Columbia Sportswear Company announced record net sales of $566.8 million for the quarter ended Sept. 30, a 12 percent increase compared with net sales of $504.0 million for the same period of 2010, including a benefit of 3 percentage points from changes in currency exchange rates.
Third quarter net income increased 29 percent to $67.5 million, or $1.98 per diluted share, including a benefit of 4 cents per share from a lower income tax rate, compared to net income of $52.2 million, or $1.53 per diluted share, for the same period of 2010.
“Our third quarter sales growth reflects the previously reported increase in our Fall season backlog, as well as strong performance in our global direct-to-consumer business,” said Tim Boyle, Columbia's president and chief executive officer. “Improved operational execution resulted in a significant reduction in airfreight costs and produced meaningful operating margin leverage. Our increased profitability outlook for the full year reflects the strength of the third quarter and our expectations for continued growth through the remainder of the year.”
Review of Third Quarter Results
Third quarter 2011 net sales increased $62.8 million, or 12 percent, led by a 116 percent increase in sales of the Sorel brand to $72.0 million. Sales of the Columbia brand increased 4 percent to $447.8 million and Mountain Hardwear sales grew 17 percent to $44.7 million. (See “Brand Net Sales” table below.)
On a geographic basis, the increase in third quarter 2011 net sales was led by a 51 percent increase in the EMEA region to $100.3 million, including a 13 percentage point benefit from changes in currency rates.
Sales in the LAAP region increased 23 percent, to $72.8 million, including a 9 percentage point benefit from changes in currency exchange rates. U.S. sales increased 2 percent to $333.6 million and sales in Canada increased 13 percent to $60.1 million, including a 9 percentage point benefit from changes in currency exchange rates.
Third quarter 2011 footwear net sales increased 55 percent to $128.6 million. Sportswear net sales increased 7 percent to $179.8 million. Accessories and equipment net sales increased 23 percent to $35.9 million. Outerwear net sales were essentially unchanged at $222.5 million. (See “Categorical Net Sales” table below.)
The company ended the quarter with $90.4 million in cash and short-term investments, compared with $236.3 million at Sept. 30, 2010.
Inventories totaled $432.1 million at Sept. 30, 2011, an increase of $73.9 million, or 21 percent, from Sept. 30, 2010. Higher average unit costs accounted for almost 80 percent of the dollar increase, with unit growth representing the remainder.
Increased Full Year 2011 Financial Outlook
Based on the stronger-than-expected third quarter results, the company raised its outlook for full year 2011 operating margin to increase approximately 100 basis points compared with 2010 operating margin of 7.0 percent, driven by:
- an expected net sales increase of 15 to 16 percent, which contemplates an 18 to 20 percent increase in the company's fourth quarter sales,
- growth in the company's global direct-to-consumer sales, which are expected to represent approximately 25 percent of full year 2011 sales,
- an approximate 100 basis point increase in gross margins compared to 2010 gross margins of 42.4 percent, and
- increased licensing income, partially offset by
- an estimated 25 to 35 basis point increase in selling, general and administrative (SG&A) expenses as a percentage of sales.
The company is currently planning for a full-year income tax rate of approximately 25 percent.
For the fourth quarter of 2011, the company expects an approximate 18 to 20 percent increase in net sales and operating margin expansion of approximately 130 to 150 basis points, consisting of an anticipated 85 basis point increase in gross margins, 15 to 35 basis points of SG&A expense leverage as a percentage of net sales, and increased licensing income, compared with fourth quarter 2010.
All projections related to anticipated future results are forward-looking in nature and are based on a variety of factors and assumptions, which may change, perhaps significantly.
Spring Wholesale Backlog
As of Sept. 30, 2011, Spring wholesale backlog was $420.7 million, an increase of $26.5 million, or approximately 7 percent, compared with Spring wholesale backlog of $394.2 million at Sept. 30, 2010, driven primarily by the Columbia brand. Changes in currency exchange rates provided a benefit of less than 1 percent to the year-over-year comparison.
As of Sept. 30, 2011, Spring wholesale backlog was $420.7 million, an increase of $26.5 million, or approximately 7 percent, compared with Spring wholesale backlog of $394.2 million at Sept. 30, 2010, driven primarily by the Columbia brand. Changes in currency exchange rates provided a benefit of less than 1 percent to the year-over-year comparison.
“Our Spring wholesale backlog represents less than one-fourth of annual sales,” said Boyle. “When combined with another strong product line-up for Fall 2012, our growing global direct-to-consumer business, and our commitment to manage our cost structure, we are well-positioned for another year of record sales and improved profitability in 2012.”
Consolidated wholesale backlog, which includes both global Fall and Spring orders at Sept. 30, 2011, was $742.4 million, an 11 percent increase compared with consolidated wholesale backlog of $667.4 million at September 30, 2010. Changes in currency exchange rates did not have a material effect on the year-over-year comparison.
Wholesale backlog is not necessarily indicative of changes in total sales for subsequent periods due to the mix of advance and “at once” orders, exchange rate fluctuations and order cancellations, which may vary significantly from quarter to quarter, and because the company's global direct-to-consumer operations are not included in wholesale backlog.
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) | ||||||||||||||||
| Three Months Ended | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net sales | $ | 566,791 | $ | 504,028 | $ | 1,167,907 | $ | 1,026,265 | ||||||||
| Cost of sales | 317,206 | 289,747 | 656,373 | 587,758 | ||||||||||||
| Gross profit | 249,585 | 214,281 | 511,534 | 438,507 | ||||||||||||
| 44.0 | % | 42.5 | % | 43.8 | % | 42.7 | % | |||||||||
| Selling, general, and administrative expense | 167,375 | 148,072 | 436,034 | 377,069 | ||||||||||||
| Net licensing income | 4,406 | 2,334 | 10,396 | 4,878 | ||||||||||||
| Income from operations | 86,616 | 68,543 | 85,896 | 66,316 | ||||||||||||
| Interest income, net | 462 | 147 | 1,246 | 1,073 | ||||||||||||
| Income before income tax | 87,078 | 68,690 | 87,142 | 67,389 | ||||||||||||
| Income tax expense | (19,539 | ) | (16,485 | ) | (20,391 | ) | (16,560 | ) | ||||||||
| Net Income | $ | 67,539 | $ | 52,205 | $ | 66,751 | $ | 50,829 | ||||||||
| Earnings per share: | ||||||||||||||||
| Basic | $ | 2.00 | $ | 1.55 | $ | 1.97 | $ | 1.51 | ||||||||
| Diluted | 1.98 | 1.53 | 1.95 | 1.49 | ||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Net sales | $ | 566,791 | $ | 504,028 | $ | 1,167,907 | $ | 1,026,265 | ||||||||
| Cost of sales | 317,206 | 289,747 | 656,373 | 587,758 | ||||||||||||
| Gross profit | 249,585 | 214,281 | 511,534 | 438,507 | ||||||||||||
| 44.0 | % | 42.5 | % | 43.8 | % | 42.7 | % | |||||||||
| Selling, general, and administrative expense | 167,375 | 148,072 | 436,034 | 377,069 | ||||||||||||
| Net licensing income | 4,406 | 2,334 | 10,396 | 4,878 | ||||||||||||
| Income from operations | 86,616 | 68,543 | 85,896 | 66,316 | ||||||||||||
| Interest income, net | 462 | 147 | 1,246 | 1,073 | ||||||||||||
| Income before income tax | ||||||||||||||||
