Columbia Sportswear's earnings climbed 13.4% in the fourth quarter to $26.2 million, or 77 cents a share, from $23.1 million, or 68 cents, a year earlier. Sales increased 28% to $457.3 million from $358.3 million a year ago.
Changes in foreign currency exchange rates contributed less than 1% of the sales growth.
Tim Boyle, Columbia's president and chief executive officer, commented, “We finished 2010 with strong momentum in the marketplace as consumers responded favorably to our innovations, driving solid sell-through at our wholesale customers and stronger-than-expected growth in direct-to-consumer sales. Columbia brand net sales grew 22% in the fourth quarter and 18% for the full year, fueled by the launch of Omni-Heat. Omni-Heat products have sold briskly in all key markets, supported by our largest, most comprehensive and most integrated marketing campaign ever. Mountain Hardwear net sales grew 38% in the fourth quarter and 21% in 2010, reflecting double-digit growth in every region and product category. Net sales of the Sorel brand, repositioned as a premium footwear brand that delivers rugged performance for men and fashion-forward styling for women, grew 74% in the fourth quarter and 48% for the year.”
Boyle continued, “In 2011, we intend to build on our momentum with a strong lineup of innovative products across our portfolio of brands. At the same time, we plan to invest in information technology and business process changes necessary to improve our operational capabilities and support long term growth. With input costs increasing faster than at any time in recent memory, we are focused on managing operating costs in order to achieve our objective of improved operating margins.”
Fourth Quarter Results
The sales results were fueled by a 22% increase in Columbia brand net sales to $365.0 million; a 74% increase in Sorel brand net sales to $50.5 million; and a 38% increase in Mountain Hardwear brand net sales to $39.8 million.
Net sales of Outerwear increased 20%, to $205.9 million; Footwear net sales increased 45%, to $102.6 million; Sportswear net sales increased 28%, to $119.3 million; and Accessories & Equipment sales increased 29%, to $29.5 million.
Net sales in the U.S. increased 20%, to $258.5 million; EMEA region net sales grew 53%, to $70.6 million, including a 9 percentage point negative effect from changes in currency exchanges rates; LAAP region net sales increased 32%, to $96.5 million, including a 5 percentage point benefit from changes in currency exchange rates; and net sales in Canada increased $8.0 million, or 34%, to $31.7 million, including a 6 percentage point benefit from changes in currency exchange rates.
The company's fourth quarter results rely heavily on fall weather patterns and the pace of direct-to-consumer sell-through, which can stimulate customer reorders or, conversely, result in cancellations. In addition, the company's direct-to-consumer channels represent a larger part of fourth quarter net sales and operating results than they have historically.
Fiscal 2010 Results
Consolidated net sales increased $239.5 million, or 19%, to a record $1.484 billion, including a 1 percentage point benefit from changes in currency exchange rates.
Net income increased 15% to $77.0 million, or $2.26 per diluted share, compared to net income of $67.0 million, or $1.97 per diluted share, in 2009.
Columbia brand net sales increased $189.9 million, or 18%, to $1.262 billion; Sorel brand net sales increased $29.1 million, or 48%, to $89.7 million; and Mountain Hardwear brand net sales increased $21.4 million, or 21%, to $121.9 million.
Sportswear net sales increased $83.3 million, or 18%, to $555.8 million; Outerwear net sales grew $78.3 million, or 16%, to $560.8 million; Footwear net sales grew $55.6 million, or 26%, to $270.2 million; and Accessories & Equipment net sales grew $22.3 million, or 30%, to $96.7 million. (See “Categorical Net Sales” table below.)
U.S. net sales increased $144.1 million, or 20%, to $881.0 million; LAAP region net sales increased $60.2 million, or 30%, to $263.4 million, including a 7%age point benefit from changes in currency exchange rates; EMEA region net sales increased $25.0 million, or 13%, to $222.4 million, including a 4 percentage point negative effect from changes in currency exchange rates, and Canada net sales increased $10.2 million, or 10%, to $116.7 million, including an 8 percentage point benefit from changes in currency exchange rates.
Balance Sheet
The company ended the year with $303.1 million in cash and short-term investments, compared with $409.4 million at December 31, 2009.
Consolidated inventories increased 41% to $314.3 million at December 31, 2010, compared with $222.2 million at December 31, 2009. This increase was anticipated due to the following factors previously disclosed in October, 2010:
* a larger volume of excess Fall 2010 season inventory designated for sale primarily through the company's retail outlet stores,
* earlier receipt of Spring 2011 inventory compared to Spring 2010,
* increased replenishment inventory, and
* incremental inventory to support increased direct-to-consumer sales.
Preliminary 2011 Financial Outlook
Based on early indications from customers, the company's outlook anticipates achieving operating margin leverage in fiscal 2011 compared with fiscal 2010 through a combination of a low double-digit% increase in net sales, a slight expansion of gross margins and a slight reduction in SG&A expenses as a percentage of net sales.
The company's annual net sales are weighted more heavily toward the fall/winter season, 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. This seasonality is expected to result in operating margin deleverage during the first half of 2011, more than offset by operating margin leverage in the second half of 2011.
The company is currently early in the process of taking advance orders globally from wholesale customers for the Fall 2011 season and, therefore, this preliminary outlook for fiscal 2011 is subject to a higher degree of uncertainty than the company's subsequent quarterly outlook updates following completion of the Fall order-taking process.
For the first quarter of 2011, the company expects a mid- to high-single-digit increase in net sales compared with first quarter 2010, reflecting the previously disclosed 12% increase in Spring 2011 wholesale backlog and increased direct-to-consumer sales, partially offset by lower sales volumes of close-out products and the effect of the timing shift of shipments of U.S. wholesale and international distributors' Spring 2011 orders into the fourth quarter of 2010.
The company expects first quarter 2011 operating margin to approximate first quarter 2010 operating margin of 4.2%, with a 175 basis point expansion of gross margins and increased licensing income offset by up to 250 basis points of SG&A expense expansion as a%age of sales.
All projections related to anticipated future results are forward-looking in nature and are based on existing and anticipated backlog and forecasts, which may change, perhaps significantly.
Dividend
The board of directors approved a first quarter dividend of $0.20 per share, payable on March 3, 2011 to shareholders of record on February 17, 2011.
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||||||||||
| (In thousands, except per share amounts) | |||||||||||||||
| (Unaudited) | |||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2010 | 2009 | 2010 | 2009 | ||||||||||||
| Net sales | $ | 457,259 | $ | 358,316 | $ | 1,483,524 | $ | 1,244,023 | |||||||
| Cost of sales | 266,362 | 207,639 | 854,120 | 719,945 | |||||||||||
| Gross profit | 190,897 | 150,677 | 629,404 | 524,078 | |||||||||||
| 41.7 | % | 42.1 | % | 42.4 | % | 42.1 | % | ||||||||
| Selling, general, and administrative expenses | 156,999 | 126,276 | 534,068 | 444,715 | |||||||||||
| Net licensing income | 3,113 | 3,116 | 7,991 | 8,399 | |||||||||||
| Income from operations | 37,011 | 27,517 | 103,327 | 87,762 | |||||||||||
| Interest income, net | 491 | 289 | 1,564 | 2,088 | |||||||||||
| Income before income tax | 37,502 | 27,806 | 104,891 | 89,850 | |||||||||||
| Income tax expense | (11,294 | ) | (4,720 | ) | (27,854 | ) | (22,829 | ) | |||||||
| Net income | $ | 26,208 | $ | 23,086 | $ | 77,037 | $ | 67,021 | |||||||
| Earnings per share: | |||||||||||||||
| Basic | $ | 0.78 | $ | 0.68 | $ | 2.28 | $ | 1.98 | |||||||
| Diluted | 0.77 | 0.68 | 2.26 | 1.97 | |||||||||||
| Weighted average shares outstanding: | |||||||||||||||
| Basic | 33,657 | 33,759 | 33,725 | 33,846 | |||||||||||
| Diluted | 34,126 | 33,942 | 34,092 | 33,981 | |||||||||||
| COLUMBIA SPORTSWEAR COMPANY | |||||||||||||||||||
| (In millions, except percentage changes) | |||||||||||||||||||
| (Unaudited) | |||||||||||||||||||
| Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||||||
| 2010 | 2009 | % Change | 2010 | 2009 | % Change | ||||||||||||||
| Geographical Net Sales: | |||||||||||||||||||
| United States | $ | ||||||||||||||||||
