Columbia Sportswear Inc. increased its full-year financial outlook based on what company chairman and CEO Tim Boyle described as first-quarter sales growth that outpaced expectations, favorable early season spring sell-through, the visibility provided by the company’s fall order book, and an “improvement in business fundamentals.”
Despite challenges in the supply chain that pushed deliveries back three weeks in the spring/summer selling season and production capacity constraints in footwear, COLM now expects to see net sales of $3.04 billion to $3.08 billion for the year, or top-line growth in the 21.5 percent to 23 percent range, up from its prior outlook of 18 percent to 20 percent year-over-year growth, with growth across all four brands in the company’s portfolio.
Gross margin is expected to expand approximately 110-to-130 basis points, and COLM expects SG&A to grow slower than net sales. Boyle sees operating margins in the range of 11.4 percent to 12 percent, compared to an operating margin of 5.5 percent in 2020. The end result is an upward projection for diluted EPS to reach $4.05 to $4.30 a share, compared to a prior range of $3.75 to $4.05 per share.
“We are forecasting approximately $190 million in free cash flow in 2021 and are acutely focused on managing inventory levels and improving turns,” said Boyle on a conference call with analysts. “Looking at the first half of the year, we now believe mid- to high-20 percent year-over-year net sales growth is achievable.” Still, Boyle cautioned that the second quarter is typically the company’s lowest volume sales quarter, and small changes in the timing of product shipments and expenses could have a material impact on reported results.
Columbia expects to increase its spend on marketing to keep the momentum going throughout the year.
“Given the confidence in our products and brand portfolio, we’re increasing our demand creation investments this year,” Boyle shared. “We anticipate demand creation increasing as a percentage of sales to 6 percent in 2021, compared to 5.7 percent in 2020 and 5.5 percent in 2019.”
Boyle reported that the company’s “fortress balance sheet” remains strong with cash and short-term investments totaling $875 million with no bank borrowings at quarter-end.
“It’s hard to believe how much difference a year makes,” Boyle quipped. “Just over one year ago, we were securing additional liquidity, curtailing factory orders, reducing capital outflows, and cutting costs to prepare for an unprecedented global health and economic crisis of unknown duration. As new challenges emerge daily, it was increasingly clear that the tremendous effort and dedication of our global workforce and our disciplined operating approach would be some of the most valuable strengths.” He said the balance sheet allowed them to sustain its new product innovation pipeline and invest in critical business areas, including digital capabilities.
Looking at first-quarter results, COLM saw net sales increase 10 percent to $625.6 million (8 percent currency-neutral), compared to the first quarter 2020. Boyle pointed out that the top-line number was down about 4 percent from the 2019 first-quarter number before the pandemic hit.
Columbia’s direct-to-consumer (DTC) business reportedly grew 20 percent year-over-year in the first quarter, with the DTC e-commerce business surging 35 percent and representing 20 percent of the total net sales mix for the period. Its DTC brick & mortar business grew 10 percent with “continued sequential improvement in fundamentals and the benefit of lapping prior-year temporary store closures and heightened pandemic-related disruptions.” Boyle said store traffic levels vary by region but remain below pre-pandemic levels. He pointed to better-than-planned wholesale shipments in Asia-direct and Europe-direct markets that enabled the company to offset later timing of Spring 2021 inventory receipts in the U.S., which is experiencing industry-wide supply chain disruptions.
Columbia saw Spring 2021 deliveries in the U.S. delayed by approximately three weeks on average during the quarter.
“To date, we have not experienced any material cancellations and/or chargebacks resulting from delays, but this will result in a shorter selling season,” Boyle explained. “Our operations and distribution center teams did an amazing job mitigating these timing disruptions and adapting to heightened health and safety protocols to achieve unit processing levels that were above pre-pandemic levels while supporting e-commerce growth.”
From a category perspective, Footwear net sales grew 35 percent in the quarter, significantly faster than apparel, accessories and equipment, which grew at 4 percent.
“Demand for our footwear continues to improve and outpace production capacity,” said Boyle. “2021 footwear growth would be higher absent these capacity constraints, and we’re working to capture as much of the anticipated demand as we can across both the Sorel and Columbia footwear businesses.”
Boyle suggested that the full-year, year-over-year growth rate of footwear would be relatively comparable to Apparel growth in 2021.
From a regional perspective, U.S. net sales increased 9 percent in the first quarter, reflecting low-20s percent growth in the company’s DTC business, partially offset by a low-single-digit percent decline in the wholesale business.
“The combination of favorable late-season winter weather, U.S. stimulus-driven demand, and the ongoing vaccination rollout all contributed to the healthy retail backdrop and growing consumer confidence during the quarter,” Boyle detailed. “In our DTC business, stronger-than-anticipated consumer demand drove low-30 percent e-commerce growth and improved store performance. We are pleased to see the continued recovery of our DTC brick & mortar businesses, but store traffic levels remain depressed, and it will take time to fully recover the pre-pandemic sales volumes.” He also noted that shipment delays impacted wholesale business net sales.
“In this inventory-constrained environment, we’re encouraged to see strong early sell-through velocity and lower promotional activity,” he said.
Latin America Asia Pacific (LAAP) region, first-quarter net sales increased 3 percent.
Across Asia, performance was described as varying greatly by market. In China, net sales were up low-60s percent, primarily driven by the “anniversary of heightened pandemic-related disruptions in the prior year and, to a lesser extent, earlier shipment of spring ’21 wholesale orders.”
Korea‘s net sales were reportedly up high-20s percent and were also primarily driven by the anniversary of heightened pandemic-related disruption in the prior year. Said Boyle, “We are encouraged by renewed interest in outdoor activities in this region as young consumers have embraced hiking and the outdoors as a safe, socially distanced activity.”
Japan net sales were down low double-digits year-over-year. Boyle suggested that the country restricted nonessential activities for much of the quarter as they contained the virus’s spread. “Given the slow rate of vaccinations in Japan and ongoing state of emergency, we anticipate the recovery of our Japanese business to be slower than other markets,” he said.
LAAP distributor markets were down low-60s percent in the first quarter as many regions continue to experience significant economic and health impacts from the pandemic, Boyle said. He said many distributors also continue to work through carryover inventory from the spring 2020 season that was heavily impacted by regional lockdowns.
Europe, Middle East, and Africa (EMEA) region net sales increased 18 percent in the first quarter, with Europe direct net sales posting high-single-digit growth as wholesale and DTC e-commerce growth more than offset brick & mortar declines due to store closures and restrictions during the quarter. EMEA distributor net sales doubled compared to the first quarter of 2020, primarily reflecting the timing of Spring 2021 shipments that shifted out of Q4 2020 and into the first quarter of 2021.
Canada net sales decreased 3 percent in the first quarter, primarily reflecting later timing of Spring 2021 inventory receipts and wholesale shipments and the impact of government-mandated temporary store closures and restrictions.
From a brand standpoint, Columbia brand net sales increased 12 percent in the first quarter. “Favorable late-season winter weather helped drive DTC sales, allowing our wholesale partners to sell-through Fall 2020 product and exit the season with clean inventory positions,” Boyle explained. “The combination of these factors fueled the strong finish in the Fall 2021 booking season, which contributed to the updated full-year sales outlook.”
Boyle said that despite the later timing of shipments impacted its Spring 2021 sell-in, the company is encouraged by early-season sell-through rates, which benefited from a healthy retail environment, aided by U.S. stimulus-driven demand and lean inventory positions at retail.
“Looking at our season-to-date Spring 2021 sell-through, our PFG collection of apparel, footwear, accessories, and equipment is, once again, a top-performing category,” said Boyle. “Our PFG business surpassed $200 million in 2019 and is on track to have its best year ever in 2021.”
Sorel net sales increased 20 percent in the first quarter, led by DTC e-commerce growth. Strong late-season sales of winter products in North America and Europe were said to fuel the growth. “Sneakers are once again the fastest-growing category with sales of sneakers more than doubling year-on-year on Sorel.com,” Boyle reported. On the wholesale side, Sorel’s early Spring 2021 sell-through velocity was said to be “well ahead of last year,” and lean inventories are translating into strong full-price selling.
“It wasn’t that long that Sorel’s first quarter was anchored in late-season winter product sales,” Boyle reflected. “With Sorel’s successful evolution to a year-round brand, first quarter 2021 net sales are approaching $50 million, driven by strength in winter products, and a powerful consumer-driven rotation to non-winter styles and categories.”
Prana net sales declined 14 percent in the first quarter, primarily reflecting “lower Spring 2021 orders and the later timing of inventory receipts, which impacted wholesale shipments and e-commerce sales.” Boyle said recent sell-through trends had been “encouraging” with “lower-than-normal promotional activity.” He said the men’s category was a bright spot in Q1, led by its popular Zion product line of pants and shorts. The swim category was another bright spot in the quarter. Boyle said 100 percent of the Prana swimwear line has at least one sustainable attribute, highlighting the brand’s ongoing commitment to Clothing for Positive Change.
Mountain Hardwear net sales decreased 4 percent in the quarter, primarily reflecting “lower Spring 2021 orders, later timing of inventory receipts, and the conversion of its Europe business model from direct to distributor.” This was reportedly partially offset by strong DTC e-commerce growth. “We remain excited about Mountain Hardwear’s anticipated momentum in Fall 2021,” said Boyle. “The order book reflects robust wholesale growth. Consumers will be able to find Mountain Hardwear products in hundreds of new points of distribution.” He said the brand is launching a new ski assortment in the fall.
Turning to the balance of the P&L, Columbia reported that gross margins expanded 360 basis points to 51.4 percent of net sales, primarily driven by “decreased reserve provisions related to less inventory, less excess inventory, lower DTC promotional levels, and favorable channel and region sales mix.” SG&A expenses decreased 8 percent, primarily reflecting “a reduction in bad debt expense driven by healthier wholesale customer base, partially offset by higher incentive and personnel expenses.”
Operating profits amounted to $70.5 million, or 11.3 percent of net sales, in the quarter, compared to an operating loss of $2 million in the first quarter of 2020.
Diluted earnings per share improved to 84 cents in Q1, compared to breakeven diluted earnings per share in the prior-year period and diluted earnings per share of $1.07 in Q1 2019, a down 22 percent decline.
“Compared to 2019 financial performance, our 2021 financial outlook contemplates us returning to or exceeding record 2019 net sales of $3.04 billion, Said Boyle. “We are focused on returning to and, ultimately, exceeding pre-pandemic sales and profitability levels.” He said the 2021 operating margin outlook of 11.4 percent to 12 percent remains below 2019 operating margin of 13 percent.
“I’d note that this margin compression is primarily due to three factors,” Boyle explained. “First, we are purposefully investing in the business to drive long-term profitable growth. One area of strategic focus is investing in demand creation. As a percent of net sales, demand creation will be 50 basis points higher than in 2019. Secondly, we are incurring additional costs associated with operating in a pandemic, including higher supply chain and retail expenses. Lastly, our DTC brick & mortar store traffic remains below pre-pandemic levels, impacting sales performance and profitability in this channel. We remain committed to driving operating margin expansion over time. In summary, I’m confident in our strategy and encouraged by the fundamental recovery underway.”
Photo courtesy Columbia, Tamiami unisex water-ready shoe. For more product information, go here.