Columbia Sportswear said consumer demand in many areas of their business remained strong in the first quarter, with international markets showing resilience and the outlet store business in the U.S. generating healthy growth as consumers seek out value and promotions in the marketplace. Still, the company’s e-commerce had a soft start to the quarter and only improved after the company increased promotional levels to spur demand in February and March. The apparel business was said to be a bright spot in the quarter due to better availability of current season goods, but elevated inventories, unfavorable weather for spring product and overall retail cautiousness presented headwinds that impacted the company’s footwear business in the quarter.
“First quarter results highlight the importance and value of our diversified global business model and strong balance sheet,” explained company Chairman, CEO & President Tim Boyle. “Overall, we were able to generate healthy net sales growth, up 8 percent year-over-year and up 10 percent in constant currency. I’m pleased to report that earlier receipt of Spring 2023 inventories drove improved wholesale on-time delivery rates and a return to pre-pandemic service levels. For the last three years, supply chain constraints have impacted our ability to drive sales growth. As we look to maximize sales in this uncertain economic environment, it’s great to have those product lead time delays behind us.”
Consolidated net sales were up 8 percent (10 percent on a constant-currency basis) year-over-year to $821 million. All regions outside of the U.S. were said to be unfavorably impacted by foreign exchange rates.
U.S. net sales increased 3 percent to $517.5 million in the first quarter. U.S. wholesale increased in mid-single-digits and benefited from earlier shipments of Spring 2023 orders relative to last year. Boyle said the Columbia brand’s spring selling season performance has been encouraging with apparel sell-through trending above last year.
U.S. direct-to-consumer (DTC) net sales increased in low-single-digits. Brick-and-mortar was reportedly up high-single-digits with healthy outlet store performance, driven by strong traffic trends as well as contributions from new stores opened last year. U.S. e-commerce net sales were down high-single-digits, primarily due to a slow start of the quarter for columbia.com.
International business was up 17 percent in the quarter, or 25 percent on a constant currency basis.
The Latin America Asia Pacific (LAAP) region saw net sales increase 22 percent in constant terms to 136.4 million in the quarter. China’s net sales increased in the mid-20s range.
“Over the last several years, we laid the groundwork to enhance store productivity and reaccelerate growth in China,” Boyle explained. “We invested in talent, localized product and go-to-market activities to strengthen our capabilities in this important market. I believe we are starting to see the benefits of our efforts. The easing of COVID-19 restrictions resulted in a surge in consumer demand, which was sustained throughout the quarter. For Spring 2023, we successfully launched a new China-specific product collection designed for Chinese consumers.” Boyle said a new collection named Transit is attracting new, younger consumers to the brand. Initial sell-through performance was said to be “exceptional.”
“We’re encouraged by the first quarter performance and anticipate China to be one of our fastest-growing markets in 2023,” Boyle said.
Japan’s net sales increased in the high teens. Net sales growth was reportedly driven by improved demand as the company “lapped prior year COVID-19 impacts.” Net sales growth was also said to be aided by earlier shipments of Spring 2023 orders.
“Following 2 years of pandemic restrictions, we are encouraged to see DTC traffic recovering and international tourism starting to return to Japan,” said Boyle.
Korea’s net sales declined in the high teens. “Our new leadership team in Korea is in a multiyear process of rebuilding the business to further elevate the brand and drive productivity across all channels,” Boyle shared. “We’re in the early phases of this effort. We know that there’s a significant market share opportunity for Columbia in the future, and despite a slow start of the year, we still see a path to full-year growth in Korea.”
LAAP distributor markets were up over 100 percent for the period. “This growth reflects the strength of the Columbia brand and our distributor partnerships in these markets as well as favorable timing of shipments,” Boyle said.
Europe, Middle East, and Africa (EMEA) region net sales increased 20 percent in constant-currency terms to $108.3 million. Europe direct net sales grew high 20 percent, benefiting from strong demand across all channels and earlier shipment of Spring 2023 product. Despite relatively warm and dry weather in the quarter, Columbia’s brand strength and better product availability reportedly fueled healthy sell-through.
The EMEA distributor business was reportedly down in the low teens. The decline in sales was said to reflect the lack of sales to Russia partially offset by growth in other EMEA distributor markets.
Canada net sales were up 43 percent in constant currency terms to $58.4 million in Q1, driven by strong demand across all channels and earlier shipment of Spring 2023 product.
From a brand perspective, Columbia brand net sales increased 12 percent in constant currency terms to $702.8 million in the quarter. Growth was reportedly led by apparel, partially offset by softness in footwear. “We remain focused on unlocking the long-term growth in the footwear category and continue to make strategic investments in the business,” said Boyle. He also shared that key categories like hike and trail have softened following growth over the last several years.
Sorel sales were down 3 percent in constant-currency terms to $60.5 million in Q1. Net sales were said to be down primarily due to the tough footwear environment. Boyle said the first quarter is a small transitional quarter for Sorel, consisting of late winter and early spring product sales. He said the late receipt of Fall 2022 product resulted in some Fall product missing the peak selling window. To clear through this late-arriving Fall inventory, the brand increased promotional activity on Sorel.com during the quarter. Additionally, unfavorable cool and wet weather contributed to a late start in the spring selling season.
“I’d note that spring season sell-through has improved in recent weeks with the arrival of warmer spring weather,” Boyle shared. “The sandal category has led this resurgence fueled by new sports styles like the Connecticut Impact collection.”
Prana was down 1 percent in constant-currency terms to $32.5 million. The sales decline was reportedly driven by the wholesale business, partially offset by DTC growth.
Mountain Hardwear sales were $24.8 million for the period, an 18 percent increase in constant currency terms, driven in large part by earlier shipment of Spring 2023 orders.
“Following Mountain Hardwear’s product-driven resurgence, the team is now working to bring the brand’s identity to life,” Boyle said. “This includes enhancing Mountain Hardwear’s digital presence and launching a more robust organic social media strategy.”
Gross margin contracted 100 basis points to 48.7 percent of sales, roughly in line with Columbia’s outlook. The biggest driver of contraction was said to be the higher promotional activity in the marketplace as the market lapped an exceptionally low promotional environment last year. The negative impact of promotions was partially offset by lower inbound freight costs.
SG&A expenses increased 16 percent and were 42.3 percent of net sales compared to 39.3 percent in the prior year. SG&A expense growth primarily reflected elevated supply chain costs, higher DTC expenses to support growth and investments to support company strategies. Columbia said it incurred higher-than-expected warehousing and fulfillment expenses during the quarter, largely resulting from elevated inventory levels.
Net income was down 30.9 percent year-over-year to $46.2 million in the first quarter. Diluted earnings per share decreased 28 percent to 74 cents a share.
Inventory was up 34.3 percent to $959.2 million at quarter-end, driven by “elevated carryover inventory, earlier receipt of current season inventory and, to a lesser extent, increased older season inventory.” Boyle said they anticipate incurring higher SG&A expenses tied to the elevated inventory levels. The expenses are expected to “persist until inventories normalize towards the end of the year.”
“We’re executing our plan to manage down inventory levels while focusing on profitability,” Boyle said. “We have a clear path to reducing year-end inventory by over $200 million compared to last year.”
Looking ahead, Columbia reiterated its outlook for 3 percent to 6 percent net sales growth for the year.
“While there are various trends across our regions, channels and categories, our forecast for overall demand has not meaningfully changed,” Boyle explained. “We are reiterating our gross margin outlook for expansion of 60 basis points to approximately 50 percent. Marketplace promotional activity continues to normalize in line with our expectations compared to exceptionally low promotions in the prior year. We expect SG&A expenses to grow faster than net sales growth. Our outlook for SG&A expense growth has increased since our last call, reflecting incremental warehousing and fulfillment costs associated with elevated inventory levels as well as transitional costs associated with third-party logistics.
“We have and continue to implement cost containment actions, but realizing savings from these actions will take time. We expect the operating margin to be in the range of 11.6 percent to 11.8 percent. Operating margin performance will not be linear year-to-year, and we remain fully committed to improving operating margins over time. This operating performance leads to diluted earnings per share range of $5.15 to $5.40. We anticipate strong operating cash flow of at least $600 million in 2023 as our inventory levels normalize.”
Photo courtesy Columbia
