Columbia Sportswear reported net earnings dipped 2 percent in the fourth quarter against adjusted year-ago results but still exceeded Wall Street’s consensus target. Revenues expanded 4 percent.
Fourth Quarter 2019 Financial Results
- Net sales increased 4 percent to $954.9 million, from $917.6 million, for the comparable period in 2018. Wall Street expected revenues on average to reach $951.50 million.
- Gross margin declined 160 basis points to 50.1 percent of net sales from 51.7 percent of net sales for the comparable period in 2018.
- SG&A expenses increased 6 percent to $344.4 million, or 36.1 percent of net sales, from $326.3 million, or 35.6 percent of net sales, for the comparable period in 2018. SG&A expenses increased 6 percent from non-GAAP SG&A expenses of $324.6 million, or 35.4 percent of net sales, for the comparable period in 2018.
- Operating income decreased 9 percent to $138.6 million, or 14.5 percent of net sales, from $152.8 million, or 16.6 percent of net sales, for the comparable period in 2018. Operating income decreased 10 percent from non-GAAP operating income of $154.5 million, or 16.8 percent of net sales, for the comparable period in 2018.
- Income tax expense was $26.8 million, resulting in an effective income tax rate of 19.0 percent, compared to income tax expense of $41.0 million, or an effective income tax rate of 26.6 percent, for the comparable period in 2018. Non-GAAP fourth quarter 2018 income tax expense was $39.0 million, which resulted in a non-GAAP effective income tax rate of 25.0 percent.
- Net income increased 1 percent to $114.0 million, or $1.67 per diluted share, from $113.3 million, or $1.63 per diluted share, for the comparable period in 2018. Wall Street’s consensus estimate had been $1.65.
- Net income decreased 2 percent from non-GAAP net income of $116.9 million, or $1.68 per diluted share for the comparable period in 2018. Fourth-quarter 2019 net income includes the benefit of full ownership of its China business, which became a wholly-owned subsidiary effective January 2019. In fourth-quarter 2018, the non-controlling interest share of net income was $0.1 million, or less than $0.01 per diluted share.
Full-Year 2019 Financial Results
- Net sales increased 9 percent (10 percent constant-currency) to $3,042.5 million, from $2,802.3 million in 2018.
- Gross margin expanded 30 basis points to 49.8 percent of net sales, from 49.5 percent of net sales in 2018.
- SG&A expenses increased 8 percent to $1,136.2 million, or 37.3 percent of net sales, from $1,051.2 million, or 37.5 percent of net sales, in 2018. SG&A expenses increased 9 percent from non-GAAP SG&A expenses of $1,039.7 million, or 37.1 percent of net sales, in 2018.
- Operating income increased 13 percent to $395.0 million, or 13.0 percent of net sales, from operating income of $351.0 million, or 12.5 percent of net sales, in 2018. Operating income increased 9 percent from non-GAAP operating income of $362.4 million, or 12.9 percent of net sales, in 2018.
- Income tax expense was $74.9 million, resulting in an effective income tax rate of 18.5 percent, compared to income tax expense of $85.8 million, or an effective income tax rate of 23.8 percent, in 2018. Non-GAAP 2018 income tax expense was $83.4 million, which resulted in a non-GAAP effective income tax rate of 22.4 percent.
- Net income increased 23 percent to $330.5 million, or $4.83 per diluted share, from $268.3 million, or $3.81 per diluted share, in 2018. Net income increased 17 percent from non-GAAP net income of $282.0 million, or $4.01 per diluted share in 2018. 2019 diluted earnings per share include the benefit of full ownership of its China business. In 2018, the non-controlling interest share of net income was $6.7 million, or $0.10 per diluted share.
Chairman, president and chief executive officer, Tim Boyle, commented, “2019 was a record year for Columbia Sportswear Company, with sales surpassing the $3 billion mark for the first time in our company’s history. I’d like to congratulate and thank our employees around the world whose hard work and dedication enable our success. While we celebrate these financial results, 2019 was also a year of remembrance as we lost our ‘One Tough Mother’ Chairman and Matriarch Gert Boyle, whose strength and character guided this company for nearly 50 years. Her mantra ‘It’s Perfect, Now Make it Better’ drives our culture of relentless improvement, and her image and likeness will remain an integral part of our branding.”
“In the fourth quarter, a challenging retail environment, particularly in outerwear, impacted sell-through performance and led to higher levels of promotional activity. In this environment, we delivered results generally in-line with our guidance, including continued exceptional growth for the Sorel brand.
“As we begin 2020, our unique brand portfolio, diversified business model and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to:
- drive brand awareness and sales growth through increased, focused demand creation investments;
- enhance consumer experience and digital capabilities in all our channels and geographies;
- expand and improve global direct-to-consumer operations with supporting processes and systems; and
- invest in our people and optimize our organization across our portfolio of brands.”
“We are making these investments to build on our strengths as a brand-led, consumer-focused organization and to enable sustainable long-term profitable growth.”
Balance Sheet As Of December 31, 2019
- Cash, cash equivalents and short-term investments totaled $687.7 million, compared to $700.6 million at December 31, 2018.
- Inventories increased 16 percent to $606.0 million, compared to $521.8 million on December 31, 2018.
- Share repurchases for the twelve months ended December 31, 2019.
- The company repurchased 1,243,872 shares of common stock for an aggregate of $121.2 million, or an average price per share of $97.46.
Full-Year 2020 Financial Outlook
For 2020, Columbia Sportswear expects:
- Net sales in the range of $3.18 to $3.23 billion, representing 4.5 percent to 6.0 percent growth;
- Gross margin to be up to 50.1 percent, representing approximately 30 bps expansion;
- SG&A percent of net sales to range between 37.7 percent to 37.8 percent, representing 40 bps to 50 bps deleverage;
- Operating margin to range between 12.6 percent to 12.8 percent, representing 20 bps to 40 bps decline;
- Operating income to range between $399 to $412 million;
- Effective income tax rate of approximately 20 percent;
- Net income between $325 to $335 million; and
- Diluted earnings per share between $4.75 to $4.90.
Columbia Sportswear said its 2020 Financial Outlook is predicated on certain assumptions including, but not limited to, normal seasonal weather globally and that current macroeconomic, geopolitical and market conditions in key markets do not worsen. Projections do not include the potential financial impact of the coronavirus outbreak, the effect of which is unable to be predicted with any degree of certainty.
With respect to the coronavirus outbreak, Columbia’s first priority has been to take appropriate measures to ensure the health and safety of its employees and customers in the evolving environment. As a result, Columbia Sportswear said it had closed stores in China, implemented strategies designed to mitigate the impact on its employees in China and put in place company-wide travel limitations. The potential impacts of the outbreak are broad-reaching including impacts to its direct-to-consumer and wholesale businesses. Columbia Sportswear said it is already experiencing lower store traffic at stores that remain open in China and stores outside of China that benefit from Chinese tourism. In addition, there are potential operational impacts across its supply chain.
Photo courtesy Columbia corporate