Columbia Sportswear Q3 Sales Down 4%

Columbia Sportswear Company reported net sales of $452.4 million for the quarter ended Sept. 30, 2008, a decrease of 4% compared to net sales of $471.1 million for the same period of 2007.

Third quarter net income totaled $58.3 million, or $1.69 per diluted share, compared with net income of $62.6 million, or $1.72 per diluted share, for the same period of 2007.

The 4% decrease in third quarter 2008 net sales consisted of a 5% decline in U.S. net sales to $271.3 million, a 10 % decline in EMEA region net sales to $78.2 million and a 2% decline in Canada net sales to $56.8 million, partially offset by 10% growth in LAAP region net sales to $46.1 million. Changes in foreign currency exchange rates compared with the third quarter of 2007 contributed 6 percentage points of benefit to the EMEA net sales comparison and were insignificant to the consolidated net sales comparison and the net sales comparisons of Canada and LAAP. (See “Geographical Net Sales table below.)

Compared with the third quarter of 2007, third quarter 2008 outerwear and sportswear net sales each declined 3% to $208.6 million and $157.5 million, respectively; and footwear net sales declined 11% to $63.6 million. These declines were partially offset by a 3% increase in accessories and equipment net sales to $22.7 million. (See “Categorical Net Sales table below.)

Compared with the third quarter of 2007, third quarter 2008 Columbia brand net sales decreased 5% to $395.2 million and Sorel brand net sales decreased 1% to $19.0 million. These decreases were partially offset by a 19% increase in Mountain Hardwear brand net sales to $35.2 million. Combined, net sales of Montrail and Pacific Trail brand products did not comprise a significant percentage of sales in the third quarter of either year. (See “Brand Net Sales table below.)

The company ended the quarter with $145.3 million in cash and short-term investments, compared with $115.8 million at Sept. 30, 2007. Accounts receivable declined $27.4 million, or 7%, to $366.2 million and inventories declined $19.2 million, or 6%, to $301.4 million, compared with Sept. 30, 2007.

“Our third quarter results benefited from improved gross margins, primarily from our sportswear and footwear categories, and sound expense control,” said Tim Boyle, Columbia‘s president and CEO. “We continue to maintain a solid balance sheet free of long-term debt, enabling us to move forward as planned with investments in new retail stores and increased marketing.

Raising 2008 EPS Guidance

The company expects net sales in the fourth quarter of 2008 to decrease approximately 6% to 10% compared with last year’s fourth quarter and expects fourth quarter diluted earnings per share of between approximately 60 cents to 70 cents compared to $1.26 in last year’s fourth quarter, which included a tax benefit of 14 cents per diluted share.

The company now expects full year 2008 net sales to decline approximately 3% to 4% compared with 2007. However, based on earnings per share through Sept. 30, 2008, the company raised its guidance for 2008 diluted earnings per share to between approximately $2.80 and $2.90.

Backlog

The company reported that as of Sept. 30, 2008, spring 2009 backlog was $370.9 million, 11% lower than spring 2008 backlog of $414.4 million. The decline in backlog consisted of comparable percentage declines in the company’s apparel and footwear product categories. U.S. backlog was down on a percentage basis in the mid-teens and EMEA backlog was down low-double digits. In the two smaller regions, lower backlog in Canada was more than offset by increased backlog in the LAAP region. Changes in currency exchange rates had an immaterial effect on the backlog comparisons.

Consolidated product backlog, which includes both global fall and spring orders at Sept. 30, 2008, was $645.1 million, a decline of 7% compared with consolidated product backlog of $692.7 million at Sept. 30, 2007.

“We are disappointed with the decline in spring backlog, but believe it reflects, in part, continued efforts by our retail partners to reduce overall inventory,” said Boyle. “We expect incremental sales from our new retail stores to help offset a portion of that wholesale weakness.

Boyle concluded, “Despite a weak global retail environment, the outdoor market has been resilient and weve continued to generate growth through our international distributors and our subsidiaries in Japan and Korea. In addition, our Mountain Hardwear brand has generated consistent growth within the U.S. outdoor specialty channel where it is further establishing itself as the premier top-of-mountain brand. We are taking aggressive action across our organization to elevate our brands and capitalize on their long history of meeting the needs of the most demanding outdoor consumers. Our future will be defined by our renewed commitment to pioneering innovative products that resonate with consumers and that protect them better than any other alternative so they can enjoy their outdoor lifestyles year-round.

Q1 2009 Outlook

The dynamic nature of the current economic environment limits the company’s visibility and its ability to predict future results. The decline in backlog is an indicator of lower wholesale revenues in the first quarter. In addition, the effects of foreign currency exchange rates may also amplify the revenue decline if the U.S. dollar continues to strengthen compared to certain foreign currencies. Incremental sales through the company’s new and existing retail stores are expected to partially offset a portion of the expected decline in wholesale sales. Spring product sales have historically accounted for a minority of the company’s full year business, making it difficult to project full year revenue and profitability levels until April when the company has more visibility into the fall season.

First quarter 2009 gross margins are expected to benefit from an increased mix of higher-margin sales from the company’s owned retail stores and favorable hedged currency rates. The company expects to discuss these projections in greater detail in January 2009 when it reports results for the fourth quarter and full year 2008.

     CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS             
              (In thousands, except per share amounts)                
                             (Unaudited)                              
                                                                      
                      Three Months Ended         Nine Months Ended    
                        September 30,              September 30,    
                    ———————-    ———————-
                       2008         2007         2008         2007    
                    ———    ———    ———    ———  
Net sales          $ 452,415    $ 471,081    $ 962,925    $ 979,281  
Cost of sales        250,362      267,550      544,552      558,477  
                    ———    ———    ———    ———  
   Gross profit       202,053      203,531      418,373      420,804  
                         44.7%        43.2%        43.4%        43.0% 
                                                                      
Selling, general,                                                    
  and administrative                                                  
  expense             120,824      112,197      315,992      281,780  
Net licensing                                                        
  income                1,899        1,256        3,903        3,306  
                    ———    ———    ———    ———  
Income from                                                          
  operations           83,128       92,590      106,284      142,330  
                                                                      
Interest income                                                      
  (expense), net        1,801        2,060        6,390        7,051  
                    ———    ———    ———    ———  
Income before                                                        
  income tax           84,929       94,650      112,674      149,381  
                                                                      
Income tax                                                           
  expense             (26,600)     (32,041)     (36,184)     (50,649) 
                    ———    ———    ———    ———  
Net income         $  58,329    $  62,609    $  76,490    $  98,732  
                    =========    =========    =========    =========  
                                                                      
Net income                                                           
  per share:                                                          
   Basic            $    1.70    $    1.73    $    2.19    $    2.73  
   Diluted          $    1.69    $    1.72    $    2.19    $    2.70