Columbia Sportswear Company reported that net sales increased 8 percent (10 percent constant-currency) to $820.6 million in the 2023 first quarter from $761.5 million for the comparable period in 2022. The company said the increase in net sales primarily reflects the earlier shipment of Spring 2023 wholesale orders and direct-to-consumer (DTC) growth.

Gross margin contracted 100 basis points to 48.7 percent of net sales from 49.7 percent of net sales for the comparable period in 2022. The primary driver of gross margin contraction was increased promotional activity, compared to exceptionally low promotions in first quarter 2022 partially offset by favorable inbound ocean freight costs.

SG&A expenses increased 16 percent to $347.4 million, or 42.3 percent of net sales, from $299.1 million, or 39.3 percent of net sales, for the comparable period in 2022. SG&A expense growth primarily reflected higher supply chain costs related to elevated inventory levels and third-party logistics transition costs, higher DTC expenses to support growth and investments to support our strategies.

Operating income decreased 33 percent to $56.4 million, or 6.9 percent of net sales, compared to operating income of $83.7 million, or 11.0 percent of net sales, for the comparable period in 2022.

Income tax expense of $14.4 million resulted in an effective income tax rate of 23.7 percent, compared to income tax expense of $17.3 million, or an effective income tax rate of 20.5 percent, for the comparable period in 2022.

Net income decreased 31 percent to $46.2 million, or 74 cents per diluted share, compared to net income of $66.8 million, or $1.03 per diluted share, for the comparable period in 2022.

“First quarter results highlight the importance and value of our diversified global business model,” commented Chairman, President and CEO Tim Boyle. “We were able to generate healthy net sales growth, up 8 percent year-over-year, as consumer demand remained strong in many areas of our business. After three years of pandemic-related supply chain constraints, it’s gratifying to see that our wholesale on-time delivery rates have returned to pre-pandemic service levels.” Boyle said they are also making targeted marketing investments across footwear and apparel, including their “largest PFG campaign to date.”

Inventories increased 34 percent to $959.2 million, compared to $714.4 million as of March 31, 2022. Elevated carryover inventory, earlier receipt of current season inventory, and to a lesser extent, increased older season inventory reportedly resulted in higher inventory levels. Older season inventories were said to represent a “manageable portion” of the total inventory mix.

“We are executing on our plan to reduce inventory levels while focusing on profitability,” Boyle said.

Cash, cash equivalents and short-term investments totaled $460.6 million, compared to $610.3 million as of March 31, 2022. The company had no borrowings as of March 31, 2023 or 2022.

“We exited the first quarter with over $460 million in cash and short-term investments, and no bank borrowings,” Boyle shared. “I am confident we have the right strategies in place to drive profitable growth.

Boyle said 2023 is off to a solid start and they are reiterating our full-year net sales outlook while narrowing their diluted EPS range.

For the full year, Columbia said that net sales are now expected to increase 3 to 6 percent to $3.57 to $3.67 billion from $3.46 billion in 2022. The increase is unchanged from previous guidance.

Gross margin is expected to expand approximately 60 basis points to approximately 50 percent of net sales from 49.4 percent of net sales in 2022. The increase is unchanged from previous guidance.

SG&A expenses, as a percent of net sales, are expected to be 39.0 to 39.2 percent (prior 38.3 percent to 39.0 percent), compared to SG&A expenses as a percent of net sales of 37.7 percent in 2022. The increase in the company’s SG&A expense outlook is primarily related to incremental distribution and third-party logistics costs being incurred to support elevated inventory levels which are expected to normalize late in 2023.

Operating income is expected to be $413 to $432 million (prior $413 million to $448 million), resulting in an operating margin of 11.6 percent to 11.8 percent (prior 11.6 percent to 12.2 percent), compared to an operating margin of 11.3 percent in 2022.

Net income is expected to be $322 million to $336 million (prior $322 million to $347 million), resulting in diluted earnings per share of $5.15 to $5.40 (prior $5.15 to $5.55). This diluted earnings per share range is based on the estimated weighted average diluted shares outstanding of 62.4 million (prior 62.5 million).

For the first half, Columbia sees net sales growth of mid-single-digit percent, compared to the first half of 2022. Diluted earnings per share are now expected to be at the low end of the prior guidance range of 75 cents to 90 cents a share. The second quarter is typically the company’s lowest volume sales quarter and small changes in the timing of product shipments and expenses can have a material impact on reported results.

Inventory growth is anticipated to remain elevated in the second quarter, due to the expected earlier receipt of Fall 2023 inventory. The second quarter year-over-year inventory growth rate is anticipated to slow, relative to first quarter inventory growth, before turning to a year-over-year decline starting in the third quarter.

Photo courtesy Columbia Sportswear