. The company reported a net loss o $6.7 million, or 18 cents per diluted share, compared with a loss of $7.3 million, or 21 cents in the year earlier quarter. Net income reached $15.9 million for the six months ended June 30 marking its most profitable first half since 2008, including $4.7 million of acquisition cost and purchase accounting amortization related to the acquisition of Prana, which closed May 30.

 

Consolidated inventories of $456.4 million at June 30, 2014 were approximately 8 percent higher than the $423.8 million balance at June 30, 2013.

 

 

COLM President and CEO said the company’s first half performance, pending fall product launches and input from global managers prompted the company to increase its full-year guidance.

 

The company is now forecasting global organic sales growth of 18 percent and global net sales growth of 19-to-21 percent. In dollars that translates to $320-to-$355 million in new revenue, including roughly $155 million from the new joint venture in China and $55 million from Prana. COLM is also forecasting operating margins will increase 50 bps to 8.3 percent and net income will increase by between 18 and 24 percent to $114-to-$120 million. That translates to $3.22-to-$3.38 cents per diluted share, compared with $2.72 in 2013. The EPS forecast assumes the joint venture in China will contribute 15 cents in incremental earnings despite the country’s highly promotional retail environment. 

 

The forecast assumes the company’s North American direct-to-consumer sales will continue to grow at a double-digit pace thanks to largely to the addition of 16 new stores, comprising 10 outlets and six branded stores.  It also assumes strong sales of Columbia and Sorel footwear, including an expanded line of Columbia PFG footwear for Spring 2015. The line features a vent midsole for superior breathability and water drainage. COLM plans to open PFG-centric stores in Dallas and Atlanta this fall as part of a broader effort to shift U.S. consumers’ perception of Columbia as a winter brand.

 

 

COLM will focus the “lion’s share” of its fall marketing budget promoting TurboDown, which sandwiches a mix of down and proprietary Omni-Heat synthetic insulation between two layers of Omni-Heat Reflective material to created less expensive, warmer and more breathable jackets.

 

“We believe we are beginning to make meaningful, sustainable progress toward our goal of improving our profitability,” said Boyle.