Columbia Sportswear Posts Strong Q2 Revenue Growth Despite Weaker U.S

Executives downplayed the surge, however, noting that the traditionally low-volume of sales during the shoulder season makes the second quarter vulnerable to wide sales, earnings and inventory swings.
The resulting excess inventory is not concerning us at all, said CEO Tim Boyle, who said the excess was spread evenly among Fall/Winter 2010, Spring/Summer 2011 and Fall/Winter 2011 inventory. We have got our normal liquidation processes through our own outlet stores as well as through our regular retailers and some with the value chains as well.

COLM is now selling excess Fall/Winter 2010 inventory through its outlet channels and expects to clear the Spring/Summer 2011 inventory through in-line dealers, the value channel and outlets during the second half of the year, said CFO Tom Cusick. That will push up the ratio of closeout sales and weigh down gross margins in the back half of the year. The surge in Fall/Winter 2011 inventory merely reflected earlier deliveries and shipments to overseas distributors, which should reduce COLMs air freight expenses in the third and fourth quarters. Those saving should offset rising input costs. 

Despite the 8 percent decline in U.S. wholesale shipments, COLMs net sales rose 21 percent in the second quarter to $268.0 million on the strength of its sales to overseas distributors and higher-margin direct and Sorel footwear businesses. The company reaffirmed its outlook for full-year net sales to increase 14 percent to 16 percent and maintained its outlook for operating margin of approximately 7.5 percent to 7.7 percent. Three percentage points of the second quarter sales increase came from foreign currency translation.

The net loss for the quarter totaled $13.6 million, or 40 cents per diluted share, compared with a net loss of $10.6 million, or 31 cents per diluted share, for the same period of 2010.

Revenue gains were driven by a 20 percent increase in Columbia brand net sales to $239.1 million, a 24 percent increase in Mountain Hardwear brand net sales to $22.7 million, and a 106 percent increase in Sorel brand net sales to $3.7 million.

Second quarter U.S. net sales grew just 4 percent to $129.0 million as a 39 percent increase in direct-to-consumer sales was partially offset by an 8 percent decline in wholesale sales. That decline reflected both later shipments of 2011 advance orders and the cool, wet spring, which resulted in fewer reorders and greater cancellations of advance orders. Boyle said that since orders remained strong in the Southern U.S. and for rainwear, COLM is confident that the cancellations were driven by weather rather than product.

In the Latin America/Asia Pacific (LAAP) region, net sales grew 48 percent to $76.6 million, including a nine percentage point benefit from changes in foreign currency exchange rates, while net sales in the Europe/Middle East/Africa (EMEA) region increased 39 percent to $53.6 million, including a five percentage point benefit from changes in exchange rates. The increased net sales in both the LAAP and EMEA regions reflected earlier and increased shipments to independent distributors. The LAAP region also benefited from a 42 percent net sales increase in Korea and a 36 percent net sales increase in Japan as it began to recover from the March 11, 2011 earthquake and tsunami. Canada net sales increased 14 percent to $8.8 million, including a six percentage point benefit from FX rate changes.

Second quarter 2011 sportswear net sales increased 12 percent to $136.2 million, outerwear net sales increased 43 percent to $62.1 million, footwear net sales increased 29 percent to $50.0 million, and accessories and equipment net sales increased 11 percent to $19.7 million.

COLM reaffirmed its guidance, noting that it has already begun to deliver against strong FW11 backlog-up 80 percent at Sorel – to lessen its reliance on air freight. Columbia expects a low-double-digit percentage increase in third quarter net sales compared with third quarter 2010 and operating income of approximately $70 million to $74 million, with a 25 basis point increase in gross margins, and 100 basis points of SG&A expense expansion as a percentage of net sales, partially offset by an increase in licensing income.