Columbia Sportswear Company raised its guidance for the year after reporting first-quarter sales and earnings arrived well above Wall Street’s targets and seeing healthy early Spring 2021 sell-through and Fall 2021 orders.

Highlights of the quarter include:

  • Net sales increased 10 percent to $625.6 million, compared to the first quarter 2020;
  • Operating income of $70.5 million, or 11.3 percent of net sales, compared to first quarter 2020 operating loss of $2.0 million, or (0.3) percent of net sales;
  • Diluted earnings per share of $0.84, compared to break even diluted earnings per share in first-quarter 2020;
  • Exited the quarter with $874.6 million in cash and short-term investments and no borrowings;
  • The company repurchased $11.2 million of common stock during the quarter; and
  • On April 23, 2021, the Board of Directors approved a regular quarterly dividend of $0.26 per share.

Full Year 2021 Financial Outlook

  • Net sales of $3.04 to $3.08 billion, representing net sales growth of 21.5 to 23.0 percent compared to 2020;
  • Operating income of $347 to $369 million, representing an operating margin of 11.4 to 12.0 percent; and
  • Diluted earnings per share of $4.05 to $4.30.

Chairman, President and CEO Tim Boyle commented, “I’m pleased to report the pace of fundamental recovery exceeded our expectations in the first quarter, resulting in a return to net sales growth and financial results that were stronger than we anticipated. Business momentum was led by our direct-to-consumer e-commerce business which grew 35 percent year-over-year, reaching 20 percent of our total net sales mix. In our wholesale business, we experienced a strong finish to the Fall 2020 sales season as well as an excellent early season sell-through of our Spring 2021 assortment. Consumer demand is high and retail inventories are lean, resulting in a favorable full-price selling environment. I’d like to thank our operations and distribution center teams that did an amazing job mitigating industry-wide supply chain disruptions and enabling us to deliver these results today.

“Based on first-quarter results and visibility provided by early Spring 2021 sell-through, our Fall 2021 order book and business fundamentals, we are increasing our full-year financial outlook. I’m encouraged by the strong start to the year, but mindful that we must continue to carefully navigate operational challenges and quickly adapt to changing business conditions and ongoing pandemic-related disruptions.

“Our fortress balance sheet remains strong, with cash and short-term investments totaling $875 million with no bank borrowings at quarter-end. We are committed to driving sustainable and profitable long-term growth and 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.”

COVID-19 Update
The company’s top priority throughout this pandemic remains to protect the health and safety of its employees, their families, its customers and its communities. While there were isolated temporary store closures resulting from local regulations or safety concerns, the majority of the company’s owned stores remained open throughout the first quarter 2021. Overall brick & mortar store traffic trends vary by region but remain below prior-year levels. First-quarter 2021 results include the impact of port congestion and logistics constraints that resulted in the later timing of Spring 2021 inventory receipts and deliveries. Please refer to the CFO Commentary and Financial Review presentation for a detailed review of COVID-19 pandemic-related issues and their responses.

First Quarter 2021 Financial Results
All comparisons are between first quarter 2021 and first quarter 2020 unless otherwise noted.

  • Net sales increased 10 percent to $625.6 million from $568.2 million for the comparable period in 2020. Business momentum was led by direct-to-consumer (DTC) e-commerce net sales growth as well as better than planned sequential improvement in DTC brick & mortar trends. Wall Street’s consensus estimate had been $583.3 million.
  • Gross margin expanded 360 basis points to 51.4 percent of net sales from 47.8 percent of net sales for the comparable period in 2020. Gross margin expansion was primarily driven by decreased reserve provisions related to less excess inventory, lower DTC promotional levels and favorable channel and region sales mix.
  • SG&A expenses decreased 8 percent to $254.4 million, or 40.7 percent of net sales, from $276.8 million, or 48.7 percent of net sales, for the comparable period in 2020. The decrease in SG&A expenses primarily reflects a reduction in bad debt expense driven by a healthier wholesale customer base, partially offset by higher incentive and personnel expenses. The reduction in bad debt expense was driven by incremental COVID-19-related bad debt reserve provisions in the first quarter 2020 compared to a reduction of bad debt reserves in the first quarter 2021.
  • Operating income of $70.5 million, or 11.3 percent of net sales, compared to an operating loss of $2.0 million, or (0.3) percent of net sales, for the comparable period in 2020.
  • Net income of $55.9 million, or $0.84 per diluted share, compared to net income of $0.2 million, or break-even diluted earnings per share, for the comparable period in 2020. Wall Street’s consensus estimate had been 33 cents.

Balance Sheet As Of March 31, 2021

  • Cash, cash equivalents and short-term investments totaled $874.6 million, compared to $706.9 million at March 31, 2020.
  • The company had no borrowings, compared to short-term borrowings of $174.4 million at March 31, 2020.
  • Inventories decreased 9 percent to $525.7 million, compared to $577.1 million at March 31, 2020. The reduction in inventory was primarily driven by lower Spring 2021 inventory purchases, a reduction of excess inventory and delayed receipts of Spring 2021 inventory. Inventory at quarter-end primarily consisted of current and future season products. Aged inventories represent a manageable portion of its total inventory mix.

Cash Flow For The Three Months Ended March 31, 2021

  • Net cash flow from operating activities was $110.9 million, compared to net cash flow from operating activities of $12.8 million for the same period in 2020.
  • Capital expenditures totaled $3.9 million, compared to $9.5 million for the same period in 2020.

Share Repurchases For The Three Months Ended March 31, 2021

  • In first-quarter 2021, the company repurchased 108,987 shares of common stock for an aggregate of $11.2 million, or an average price per share of $102.98.
  • At March 31, 2021, $471.0 million remained available under its current stock repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

Quarterly Cash Dividend

  • The Board of Directors approved a regular quarterly cash dividend of $0.26 per share, payable on May 27, 2021 to shareholders of record on May 13, 2021.

Full Year 2021 Financial Outlook
Columbia Sportswear said the outlook assumes a sequential recovery in brick & mortar retail traffic and sales throughout 2021. However, it added that it is not possible to determine the ultimate impact on operations for 2021, or whether other currently unanticipated direct or indirect consequences of the pandemic are reasonably likely to materially affect its operations. Projections are predicated on normal seasonal weather globally.

  • Net sales are expected to increase 21.5 to 23.0 percent (prior 18 percent to 20 percent) to $3.04 to $3.08 billion (prior $2.95 billion to $3.00 billion) from $2.50 billion in 2020.
  • Gross margin is expected to improve 110 to 130 basis points to 50.0 percent to 50.2 percent of net sales (prior approximately 50 percent) from 48.9 percent of net sales in 2020.
  • SG&A expenses are expected to increase at a slower rate than net sales growth. SG&A expenses as a percent of net sales are expected to be 38.7 percent to 39.1 percent (prior 39.2 percent to 39.7 percent), compared to SG&A expenses as a percent of net sales of 43.9 percent in 2020. Demand creation as a percent of net sales is anticipated to be 6.0 percent in 2021, compared to 5.7 percent in 2020.
  • Operating income is expected to be $347 million to $369 million (prior $320 million to $346 million), resulting in an operating margin of 11.4 percent to 12.0 percent (prior 10.8 percent to 11.5 percent) compared to an operating margin of 5.5 percent in 2020.
  • Effective income tax rate is expected to be approximately 22 percent. The effective income tax rate may be affected by unanticipated impacts from changes in international, federal or state tax policies, changes in the company’s geographic mix of pre-tax income, other discrete events, as well as differences from its estimate of the tax benefits associated with employee equity awards and its estimate of the tax impact of various tax initiatives.
  • Net income is expected to be $271 million to $288 million (prior $250 million to $270 million), resulting in diluted earnings per share of $4.05 to $4.30 (prior $3.75 to $4.05).

Foreign Currency

  • Foreign currency translation is anticipated to increase 2021 net sales growth by approximately 130 basis points.
  • Foreign currency is expected to have essentially no impact on earnings as favorable foreign currency translation impacts are anticipated to be offset by foreign currency transactional effects from hedging of production.

Balance Sheet and Cash Flows

  • Operating cash flow is expected to be $250 million to $270 million (prior $300 million to $320 million). The lower operating cash flow forecast for 2021 is primarily driven by changes to projected year-end inventory. This change in outlook is based on the expectation of receiving Spring 2022 inventory earlier than previously projected.
  • Capital expenditures are planned to be $60 million to $80 million.

First Half 2021 Commentary

  • Columbia’s annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal net sales and profitability pattern weighted toward the second half of the year.
  • Based on first-quarter 2021 results, advance wholesale orders for the Spring 2021 season and plans for growth in its global DTC businesses as it anniversaries prior-year temporary store closures, Columbia said it believes mid-to-high 20 percent first-half year-over-year net sales growth is achievable (prior high-teens percent to low 20 percent). In second-quarter 2021, year-over-year net sales growth by channel will be impacted by the anniversary of prior year temporary brick & mortar store closures as well as elevated DTC e-commerce net sales penetration levels as demand shifted online when consumers were unable to shop in-store.
  • The second quarter is typically its lowest volume sales quarter and small changes in the timing of product shipments and expenses could have a material impact on reported results. Historically, second-quarter profitability has been challenging given its fixed cost structure, resulting in the company reporting a second-quarter earnings loss in most years.

Photo courtesy Columbia Sportswear