By Eric Smith
After reporting record sales and an earnings beat in the first quarter, Columbia Sportswear Co. is now looking to amplify its brand presence in three key markets—two in the U.S. and one overseas—that offer additional growth opportunities for the outdoor apparel and footwear giant.
The Portland, OR-based company said it will “execute key city attack plans in New York City and Denver” in the second half of 2019, and it’s also strategizing ways to tap into the “enormous opportunity” in China thanks to Beijing hosting the Winter Olympics in 2020.
First, Chairman and CEO Tim Boyle briefly discussed the company’s U.S. plans. Though more details will be coming later this year, he said, Columbia is targeting New York because it’s the country’s largest city and Denver because it’s one of the country’s most active outdoor cities.
“We see tremendous opportunity and will increase our sales and brand awareness in the Northeast, and New York City provides a global stage to highlight our brand,” Boyle said on Thursday afternoon’s earnings call with analysts. “And Denver is an ideal location to further amplify our brand presence in an important outdoor-minded market.”
During the call’s Q&A session, when Boyle was asked to elaborate on why the company will focus on Denver and New York, he cited the success of Columbia’s recent “attack” plans in Houston and Chicago, which have provided a blueprint for this latest strategic market acceleration.
“We find when we really concentrate our marketing efforts in markets, like specifically those two, then we get a much larger return,” he said. “So it gives us the opportunity to not only have out-of-home marketing and other sorts of more typical [marketing], we can also add in the digital marketing and get people to walk into one of our customer stores and buy some products based on their geographic location. It’s likely that we’ll have good results … in both of those markets. It’s a matter of focusing our efforts there to try and make us more visible than we otherwise would be in those really critical markets.”
Denver and New York aren’t the only markets on which Columbia is bullish. The company is also looking to ramp up its presence in China, which registered a disappointing revenue quarter yet retains a huge upside for Columbia. China sales declined in the high-single digits due to “challenges across our wholesale channel that outweighed our DTC growth,” Boyle said, but the company is squarely focused on reversing that trend.
“To help reinvigorate growth, we’re investing in our consumer experience with store fixture upgrades, full store renovations and enhanced in-store digital capabilities,” he said. “As our new China GM, John Soh [formerly of Nike], immerses himself in the business, we look forward to sharing additional updates on our go-forward strategy. While we expect a mid-single-digit percent decline in China net sales for 2019, we continue to believe China represents one of Columbia’s largest regional growth opportunities.”
Specifically, Columbia is ogling the numbers coming out of China in the lead-up to the 2020 Winter Olympics. The nation’s government vowed to create 300 million snowsports participants, which includes all manner of winter sports activity (from skiing to snowboarding to sledding to snowshoeing) and all levels of expertise (from the casual to the hardcore).
The country also pledged to build winter sports venues beyond what was needed for the actual Games. China is now developing alpine resorts and Nordic ski tracks, ice rinks and half pipes, snowshoe areas and sledding hills, basically all the amenities people would need to recreate on ice or snow.
Columbia and many other brands that sell snowsports hardgoods and softgoods have taken note.
“We think China can really be the largest single territory or geography for the company,” Boyle said. “There’s an enormous opportunity there. Especially when you consider that the Chinese government would like to overinvest in the Winter Olympics. They’re going to be opening something like 300 ski resorts for the local Chinese sportspeople to be involved in. So we expect that over time that would be a spectacular part of the business. But we think in addition to the outerwear opportunities, there are very significant footwear and sportswear opportunities in China for the company. We just need to get it right and we’re continuing to invest to make sure that happens.”
Columbia’s growth plans come on the heels of an impressive first quarter that saw the company raise its outlook for 2019 after posting net sales for the first quarter grew 8 percent (10 percent constant-currency) to a record $654.6 million. That beat Wall Street’s estimates by $7.8 million.
The company also reported earnings per diluted share increased 67 percent to a record $1.07, compared to Q1 2018 earnings per diluted share of 64 cents and ahead of analysts’ estimates by 24 cents. Compared to non-GAAP Q1 2018 earnings per diluted share of 77 cents, earnings per diluted share increased 39 percent.
Columbia reported that gross margin expanded 210 basis points to a record 51.4 percent of net sales, compared to Q1 2018 gross margin of 49.3 percent of net sales.
And Columbia’s operating income increased 48 percent to a record $88 million and operating margin expanded 360 basis points to 13.4 percent of net sales, compared to first quarter 2018 operating income of $59.3 million, or 9.8 percent of net sales. Compared to non-GAAP first quarter 2018 operating income of $70.3 million, or 11.6 percent of net sales, operating income increased 25 percent and operating margin expanded 180 basis points.
Columbia—whose brands include its own eponymous label along with Sorel, Mountain Hardwear, and Prana—saw U.S. sales grew 14 percent in the quarter, driven by mid-teen growth in direct-to-consumer and low-double-digit growth in wholesale. Sales outside of the U.S. grew 3 percent.
Looking at sales by brand, Columbia (+9 percent) and Sorel (+28 percent) posted strong quarters, helping the parent company overcome softness at Prana (-3 percent) and Mountain Hardwear (-11 percent).
For 2019, Columbia now expects net sales of $2.98 billion to $3.04 billion (previously $2.97 billion to $3.03 billion), representing net sales growth of 6.5 percent to 8.5 percent (previously 6 percent to 8 percent). Net sales guidance includes a foreign currency translation impact that is anticipated to reduce net sales growth by approximately 70 basis points.
As he has during recent earnings calls, Boyle updated analysts on the company’s continued investment in strategic improvements, dubbed Project Connect. He offered this summary of the project.
“Our profitable growth trajectory and fortress balance sheet, with cash and short-term investments of over $700 million and no long-term debt, provide a foundation of strength and confidence from which we will continue 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 direct-to-consumer operations with supporting processes and systems; and
- invest in our people and optimize our organization across our portfolio of brands.
“We are making these investments to enable sustainable long-term profitable growth, make us a more efficient company, and drive market share capture across our brand portfolio and geographic regions.”
Analysts were impressed with Columbia’s Q1 performance and updated outlook. In his cleverly titled note, “Making It Rain While Keeping You Dry,” Michael Kawamoto of D.A. Davidson & Co. wrote, “We are encouraged by COLM’s 1Q report, particularly the Columbia brand’s strength in the U.S. Additionally, the raised outlook this early in the year suggests that the company has great visibility into the rest of 2019. With a robust product pipeline, we remain confident in COLM’s ability to execute on its growth initiatives, and believe shares can outperform via earnings growth and upward guidance revisions.”
And Jonathan Komp of Baird wrote in his note to investors: “We believe solid execution with respect to product/marketing and omnichannel initiatives can support continued strength, while Project Connect initiatives also yield more significant margin benefits.”
Columbia’s shares were down in the mid-single digits in midday trading Friday and closed the day down $3.20, or 3 percent, to $101.25.
Photo courtesy Columbia Sportswear Co.