Citing the benefits of the company’s “brand-led, consumer-focused” Project CONNECT initiative, Columbia Sportswear reported earnings topped Wall Street targets for the seventh straight quarter, lifted the company’s guidance for the year and provided an upbeat outlook for 2019.

On a conference call with analysts, President and CEO Tim Boyle said the quarter marked the strongest quarterly and year-to-date results in the company’s history.

“While this reflects broad momentum across our brand portfolio and regions, it is exciting to see the Columbia brand U.S. business leading the way,” said Boyle. “Our robust, direct-to-consumer performance across both our brick & mortar and e-commerce channels is a testament to brand strength and demonstrates that consumers are responding positively to our innovative product line.”

In wholesale, Boyle said the positive momentum experienced with the company’s Spring 2018 assortment has continued with “excellent early season sell-through of our Fall 2018 product line.”

Boyle added, “These results and updated outlook demonstrate that our shift to become a more brand-led and consumer-focused organization is working.”

In the quarter, sales grew 6.5 percent to $795.8 million. Non-GAAP sales, which are adjusted for favorable impact of new revenue accounting standards, expanded 6 percent for the quarter.

Net income rose 14.2 percent to $100.2 million, or $1.42. Non-GAAP income increased 11 percent to $99.3 million, or $1.41. Wall Street’s consensus estimate had been $1.27.

Among categories across the company, Apparel, Accessories and Equipment sales increased 6 percent (7 percent constant-currency) to $617.6 million. Footwear sales increased 6 percent (7 percent constant-currency) to $178.2 million.

Wholesale sales were essentially flat (1 percent increase constant-currency) at $544.8 million. DTC sales jumped 23 percent to $251.0 million.

By region, U.S. sales increased 9 percent, attributable to low-20 percent growth in direct-to-consumer (DTC) and low-single-digit percent growth in wholesale. In the company’s DTC business, brick-and-mortar store productivity gains, as well as e-commerce growth exceeded expectations. E-commerce sales were up high 20 percent in the quarter in the U.S., reflecting higher traffic, conversion and brand strength. The company operated 135 U.S. retail stores at September 30 compared with 127 at the same time last year.

Reported Latin America Asia Pacific (LAAP) sales decreased 4 percent (3 percent decrease constant-currency). LAAP non-GAAP net sales decreased 9 percent driven by declines in the LAAP distributor business and China, partially offset by growth in Japan and Korea.

Europe, Middle East and Africa (EMEA) net sales increased 15 percent, led by high-teens percent Europe-direct growth, while EMEA distributors net sales were flat. Canada net sales were flat (3 percent increase constant-currency) reflecting strong DTC net sales performance and flat wholesale net sales.

Columbia brand net sales increased 7 percent (8 percent constant-currency) to $640.9 million and is now up 13 percent year-to-date. The growth reflected strong DTC performance and wholesale growth. From a category perspective, both footwear and apparel are up double digits year-to-date. Said Boyle, “Looking at our season-to-date fall 2018 sell-through, it’s clear this momentum is intact heading into the important holiday sales season.”

In apparel, the fall 2018 launch of Omni-Heat 3D was recognized with positive coverage by Outside Magazine, Gear Junkie, Backpacker Magazine, SKI Magazine and Women’s Health. Said Boyle, “We are optimistic that this positive industry buzz is continuing to build consumer demand for our newest Omni-Heat innovation. Early season sell-through of Omni-Heat 3D is promising.”

In footwear, Columbia’s Fairbanks Omni-Heat boots was called out by Men’s Health and Columbia Montrail’s Variant X.S.R. by Runner’s World.

The Columbia brand also formed product collaborations with Kith and Opening Ceremony, and the brand is “amplifying these product innovations and brand stories by increasing our engagement with consumers with an always-on digital-first marketing strategy,” said Boyle.

The CEO added that McCann Worldwide Group was selected as the Columbia brand’s new agency of record for global content strategy and U.S. media with a focus on digital. Recent marketing campaign stories include one for Columbia’s Montrail FKT (fastest known time) which garnered 5.1 million video views and 65 million impressions. Said Boyle, “With over 18 million minutes of watch time, this campaign demonstrates our ability to generate authentic stories that are relevant to the trail running community.”

Boyle noted that Columbia reached a three-year extension of the UTMB Trail Run in Europe and launched an Orca Songs campaign featuring 2018 Grammy nominee Kesha this month. The Columbia brand is also launching an omni-channel campaign in Chicago to drive sell-through of cold weather, outerwear and footwear across key wholesale partners as well as the brand’s own DTC stores and website following the success of a similar focused effort in Houston.

Among other brands, Sorel’s sales increased 12 percent (13 percent constant-currency) to $91.2 million, reflecting growth across wholesale and DTC channels. Boyle said, “Solid demand for fashion fall styles, such as the Joan of Arctic wedge, highlight Sorel’s ability to extend beyond the core winter boot category and become a year round, function-first, fashion footwear brand. We’re encouraged by early season sell-through trends and are looking to maximize opportunities to capitalize on current brand momentum. We’re pleased with the exceptional growth in our spring 2019 wholesale order book which reflects continued strength in the U.S. market.”

Prana’s sales increased 8 percent in the quarter to $39.9 million reflecting healthy full-price e-commerce and U.S. wholesale growth. For fall 2018, lifestyle product is performing wells including notable strength in women’s bottoms. New for this season, Prana launched its “super-soft” Cardiff fleece collection and added a holiday capsule and gift guide.

Mountain Hardwear’s sales decreased 22 percent (21 percent decrease constant-currency) to $23.0 million. The drop primarily reflected lower closeout sales compared to the prior year as well as the brand’s 2017 decision to exit the Korean market.

Said Boyle, “With a clean inventory position and the brand’s U.S. fall 2018 order book reflecting a return to growth, we’re optimistic about the Mountain Hardware team’s ability to deliver sustainable growth in the future. While we’re very early in the season, initial sell-through trends for the innovative new StretchDown outerwear have been encouraging. We recently concluded our spring 2019 wholesale order book which indicates promising growth for the brand in the U.S. market.”

Consolidated non-GAAP gross margin was up 110 basis points in the quarter to 47.8 percent driven by higher DTC sales, favorable full priced sales mix and foreign currency hedge rates. Boyle added, “A healthy retail environment as well as strong execution fueled better-than-planned gross margin performance in the quarter and has given us the confidence to raise our full year gross margin outlook.”

SG&A spending accelerated as expected in the third quarter growing 12 percent on a non-GAAP basis. As a percent of sales, non-GAAP SG&A increased 200 basis points with the biggest drivers of SG&A growth being investments to support expanding DTC operations, higher demand creation and incentive compensation expenses.

Operating income improved 5.0 percent to $129.1 million

For the current year, Columbia now expects 2018 net sales growth of approximately 11.0 to 11.5 percent (prior 9.0 to 10.5 percent). The company expects non-GAAP net sales growth of approximately 9.5 to 10.0 percent (prior 7.5 to 9.0 percent).

Diluted EPS is expected to come in between $3.41 and $3.46 (prior between $3.15 and $3.25) and non-GAAP diluted EPS between $3.57 and $3.62 (prior between $3.37 and $3.47).

Boyle noted that plans include Project CONNECT initiatives designed to materially reduce the number of lower volume styles as well as an increased focus on key wholesale partners that are expected to improved product margin performance.

“Project CONNECT, which is now part of our sustained go-forward operational strategy, will have meaningful financial benefits in 2019 and beyond. These financial benefits will be most evident in our planned gross margin and enable us to continue to significantly invest in the business to support our strategic priorities,” said Boyle.

Based on these assumptions, Columbia is targeting low double-digit percent net income growth on a non-GAAP basis.

Photo courtesy Columbia Sportswear