Columbia Sportswear Company (Nasdaq:COLM) reported lower sales for the third quarter, saying double-digit growth in direct sales of its Columbia, Prana and Sorel brands in North America and Europe could not offset lower orders from cautious retailers.

“The Columbia, Prana and Sorel brands drove mid-teen percentage growth in our North American direct-to-consumer channel, high-20-percent growth in Europe-direct markets and high-single-digit percentage growth in China, helping to partially offset the negative effects of bankruptcies and cautious inventory management by North American wholesale customers, as well as continued challenges in Russia and Korea,” said Chief Executive Officer Tim Boyle.

The company reported net sales reached $745.7 million for the quarter ended September 30, 2016, a 3-percent decrease compared with net sales of $767.6 million for the third quarter of 2015. Net income totaled $83.6 million, or $1.18 per diluted share, compared to third-quarter 2015 net income of $91.1 million, or $1.28 per diluted share.

The combined effects of a shift in timing of shipments of U.S. wholesale advance orders from the third quarter into the fourth quarter of 2016 compared to the prior year, and the impact of U.S. wholesale customer bankruptcies during 2016, presented a difficult comparison to the third quarter of 2015, when a favorable shift in timing of shipments drove a 26-percent increase in U.S. net sales, a 14-percent increase in consolidated net sales and a 39-percent increase in consolidated net income compared with the third quarter of 2014.

Third-quarter consolidated net sales declined 3 percent, driven by:

  • 6 percent decline in U.S. net sales to $484.8 million, consisting of a low-double-digit percentage net sales decline in the company’s wholesale channels, partially offset by a mid-teen percentage increase in direct-to-consumer channels.
  • 3 percent net sales decline in Canada, to $75.2 million.

These declines were partially offset by:

  • 8 percent net sales growth in the Europe, Middle East and Africa (EMEA) region to $73 million, including high-20-percent growth in the company’s Europe-direct business, partially offset by a low-30-percent decline in net sales to EMEA distributors; and
  • 3 percent net sales growth (1 percent constant-currency) in the Latin America, Asia Pacific (LAAP) region to $112.7 million, consisting of mid-teen percentage growth in Japan (low-single-digit decline constant-currency) and high-single-digit percentage growth in China (mid-teen constant currency), partially offset by a low-20-percent net sales decline in Korea and a high-single-digit percentage decline in net sales to LAAP distributors.

Global Columbia brand net sales decreased 4 percent to $587.3 million compared with the third quarter of 2015. Global Sorel brand net sales increased 2 percent (1 percent constant-currency) to $87.6 million. Global Prana brand net sales increased 11 percent to $38.1 million, and global Mountain Hardwear brand net sales declined 12 percent (13 percent constant-currency) to $30.5 million.

Global Apparel, Accessories & Equipment net sales decreased 4 percent to $574.1 million and Footwear net sales were essentially unchanged at $171.6 million.

Third-quarter income from operations totaled $123.6 million, or 16.6 percent of net sales, compared to $132.3 million, or 17.2 percent of net sales, for the same period in 2015.

The effective income tax rate was 29.7 percent in the third quarter of 2016, compared to 28.9 percent for the same period in 2015.

Third-quarter net income totaled $83.6 million, or $1.18 per share, compared with third-quarter 2015 net income of $91.1 million, or $1.28 per share.

Balance Sheet
Consolidated inventories of $588 million at September 30, 2016 were 8 percent higher than the $546.7 million balance at September 30, 2015, with the increase consisting primarily of current Fall 2016 product.

The company ended the quarter with $219.7 million of cash and short-term investments, compared with $174 million at September 30, 2015. Approximately 82 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.

Updated 2016 Financial Outlook
The company currently expects full-year 2016 net sales growth of approximately 4 percent, including less than 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, while selling, general and administrative (SG&A) expenses are expected to increase slightly faster than net sales. The company continues to expect a full year tax rate of approximately 25 percent.

The forecast is predicated on normal seasonal weather globally. All of the company’s anticipated growth in full-year 2016 operating income and earnings is concentrated in the fourth quarter, and is heavily dependent upon the performance of the U.S. direct-to-consumer channel.

Based on the above assumptions, the company expects operating income to increase up to 4 percent, to between $250 million and $259 million, resulting in anticipated 2016 operating margin of up to 10.7 percent. The company expects net income after non-controlling interest to increase up to 8 percent, to between approximately $180 million and $187.5 million, or approximately $2.55 to $2.65 per diluted share, compared with 2015 net income of $174.3 million, or $2.45 per diluted share. Included in the above 2016 earnings per share outlook is an unfavorable impact of approximately 26 cents, resulting from the strengthening of the U.S. dollar, in addition to an estimated unfavorable impact of 10 cents per share in 2015. This currency impact primarily consists of lower gross margins within many of the company’s foreign subsidiaries as a result of increased local currency costs of inventory purchased in U.S. dollars.

Photo courtesy Columbia Sportswear