Columbia Sportswear Company reported net sales of $179.2 million for the quarter ended June 30, 2009, a decrease of 16% compared to net sales of $213.1 million for the same period of 2008, with 4 percentage points of that decline resulting from changes in foreign currency exchange rates.

 

Second quarter net loss totaled $9.9 million, or 29 cents per diluted share, compared with a net loss of $1.8 million, or 5 cents per diluted share, for the same period of 2008.

 

Tim Boyle, Columbia's president and CEO, said, “Our net loss for the second quarter, our smallest revenue quarter of the year, was slightly better than the outlook we gave in April, primarily due to a smaller decline in net sales than anticipated, combined with the positive effect of the cost control measures we've implemented over the past year. The global retail environment continued to provide significant headwinds which we expect to persist through at least the remainder of 2009 and into 2010. Despite those challenges, we remain focused on developing innovative apparel, footwear, accessories and equipment that excite and inspire outdoor enthusiasts by solving real problems, allowing them to enjoy the Greater Outdoors.”

 

“Our strong balance sheet makes it possible for us to continue building on this foundation of innovations as we look forward to the prospect of an improving retail environment in 2010 and beyond.”

 

The second quarter is the company's smallest revenue quarter, historically accounting for approximately only 15% of annual net sales. As a result, regional, category and brand net sales results often produce large percentage variances when compared with the prior year's comparable period due to the small base of comparison and because of shifts in the timing of shipments to international distributors which may occur late in the second quarter or early in the third quarter.

 

On a regional basis, the 16% decrease in second quarter 2009 net sales consisted primarily of the following variances-

 


 —  A 47% decline in the Europe, Middle-East & Africa region
     (EMEA) to $33.7 million, including a 5 percentage point negative
     effect from changes in foreign currency exchange rates compared
     with the second quarter of 2008. The remaining 42%
     point decline reflected the previously-announced declines in
     Spring and Fall 2009 EMEA orders combined with a shift into the
     third quarter of Fall 2009 shipments to independent distributors,
     in comparison to 2008 when a greater relative portion of Fall
     2008 orders were shipped in the second quarter.

 —  A 44 percent decline in Canada to $7.9 million, including a 10
     percentage point negative effect from foreign currency exchange
     rates. The remaining 34 percentage point decline reflected the
     previously-announced decline in the Canadian region's Spring 2009
     orders which included the effect of planned reductions in and
     exits from certain channels of distribution in favor of
     brand-enhancing channels, combined with increased order
     cancellations during the second quarter resulting from slow
     sell-throughs at stores operated by the company's wholesale
     customers and some shift in the timing of shipments into the
     third quarter.
 

The above net sales declines in EMEA and Canada were partially offset by:

 


 —  A 2% increase in U.S. net sales. Sales through the
     company's expanded base of U.S. branded and outlet stores
     increased significantly, reflecting the addition of 12 outlet
     stores and four branded stores since June 30, 2008. This increase
     was partially offset by a high single-digit decline in U.S.
     wholesale net sales, as previously forecasted, which reflected
     increased order cancellations for Spring 2009 product, including
     the bankruptcy and subsequent liquidation or reduction of
     operations at several wholesale customers.

 —  Net sales in the Latin America & Asia Pacific region (LAAP) were
     essentially equal to net sales in the second quarter of 2008,
     including a 7 percentage point negative effect from foreign
     currency exchange rates.

By product category, the decrease in second quarter 2009 net sales compared with the second quarter of 2008 consisted primarily of the following variances-

 


 —  Sportswear net sales decreased 15% to $98.4 million, with
     the decline concentrated primarily in the EMEA region, U.S.
     wholesale and Canada.

 —  Footwear net sales decreased 21% to $33.4 million, with
     the decline concentrated in the EMEA region due to the previously
     mentioned reduced volume and shift in timing of shipments of Fall
     2009 orders to EMEA distributors compared to the same period last
     year.

 —  Second quarter outerwear net sales declined 16% to $35.1
     million, again primarily reflecting reduced volume and a relative
     shift in timing of EMEA distributor shipments.

 —  Accessories and equipment net sales declined 8 percent to $12.3
     million.

By brand, the decrease in second quarter 2009 net sales compared with the second quarter of 2008 consisted primarily of the following variances-

 


 —  Columbia brand net sales, which accounted for approximately 90
     percent of consolidated second quarter net sales, declined 17% to $162.0 million. Most of this decline was concentrated
     in the EMEA region due to the previously-mentioned reduced     volume and shift in timing of distributor shipments. In addition, a
     large decline in Columbia brand net sales in Canada reflected
     planned reductions and exits from certain distribution channels.

 —  Combined, Mountain Hardwear, Sorel and Montrail brand net sales
     declined $1.8 million, or 9%, to $17.2 million.

The company ended the second quarter with approximately $318 million in cash and short-term investments, compared with approximately $327 million at June 30, 2008. Inventories increased 7% compared with June 30, 2008, to $293 million.

 

The increased inventory balance reflected improved on-time delivery performance by the company's independent manufacturing partners which resulted in earlier receipt of Fall 2009 products scheduled for delivery during the second half of 2009, and to a lesser degree, incremental inventory related to the company's expanded base of retail stores.

 

The company expects consolidated inventory levels to decline on a year-over-year comparative basis through the Fall 2009 shipping season. The company's inventory balance at Dec. 31, 2009 relative to December 31, 2008 will depend primarily on the volume and timing of Spring 2010 inventory receipts in the fourth quarter of 2009.

 

2009 Financial Outlook

 

The dynamic nature of the current global economic environment and its impact on consumers and the financial health of our wholesale customers has reduced the predictive quality of the company's wholesale backlog and other factors on which it has historically based estimates of net sales, gross margin and operating expenses as a percentage of net sales, thus limiting the ability to estimate future results.

 

All projections related to anticipated future results are forward-looking in nature and are based, in part, on the economies in key markets stabilizing during the second half of 2009, as well as on a variety of estimates and assumptions, any of which may change significantly.

The company reaffirmed its previous expectation for total 2009 net sales to decline in the low double-digits on a percentage basis compared with 2008, which assumes a 3 percentage point negative currency effect.

 

This outlook includes a mid-teens percentage decline in wholesale net sales compared with 2008, based primarily on financial results through June 30, 2009 and the previously announced 15% decline in global wholesale backlog as of March 31, 2009 and the estimated effect of changes in foreign currency exchange rates, partially offset by expected incremental sales from the company's direct-to-consumer business.

 

Full year 2009 operating margin is expected to decline approximately 300 to 350 basis points from 2008, which included a $24.7 million impairment charge. This expected decline is primarily due to fixed cost deleverage caused by lower net sales, coupled with planned investments in direct-to-consumer initiatives. Gross margins are expected to decline by approximately 125 basis points primarily due to a higher volume of close-out product sales, a more promotional retail environment, and unfavorable foreign currency hedge rates in the second half of 2009. The company currently expects a full-year tax rate of approximately 31%.

 

The company expects a low double-digit percentage decline in third quarter 2009 net sales compared with the third quarter of 2008. This estimate is based primarily on the previously announced 15% decline in global fall season wholesale backlog, partially offset by incremental sales from the company's direct-to-consumer business and a shift into the third quarter of a larger portion of Fall 2009 shipments to international distributors compared to Fall 2008 orders, of which a larger portion were shipped in last year's second quarter.

 

Third quarter 2009 operating income is expected to decline approximately 650 to 700 basis points compared with the third quarter of 2008. This expected decline is comprised of approximately 300 basis points of gross margin contraction due primarily to unfavorable hedged rates in Canada and lower U.S. wholesale gross margins due to reduced volume and mix of expected outerwear shipments. Although selling and administrative expenses are expected to be comparable to third quarter 2008 on an absolute basis, lower expected net sales results in proportional deleverage.

 

Dividend

 

The board of directors approved a dividend of 16 cents per share, payable on August 27, 2009 to shareholders of record on August 13, 2009. 
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except per share amounts)
                              (Unaudited)

                             Three Months Ended      Six Months Ended
                                  June 30,               June 30,
                            ——————————————
                               2009       2008       2009       2008
                            ——————————————

 Net sales                  $ 179,268  $ 213,147  $ 451,234  $ 510,510
 Cost of sales                104,961    127,382    266,432    294,190
                            ———  ———  ———  ———
   Gross profit                74,307     85,765    184,802    216,320
                                41.5%      40.2%      41.0%      42.4%

 Selling, general, and
  administrative expense       92,246     91,256    194,255    195,168
 Net licensing income           2,053      1,161      3,961      2,004
                            ———  ———  ———  ———
 Income (loss) from
  operations                  (15,886)    (4,330)    (5,492)    23,156

 Interest income, net             566      2,327      1,480      4,589
                            ———  ———  ———  ———
 Income (loss) before
  income tax                  (15,320)    (2,003)    (4,012)    27,745

 Income tax benefit
  (expense)                     5,442        233      1,032     (9,584)
                            ———  ———  ———  ———
 Net income (loss)          $  (9,878) $  (1,770) $  (2,980) $  18,161
                            =========  =========  =========  =========

 Net income (loss) per
  share:
   Basic                    $   (0.29) $   (0.05) $   (0.09) $    0.52
   Diluted                      (0.29)     (0.05)     (0.09)      0.52
 Weighted average shares
  outstanding:
   Basic                       33,904     34,817     33,888     35,084
   Diluted                     33,904     34,817     33,888     35,190