Columbia Delivers Robust Q4 But Sees Softness in 2012

Columbia Sportswear reported earnings jumped 40.1 percent in the fourth quarter on a 15.1 percent increse in revenue. However, the outerwear giant said that given the unusually warm winter globally as well as “macro-economic challenges that continue to cloud the European and U.S. marketplaces,” it only expects sales to grow in the low single digits in 2012.

Sales reached $526.1 million for the quarter ended Dec. 31, a 15 percent increase compared with net sales of $457.3 million for the same period in 2010. Changes in currency exchange rates contributed less than 1 percentage point to the net sales increase.

Fourth quarter net income increased 40 percent to $36.7 million, or $1.08 per diluted share, compared with net income of $26.2 million, or $0.77 per diluted share, for the same period in 2010.

Full year 2011 net sales increased $210.5 million, or 14 percent, to a record $1.694 billion, including a 3 percentage point benefit from changes in currency exchange rates, while net income increased 34 percent to $103.5 million, or $3.03 per diluted share, compared to net income of $77.0 million, or $2.26 per diluted share for 2010.

Tim Boyle, Columbia’s president and chief executive officer, commented, “In 2011, we achieved many of the financial and operational goals we set at the beginning of the year, despite unfavorable weather and a challenging macro-economic backdrop. Net sales grew 14 percent with double-digit growth from our Columbia, Sorel and Mountain Hardwear brands, as well as from each of our international regions. That growth allowed us to improve the company’s profitability, generating operating margin of 8.1 percent of sales compared with 7.0 percent in 2010.”

Boyle continued, “We believe our brands continue to gain strength in the market; however, our business is not fully insulated from the effects of this year’s unusually warm winter globally, or from the macro-economic challenges that continue to cloud the European and U.S. marketplaces. Due to those factors, we have built our preliminary outlook for 2012 around low single-digit sales growth, compared with the 19 percent and 14 percent growth that we achieved in 2010 and 2011, respectively.

“As a disciplined response to these slower growth assumptions, we have begun implementing a number of measures designed to limit full year 2012 expense growth to a rate that is comparable to our anticipated sales growth.”

Boyle concluded, “We remain committed to investing in innovation, enhanced design and compelling marketing across our brand portfolio, and information technology that we need to improve the company’s operational and supply chain capabilities and, ultimately, our profitability.”

Fourth Quarter Results

(All comparisons are between fourth quarter 2011 and fourth quarter 2010, unless otherwise noted.)

Net sales increased $68.8 million, or 15 percent, fueled by a $51.5 million, or 14 percent, increase in Columbia brand net sales to $416.5 million; a $13.8 million, or 27 percent, increase in Sorel brand net sales to $64.3 million; and a $3.4 million, or 9 percent, increase in Mountain Hardwear brand net sales to $43.2 million.

Net sales of Footwear increased $23.5 million, or 23 percent, to $126.1 million; Outerwear net sales increased $22.9 million, or 11 percent, to $228.8 million; Sportswear net sales increased $18.1 million, or 15 percent, to $137.4 million; and Accessories & Equipment net sales increased $4.3 million, or 15 percent, to $33.8 million.

Net sales in the U.S. increased $34.4 million, or 13 percent, to $292.9 million; Latin America/Asia Pacific (LAAP) region net sales increased $27.8 million, or 29 percent, to $124.3 million, including a 3 percentage point benefit from changes in currency exchange rates; Europe/Middle East/Africa (EMEA) region net sales grew $6.5 million, or 9 percent, to $77.1 million, including less than 1 percentage point negative effect from changes in currency exchanges rates; and net sales in Canada were essentially unchanged at $31.8 million, including less than 1 percentage point negative effect from changes in currency exchanges rates.

The company's fourth quarter results rely heavily on global fall weather patterns and the pace of retailer sell-through, which can stimulate customer reorders or, conversely, result in cancellations. In addition, the company’s direct-to-consumer channels represent a larger part of fourth quarter net sales and operating results than they have historically.

Fiscal Year 2011 Results

(All comparisons are between fiscal 2011 and fiscal 2010, unless otherwise noted.)

Consolidated net sales increased $210.5 million, or 14 percent, to a record $1.694 billion, including a 3 percentage point benefit from changes in currency exchange rates.

Net income increased 34 percent to $103.5 million, or $3.03 per diluted share, compared to net income of $77.0 million, or $2.26 per diluted share.

Columbia brand net sales increased $129.1 million, or 10 percent, to $1.392 billion; Sorel brand net sales increased $60.6 million, or 68 percent, to $150.3 million; and Mountain Hardwear brand net sales increased $20.4 million, or 17 percent, to $142.3 million.

Apparel, Accessories & Equipment net sales increased $121.6 million, or 10 percent, to $1.335 billion; and Footwear net sales grew $88.9 million, or 33 percent, to $359.1 million.

U.S. net sales increased $67.0 million, or 8 percent, to $948.0 million; LAAP region net sales increased $77.6 million, or 29 percent, to $341.0 million, including a 6 percentage point benefit from changes in currency exchange rates; EMEA region net sales increased $53.0 million, or 24 percent, to $275.4 million, including a 4 percentage point benefit from changes in currency exchange rates; and Canada net sales increased $12.9 million, or 11 percent, to $129.6 million, including a 6 percentage point benefit from changes in currency exchange rates.

Balance Sheet

The company ended the year with $243.9 million in cash and short-term investments, compared with $303.1 million at December 31, 2010.

Consolidated inventories increased 16 percent to $365.2 million at December 31, 2011, compared with $314.3 million at December 31, 2010. Higher average unit costs accounted for all of the inventory dollar increase, on lower units.

Preliminary 2012 Financial Outlook

The company currently expects low single-digit sales growth in fiscal 2012 and slight operating margin growth compared with fiscal 2011, including the effects of cost containment measures that the company has begun implementing with the goal of limiting the growth of selling, general and administrative expenses in 2012 to a rate comparable to anticipated 2012 sales growth.

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 fiscal year. In addition, the benefits of the company’s cost containment measures are expected to accrue primarily to the second half of 2012. These factors are expected to result in operating margin deleverage during the first half of 2012, offset by operating margin leverage in the second half of 2012.

For the first quarter of 2012, the company expects net sales to increase up to approximately 1 percent from net sales of $333.1 million in the first quarter of 2011 and an approximate 60 basis point decrease in gross margin, together with approximately 350 to 425 basis points of SG&A expense deleverage and decreased licensing income, resulting in operating margin contraction of approximately 425 to 500 basis points.

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 significantly. 

Fourth Quarter Highlights:

• Fourth quarter 2011 consolidated net sales increased 15 percent to a fourth quarter record $526.1 million, compared with fourth quarter 2010 net sales of $457.3 million.
  
• Fourth quarter 2011 net income increased 40 percent to $36.7 million, or $1.08 per diluted share, compared with fourth quarter 2010 net income of $26.2 million, or $0.77 per diluted share.
  
• The board of directors approved a quarterly dividend of $0.22 per share, payable on March 8, 2012 to shareholders of record on February 23, 2012.

• Fiscal 2011 net sales increased $210.5 million, or 14 percent, to a record $1.694 billion.
  
• Fiscal 2011 net income increased 34 percent to $103.5 million, or $3.03 per diluted share, compared to net income of $77.0 million, or $2.26 per diluted share, for 2010.