Columbia Sportswear Co. on Thursday reported record revenue of $526.2 million for the second quarter ended June 30, a 9 percent increase (11 percent in constant currency) from the same period a year ago and beating Wall Street’s estimates by $19 million.
Earnings per diluted share increased 143 percent to a record 34 cents, compared to second quarter 2018 earnings per diluted share of 14 cents and crushing estimates by 33 cents.
Compared to non-GAAP second quarter 2018 earnings per diluted share of 16 cents, earnings per diluted share increased 113 percent. Diluted earnings per share includes 11 cents of one-time tax benefits primarily related to the passage of a Swiss tax reform package.
President and CEO Tim Boyle commented, “2019 is shaping up to be another great year for Columbia Sportswear Company. Momentum across our diverse brand portfolio, distribution channels and regions along with Project CONNECT financial benefits fueled record second quarter and first half financial performance. The Columbia brand generated double-digit constant-currency growth in the quarter and the first half of the year, led by U.S. wholesale and direct-to-consumer performance. SOREL’s progress towards becoming a year-round brand is evident in the success of Spring 2019 styles, which contributed to greater than 30 percent constant-currency growth in the quarter and first half of the year. After several challenging years, Mountain Hardwear generated double-digit constant-currency growth in the quarter and is poised for continued growth in the second half of the year.”
“As we enter the second half of 2019, our brand, channel, geographic and supply chain diversification positions us for continued profitable growth despite global economic and trade uncertainty. Our first half results, Fall 2019 advance orders and current business momentum position us to deliver another record year of growth and profitability.”
“Our profitable growth trajectory and fortress balance sheet, with cash and short-term investments of over $500 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 build on our strengths as a brand-led, consumer-focused organization and to enable sustainable long-term profitable growth.”
Non-GAAP Financial Measures
Throughout this press release, non-GAAP amounts in second quarter 2018 exclude $1.9 million in Project CONNECT expenses and discrete costs ($1.4 million net of tax) and $0.1 million in incremental income tax expense related to the Tax Cuts and Jobs Act (“TCJA”). References to non-GAAP financial measures in first half 2018 exclude $12.9 million in Project CONNECT program expenses and discrete costs ($9.8 million net of tax), and $1.2 million in incremental provisional income tax expense related to the TCJA. These excluded items were not applicable to the second quarter and first half of 2019 results.
Second Quarter 2019 Financial Results
(All comparisons are between second quarter 2019 and second quarter 2018 unless otherwise noted.)
Please note the second quarter is our lowest volume sales quarter and small changes in the timing of product shipments and expenses can have a material impact on reported results.
Net sales increased 9 percent (11 percent constant-currency) to $526.2 million, from $481.6 million for the comparable period in 2018.
Gross margin expanded 70 basis points to 48.2 percent of net sales, from 47.5 percent for the comparable period in 2018.
SG&A expenses increased 8 percent to $240.8 million, or 45.8 percent of net sales, from $222.2 million, or 46.1 percent of net sales, for the comparable period in 2018. SG&A expenses increased 9 percent from non-GAAP SG&A expenses of $220.3 million, or 45.7 percent of net sales, for the comparable period in 2018.
Operating income increased 68 percent to $16.4 million, or 3.1 percent of net sales, from $9.7 million, or 2.0 percent of net sales, for the comparable period in 2018. Operating income increased 41 percent from non-GAAP operating income of $11.6 million, or 2.4 percent of sales, for the comparable period in 2018.
Net income increased 137 percent to $23.0 million, or $0.34 per diluted share, from $9.7 million, or $0.14 per diluted share, for the comparable period in 2018. Net income increased 104 percent from non-GAAP net income of $11.3 million, or $0.16 per diluted share for the comparable period in 2018. Diluted earnings per share include $0.11 of one-time tax benefits primarily related to the passage of a Swiss tax reform package which resulted in a one-time tax benefit of $6.6 million. Second-quarter 2019 net income also includes the benefit of full ownership of our China business, which became a wholly-owned subsidiary effective January 2019. In the second quarter of 2018, the non-controlling interest share of net income was $0.8 million, or $0.01 per diluted share.
First Half 2019 Financial Results
All comparisons are between the first half of 2019 and the first half of 2018 unless otherwise noted.
Net sales increased 8 percent (10 percent constant-currency) to $1,180.8 million, compared to $1,088.9 million for the comparable period in 2018.
Gross margin expanded 150 basis points to 50.0 percent of net sales, from 48.5 percent for the comparable period in 2018.
SG&A expenses increased 6 percent to $492.5 million, or 41.7 percent of net sales, from $465.6 million, or 42.8 percent of net sales, for the comparable period in 2018. SG&A expenses increased 9 percent from non-GAAP SG&A expenses of $452.7 million, or 41.6 percent of net sales, for the comparable period in 2018.
Operating income increased 51 percent to $104.3 million, representing 8.8 percent of net sales, compared to operating income of $69.1 million, or 6.3 percent of net sales, for the comparable period in 2018. Operating income increased 27 percent from non-GAAP operating income of $81.9 million, or 7.5 percent of net sales, for the comparable period in 2018.
Net income increased 77 percent to $97.2 million, or $1.41 per diluted share, compared to $54.8 million, or $0.77 per diluted share, for the comparable period in 2018. Net income increased 48 percent from non-GAAP net income of $65.8 million, or $0.93 per diluted share for the comparable period in 2018. First half 2019 net income includes the benefit of full ownership of our China business, which became a wholly-owned subsidiary effective January 2019. In the first half of 2018, the non-controlling interest share of net income was $4.4 million, or $0.06 per diluted share.
Balance Sheet as of June 30, 2019
Cash, cash equivalents and short-term investments totaled $524.3 million, compared to $774.7 million at June 30, 2018.
Inventories increased 33 percent to $756.4 million, compared to $570.5 million at June 30, 2018, resulting from earlier receipts of Fall 2019 inventory in order to alleviate manufacturing capacity constraints and, to a lesser degree, increased volume to support business growth.
Share Repurchases for the Six Months Ended June 30, 2019
The Company repurchased 1,032,972 shares of common stock for an aggregate of $100.4 million, or $97.22 average price per share.
Regular Quarterly Cash Dividend
At its regular board meeting on July 19, 2019, the board of directors authorized a regular quarterly cash dividend of $0.24 per share, payable on August 29, 2019 to shareholders of record on August 15, 2019.
Photo courtesy Columbia Sportswear Co.