Columbia Sportswear Company reported record net sales of $767.6 million for the quarter ended Sept. 30, an increase of 14 percent, or 18 percent constant-currency (c-n), compared with net sales of $675.3 million for the same period in 2014. This growth included double-digit net sales increases from each of the company’s brands, 25 percent growth in North America and high-teen constant-currency percentage growth in Europe-direct markets.
Net sales through the first nine months of 2015 increased 14 percent (19 percent constant-currency), to a record $1,626.8 million.
Third quarter operating income increased 35 percent to a record $132.3 million, or 17.2 percent of net sales, and net income grew 39 percent to a record $91.1 million, or $1.28 per diluted share.
Operating income through the first nine months of 2015 increased 43 percent to $167.4 million, compared with operating income of $116.7 million for the same period last year.
Net income through the first nine months of 2015, including incremental profit from the Prana brand, increased 36 percent to a record $111.0 million, or $1.56 per diluted share, compared to net income of $81.6 million, or $1.15 per diluted share for the comparable 2014 period.
Net income for the first nine months of 2015 included a non-recurring tax benefit of $6.3 million, or $0.09 per diluted share. Net income for the comparable period of 2014 included a non-recurring tax benefit of $5.6 million, or $0.08 per diluted share, and acquisition costs totaling approximately $2.1 million net of tax, or $(0.03) per diluted share, related to the acquisition of Prana Living, LLC.
“During the third quarter, the Columbia, Sorel and Prana brands combined to generate 26 percent net sales growth across North America,” said Tim Boyle, Columbia’s chief executive officer. “Better supply chain execution resulted in more timely delivery of wholesale customers’ Fall advance orders, which has enabled them to benefit from increased sell-through volumes thus far in the season. The Columbia brand also continued to demonstrate its resurgence in Europe-direct markets, posting mid-twenty-percent constant-currency growth in that important region during the quarter.
“On October 9 we launched the largest integrated global marketing campaign in the Columbia brand’s history. The “Tested Tough” brand platform is a global initiative designed to strengthen emotional connections with consumers and drive sell-through in key markets. Our expanded gross margins are enabling us to increase our demand creation investments by 13 percent this year, while driving significantly improved operating margins.
“Our record third quarter and year-to-date results illustrate the increasing earnings power of our brand portfolio. We believe we are only beginning to unlock the long-term potential of our portfolio of brands,” Boyle concluded.
Third Quarter Results
(All comparisons are between third quarter 2015 and third quarter 2014, unless otherwise noted.)
Third quarter consolidated net sales growth of $92.3 million, or 14 percent, (18 percent constant-currency) included:
- U.S. net sales growth of 26 percent, reflecting growth from each of the company’s brands, led by Columbia and Sorel, including the effects of more timely delivery of increased Fall 2015 wholesale advance orders, compared with shipments of Fall 2014 advance orders; and
- Net sales growth of 16 percent in Canada (39 percent constant-currency), led by the Sorel and Columbia brands;
partially offset by:
- An 11 percent net sales decline (5 percent constant-currency) in the Latin America/Asia Pacific (LAAP) region, concentrated in the Columbia brand in the company’s Asian markets; and
- A 14 percent net sales decline (3 percent constant-currency) in the Europe/Middle East/Africa (EMEA) region, where high-teen constant-currency net sales growth in the company’s Europe-direct business, concentrated in the Columbia brand, was more than offset by a net sales decline of more than 30 percent to EMEA distributors, primarily related to Russia.
Global Columbia brand net sales increased 10 percent (14 percent constant-currency) to $609.7 million. Global Sorel brand net sales increased 48 percent (59 percent constant-currency) to $86.2 million. Global Prana brand net sales increased 22 percent (22 percent constant-currency) to $34.4 million, and global Mountain Hardwear brand net sales increased 12 percent (17 percent constant-currency) to $34.8 million.
Global Apparel, Accessories & Equipment net sales increased 9 percent (12 percent constant-currency) to $596.1 million, and Footwear net sales increased 36 percent (46 percent constant-currency) to $171.5 million. Third quarter gross margins expanded 100 basis points to 46.4 percent, compared to 45.4 percent for the third quarter of 2014.
Third quarter income from operations increased 35 percent to $132.3 million, or 17.2 percent of net sales, compared with $98.3 million, or 14.6 percent of net sales, for the same period in 2014.
The effective income tax rate for the third quarter was 28.9%, compared to 31.3%, for the comparable period in 2014. The lower tax rate reflected a non-recurring $6.3 million tax benefit related to a decrease in the valuation allowance associated with net operating losses in certain international tax jurisdictions, partially offset by the effects of generating a higher proportion of pre-tax income in the United States, where tax rates are generally higher than in international tax jurisdictions.
Third quarter net income increased 39 percent, to a record $91.1 million, or $1.28 per diluted share, compared with net income of $65.6 million, or $0.93 per diluted share, for the same period in 2014.
Balance Sheet and Cash Flow
The company ended the third quarter with $174.0 million in cash and short-term investments, compared to $185.8 million at Sept. 30, 2014. Approximately 86 percent of cash and short-term investments were held in foreign jurisdictions where a repatriation of those funds to the United States would likely result in a significant tax cost to the company.
Consolidated inventory totaled $546.7 million at Sept. 30, approximately 10 percent higher than the $494.8 million balance at Sept. 30, 2014.
Upward-Revised 2015 Financial Outlook
All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ, perhaps materially. The company’s annual net sales are weighted more heavily toward the second half of the fiscal year, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the fiscal year.
The company expects 2015 net sales growth of approximately 10.5 percent (14.5 percent constant-currency) to more than $2.3 billion, compared to 2014 net sales of $2.1 billion.
The company expects fiscal year 2015 gross margins to improve by approximately 75 basis points and also expects approximately 30 basis points of operating expense leverage, resulting in projected operating margin expansion of approximately 90 to 100 basis points.
Based on the above assumptions, the company expects:
- approximately 20 percent to 23 percent growth in operating income to between approximately $239 million and $244 million, representing operating margin of approximately 10.4 percent to 10.5 percent, compared with operating income of $198.8 million and operating margin of 9.5 percent in 2014;
- an effective income tax rate of approximately 28.0 percent; and
- net income after non-controlling interest of approximately $165 million to $169 million, or approximately $2.32 to $2.37 per diluted share, an increase of approximately 20 percent to 23 percent compared with net income of $137.2 million, or $1.94 per diluted share, in 2014.
The above full year outlook includes an estimated unfavorable impact of approximately $0.14 per diluted share from the stronger U.S. dollar, resulting primarily from lower gross margins within our foreign subsidiaries as a result of increased costs of inventory, net losses incurred on the revaluation of foreign-currency denominated assets and liabilities and on the settlement of foreign-currency denominated intercompany transactions and, to a lesser degree, the translation of net income.
| COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) |
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| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Net sales | $ | 767,550 | $ | 675,296 | $ | 1,626,766 | $ | 1,423,626 | ||||||||
| Cost of sales | 411,090 | 368,515 | 870,214 | 775,734 | ||||||||||||
| Gross profit | 356,460 | 306,781 | 756,552 | 647,892 | ||||||||||||
| 46.4 | % | |||||||||||||||
