Columbia Sportswear Co. sold a record amount of outdoor apparel and footwear in the third quarter and sees no signs of a slowdown in the fourth quarter, CEO Tim Boyle told analysts Thursday.
“I'm actually quite optimistic about the business, frankly, and I don't really see the deceleration,” Boyle said in response to questions about recent reports of slowing traffic and rising inventories by several US retailers. “We end up in this sort of quasi panic situation in October frequently when it's not minus 3 degrees as people expect. I really can't comment about our competitors. I can tell you our position we believe is strong and expanding.”
Boyle said COLM has shipped much more inventory to retailers than this time a year ago, but noted that retailers’ sell-through rates on that inventory are unchanged from a year ago.
Sorel soars
COLM reported record sales, operating income and net income for the third quarter ended Sept. 30. The outfitter said net sales grew by $92.3 million, or 14 percent, which equated to 18 percent constant-currency (c-n) growth, with the biggest contribution coming from Sorel.
Known as a cold-weather boot brand three years ago, Sorel’s has emerged as COLM’s hottest-selling brand thanks in part to its expanded offering of fashion and warm weather footwear. The brand’s global net sales grew 48 percent (59 percent c-n) in the third quarter thanks to strong demand for its fall line, which essentially sold out a year ago, said Boyle.
“The wedges and those products which don't require snow on the ground to sell have really been spectacular,” said Boyle. “There was a lot of pent-up demand from consumers who couldn't buy the product last year.”
Earlier deliveries boost fall apparel sales
Global sales of the Columbia, Prana and Mountain Hardwear brands increased 10, 22 and 12 percent respectively (14, 22 and 17 percent c-n). Global Apparel, Accessories & Equipment net sales increased 9 percent (12 percent c-n) to $596.1 million, and Footwear net sales increased 36 percent (46 percent c-n) to $171.5 million.
Earlier deliveries of fall product boost US apparel sales
While sales of Columbia PFG and other light-weight garments performed well, earlier deliveries resulted in higher sales of insulated winter apparel.
“Early in the year we can gain a couple — up to three percentage points – of sell-through even in a month as early as August or July, based on having the merchandise in the store,” explained Boyle, adding that retailers benefit from being able to sell fall and winter product at better margins. He said COLM deliveries of fall and winter product grew by about $40 million during the quarter compared with 2014, including growth in pre-season orders.
Mountain Hardwear continues striving to dial in products that resonate better with core alpinists, Boyle said. COLM is still searching for a permanent replacement to interim Mountain Hardwear president Scott Kerslake, who is president of Prana.
“We had a good quarter this year in this quarter but I wouldn't read too much into that,” said Boyle. “We still have a lot of heavy lifting to do there.”
North American growth easily offsets declines in Russia and Korea
U.S. net sales grew 26 percent led by Columbia and Sorel and reflecting the more timely delivery of increased fall 2015 wholesale advance orders. In Canada, sales grew 16 percent (39 percent c-n), led by the Sorel and Columbia brands.
Sales declined 11 percent (+5 percent c-n) in the Latin America/Asia Pacific region, due primarily to weaker sales of the Columbia brand in Asia. In the Europe/Middle East/Africa (EMEA) region, net sales declined 14 percent (+3 percent c-n) as a 30 percent decline in sales to Russia more than offset high-teen, constant-currency net sales growth in direct sales; mostly from the Columbia brand.
Gross margin expanded 100 basis points to 46.4 percent, while operating income increased 35 percent to a record $132.3 million, or 17.2 percent of net sales.
COLM ended the quarter with 10 percent more inventory than a year earlier, but most of it was in the fast growing North American and European markets. In South Korea, inventory comped down 26 percent year-over-year. Mountain Hardwear and many other outdoor brands have blamed sales declines in recent years on a glut of product in the country, which is Asia’s second largest market for outdoor gear after Japan.
Boyle said South Korea remains profitable and that competitors are leaving the market, but it remains unclear if or when profits will return to the high levels seen earlier in the decade.
Margin forecast upgraded
COLM firmed its fiscal year revenue guidance to 10.5 percent sales growth (14.5 percent c-n) from low-double-digit percentage growth (mid-teen c-n) it forecast July 30. In the U.S., sales are expected to grow in the low-to-mid 20 percent range, but a repeat of last year’s fourth quarter weather would push sales higher, said CFO Tom Cusick.
Operating income is now expected to grow 20-to-23 percent, compared with previous guidance of high-teens. COLM nudged up its forecast for full-year operating margin to 10.4-to-10.5 percent from 10.3 percent. The more bullish outlook was attributed to a 75 basis point increase in gross margin, up from 50 basis points forecast in July. It also now foresees 35 basis points of operate expense leverage. Net income is expected to grow 20-to-23 percent, up from July’s forecast of 17-to-22 percent.
COLM is on track to open 17 stores in the United States this year, including 12 Columbia outlets, two Sorel stores, one PFG store, and two Prana brand stores. Ten of those will open in the current quarter.
“Our expanded gross margins are enabling us to increase our demand creation investments by 13 percent this year, while driving significantly improved operating margins,” said COLM CEO Tim Boyle.
