Columbia Sportswear Company (Nasdaq: COLM) reported net sales reached $388.8 million in the second quarter ended June 30, up 2 percent in reported and currency-neutral (c-n) terms compared with same period a year earlier.

“Our successful first half results were highlighted by solid growth from three of our four major brands and improved gross margins in a challenging global environment,” said Columbia Sportswear CEO Tim Boyle.”  High-single-digit wholesale growth and low-20-percent direct-to-consumer growth in the U.S., combined with mid-20-percent constant-currency growth in Europe-direct markets and 20 percent constant-currency growth in Canada, demonstrate that we gained market share in each of these important geographies during the first half of 2016.”

Boyle concluded, “Our powerful brand portfolio, strong balance sheet and disciplined cost management provide us the financial flexibility to continue making strategic investments to build our brands, drive consumer demand and improve profitability over the long term.”

The second quarter growth was driven by:

  • U.S. net sales growth of 8 percent to $228.8 million, consisting of mid-teen percentage growth in the company’s direct-to-consumer channels and low single-digit percentage growth in wholesale channels
  • a 20 percent net sales increase (27 percent c-n) in Canada, to $13.6 million.

This growth was partially offset by:

  • a 1 percent net sales decline (2 percent c-n) in the Europe, Middle East and Africa (EMEA) region to $59.1 million, including a low-double-digit percentage decline in net sales to EMEA distributors, largely offset by high-teen percentage growth (mid-teen c-n) in the company’s Europe-direct business
  • a 10 percent net sales decline (11 percent c-n) in the Latin America, Asia Pacific (LAAP) region to $87.3 million, primarily reflecting a low-twenty percent net sales decline in Korea (high-teen c-n), a low-twenty percent decline in net sales to LAAP distributors, and a mid-teen net sales decline (low-double-digit c-n) in China, partially offset by a low-double-digit percentage (low-single-digit c-n) net sales increase in Japan.

Columbia and Prana offset declines at Sorel and Mountain Hardwear

Global Columbia brand net sales increased 3 percent (2 percent c-n) to $333.4 million compared with the second quarter of 2015. Global Sorel brand net sales declined 19 percent (16 percent c-n) to $3.5 million. Global Prana brand net sales increased 23 percent (23 percent c-n) to $32.2 million and global Mountain Hardwear brand net sales declined 20 percent (20 percent c-n) to $17.0 million.

Global Apparel, Accessories & Equipment net sales increased 4 percent (4 percent c-n) to $321.5 million and Footwear net sales declined 4 percent (4 percent c-n) to $67.3 million.

Second quarter loss from operations totaled $11.8 million, or 3.0 percent of net sales, compared to $9.0 million, or 2.4 percent of net sales, for the same period in 2015. The second quarter is the company’s smallest revenue quarter, historically accounting for a mid-teens percentage of annual net sales.

The effective income tax rate was 29.1 percent in the second quarter of 2016, comparable to 29.2 percent for the same period in 2015.

Second quarter net loss totaled $8.2 million, or $0.12 per share, compared with second quarter 2015 net loss of $6.5 million, or $0.09 per share.

Inventories Up 12 Percent

Consolidated inventories of $653.6 million at June 30, were 12 percent higher than the $581.0 million balance at June 30, 2015, consisting primarily of current fall 2016 and spring 2016 product.

The company generated $102.7 million in operating cash flow in the first half of 2016, and finished the quarter with $428.8 million of cash and short-term investments, compared with $417.5 million at June 30, 2015.

Reiterated 2016 Financial Outlook

The company currently expects mid-single-digit percentage 2016 net sales growth, including approximately 1 percentage point negative effect from changes in foreign currency exchange rates, on a base of 2015 net sales of $2.33 billion.

Fiscal year 2016 gross margins are expected to improve by up to 10 basis points, and for selling, general and administrative expenses (SG&A) to increase at a rate slightly faster than net sales, resulting in approximately 15 basis points to 45 basis points of SG&A expense deleverage. The company continues to expect a full year tax rate of approximately 25 percent.

Based on the above assumptions, Columbia Sportswear expects a mid-single-digit percentage increase in operating income, to between $254 million and $263 million, resulting in anticipated 2016 operating margin of up to 10.7 percent. The company expects a high-single-digit percentage increase in net income after non-controlling interest, to between approximately $184 million and $191 million, or approximately $2.60 to $2.70 per diluted share, up to 10 percent higher than 2015 EPS of $2.45. Included in the above 2016 EPS outlook is an unfavorable impact of approximately $0.26 resulting from the strengthening of the U.S. dollar, in addition to an estimated unfavorable impact of $0.10 per share in 2015. This currency impact primarily consists of lower gross margins within many of our foreign subsidiaries as a result of increased local currency costs of inventory purchased in U.S. dollars.