Columbia Reports Record Q1 Sales, Ups Guidance

Columbia Sportswear Company raised its full year outlook after reporting sales grew 13 percent in the first quarter to reach a record $479.0 million. The company said sales would have grown 17 percent if not for the negative impact of currency exchange rates.

Sales increased $54.9 million compared with first quarter 2014 net sales of $424.1 million, including a 4 percentage point negative effect from changes in currency exchange rates.

The Prana brand, which the company acquired on May 30, 2014, contributed $37.1 million of incremental net sales during the quarter. First quarter 2015 operating income increased 24 percent to $44.1 million, equating to 9.2 percent operating margin, and net income totaled $26.5 million, or $0.37 per diluted share, an increase of 19 percent compared with first quarter 2014 net income of $22.3 million, or $0.32 per diluted share.

“2015 is off to a strong start, building on the momentum we created in 2014 behind the Columbia, Sorel and Prana brands,” said Columbia CEO Tim Boyle. “We are experiencing exceptional sell-through in North America through the first half of the spring season and our European business has returned to growth. Sorel is poised for a very strong second half and full year net sales of more than $200 million, while Prana remains on pace to deliver annualized growth of more than 20 percent.”

Boyle concluded, “Our strong balance sheet is enabling us to invest in our expanded portfolio of active brands, while we continue transforming our global operations to fuel and support sustainable, profitable growth. Based on our solid first quarter results, the strengthening of Fall advance orders in North America and Europe, and the momentum behind our direct-to-consumer platform, we are raising our full year outlook and now expect to return to double-digit operating margin for the full year.”

Regional and brand breakdowns

First quarter U.S. net sales increased $42.6 million, or 18 percent, including $30.8 million of incremental Prana net sales. Net sales in Canada increased $7.4 million, or 28 percent, including $4.0 million of incremental Prana net sales and a 12 percentage point negative effect from changes in currency exchange rates. Latin America/Asia Pacific (LAAP) region net sales decreased $3.7 million, or 3 percent, including a 6 percentage point negative effect from changes in currency exchange rates. Europe/Middle East/Africa (EMEA) region net sales increased $8.6 million, or 22 percent, including $2.0 million of incremental Prana net sales and a 15 percentage point negative effect from changes in foreign currency exchange rates. 

Columbia brand net sales increased $25.0 million, or 7 percent, to $401.0 million. Sorel brand net sales increased $0.5 million, or 4 percent, to $13.4 million. Mountain Hardwear net sales decreased $7.3 million, or 23 percent, to $25.1 million.

Apparel, Accessories & Equipment net sales increased $45.6 million, or 13 percent, to $399.3 million, and Footwear net sales increased $9.3 million, or 13 percent, to $79.7 million. 

First quarter operating income increased 24 percent to a first-quarter record $44.1 million, or 9.2 percent of net sales, compared with $35.5 million, or 8.4 percent of net sales, in the first quarter of 2014. First quarter net income totaled $26.5 million, or $0.37 per diluted share. Net income for the same period in 2014 totaled $22.3 million, or $0.32 per diluted share. The effective income tax rate in the first quarter of 2015 was 33.6 percent, compared to 32.6 percent in the first quarter of 2014.

Balance Sheet and Cash Flow

The company generated $28.7 million in operating cash flow and finished the quarter with $454.5 million in cash and short-term investments, compared with $567.6 million at March 31, 2014.

Consolidated inventories of $363.7 million at March 31, 2015 were $73.5 million, or 25 percent, higher compared with the $290.2 million balance at March 31, 2014. Excluding approximately $18.3 million of incremental Prana brand inventory, consolidated inventories at March 31, 2015 increased $55.2 million, or 19 percent. The vast majority of inventory growth at March 31, 2015 was concentrated in North America, commensurate with stronger wholesale orders and the company’s expanding direct-to-consumer business. Approximately two-thirds of this growth represented Fall 2015 inventory that was in-transit or on-hand to meet earlier requested delivery of increased Fall 2015 advance wholesale orders, to support our expanded North American direct-to-consumer business, and to compensate for longer transit times resulting from the West Coast port congestion.

Dividend

The board of directors authorized a regular quarterly dividend of $0.15 per share, payable on June 4, 2015 to shareholders of record on May 21, 2015.

Upward-Revised 2015 Financial Outlook

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ, perhaps materially.

The company continues to expect high single-digit 2015 net sales growth (low teen growth on a constant-dollar basis) compared to 2014 net sales of $2.1 billion.

The company expects fiscal year 2015 gross margins to improve by approximately 50 basis points, and selling, general and administrative expenses to increase at a rate slightly lower than anticipated sales growth, generating approximately 25 basis points of operating expense leverage.

Based on the above assumptions, the company expects mid-teen percentage growth in operating income, to between $223 million and $234 million, resulting in operating margin of approximately 10.2 percent, compared with operating income of $198.8 million and operating margin of 9.5 percent in 2014. The company expects net income after non-controlling interest of approximately $154 million to $161 million, or approximately $2.15 to $2.25 per diluted share, compared with $137.2 million, or $1.94 per diluted share, in 2014. This outlook includes an estimated unfavorable impact of approximately $0.14 per diluted share from the stronger U.S. Dollar, comprising lower gross margins within our foreign subsidiaries as a result of increased costs of inventory and, to a lesser degree, the translation of net income.

In addition, the second quarter is the company’s lowest net sales volume quarter. As a result, changes in the timing of shipments and incremental fixed operating costs can have an amplified effect on operating income. The company currently anticipates approximately 7.0 to 8.0 percent growth in first-half 2015 operating income, representing operating margin comparable to the 2.5 percent operating margin achieved in the first half of 2014. In addition, the company is planning a first-half 2015 effective tax rate of approximately 36 percent, compared with an effective tax rate of approximately 6 percent in the first half 2014, which included a non-recurring tax benefit of $5.6 million, or $0.08 per diluted share. As a result of the higher anticipated effective tax rate, coupled with approximately $2.0 million of non-operating foreign currency losses incurred in the first quarter of 2015, first-half 2015 net income is expected to be between $7.0 million to $10.0 million, or $0.10 to $0.14 per diluted share, compared to first-half 2014 net income of $15.9 million, or $0.23 per diluted share.