Columbia Sportswear Companys net sales increased 5 percent in the quarter to set a first quarter record as cold weather helped it clear winter inventory, but the company expects sales to decline for the fully years as North American dealers trim pre-season orders for the coming winter and the dollar appreciates against other currencies.


Net sales reached $348.3 million in the quarter ended March 31, compared with $333.1 million for the same period of 2012. Changes in foreign currency exchange rates negatively affected first quarter consolidated net sales comparisons by less than one percent.


In the United States, net sales increased 4 percent to $200.5 million. Net sales grew 8 percent to $83.1 million in Latin America and Asia Pacific (LAAP) region, including a 5 percentage point negative effect from changes in currency exchange rates. In the Europe, Middle East, and Africa (EMEA) region, net sales increased 7 percent to $40.9 million, including a 1 percentage point benefit from changes in currency exchange rates. Net sales decreased 6 percent to $23.8 million in Canada, including a 1 percentage point benefit from changes in currency exchange rates.


Nets sales of apparel, accessories and equipment increased $10.0 million, or 4 percent, to $294.3 million, while net sales of Footwear increased $5.2 million, or 11 percent, to $54.0 million. First quarter Columbia brand net sales increased $8.0 million, or 3 percent, to $301.1 million. Sorel brand net sales increased $6.0 million, or 94 percent, to $12.4 million. Mountain Hardwear net sales increased $1.4 million, or 5 percent, to $32.1 million.


Gross margin declined 40 basis points to 44 percent. Selling, general and administrative expenses declined 1.1 percent to $142.9 million, or 41.0 percent of revenues, down from 43.4 percent a year earlier. Operating margins reached 3.65 percent, up 204 basis points from a year earlier. Net income increased 159 percent to $10.1 million, or 29 cents per diluted share, including restructuring charges of approximately $2.0 million, or 6 cents per diluted share, net of tax, compared with net income of $3.9 million, or 11 cents per diluted share, for the same period of 2012, which also included restructuring charges of approximately $2.8 million, or 8 cents per diluted share, net of tax.
 
The company ended the quarter with consolidated inventories of $325.2 million, down 11.2 percent from March 31, 2012, reflecting approximately 5 percent fewer units and a reduced mix of Fall season product.


During the first quarter, cold weather in North America helped us liquidate additional Fall season inventory, primarily through our direct-to-consumer channels, putting our inventory levels in better shape than last year at this time, said Tim Boyle, Columbias president and chief executive officer. “Cold weather also helped our wholesale customers liquidate more of their Fall 2012 inventory.


While cold first quarter weather did help North American dealers clear inventory, it did not cause them to bump up their cautious advance orders for Fall 2013 product.


There’s no question that our [North American] customers, for the most part, are suggesting that they are going to be declining their outerwear open-to-buys, weather-sensitive product open-to-buys, by 10 percent to 15 percent for fall 13, with the expectation that they will be able to chase the business if the weather arrives, Boyle said.


Boyle also said doing business with JCPenney will be more challenging for the foreseeable future.


Accordingly, COLM is forecasting a slight net sales decline in 2013 compared to 2012, as a low single-digit net sales increase in constant dollars is more than offset by the negative effect of anticipated changes in foreign currency exchange rates.


COLM expects the wholesale portion of its North American and European direct business to contract and be partially offset by continued growth in its North American direct-to-consumer business, and its EMEA distributor business, led by Russia, where last winter was especially cold. Declines are expected to occur in the Latin America/Asia Pacific region, following two years of rapid growth, driven by decline in Japan, resulting primarily from a significantly weaker yen, the effects of transitioning to a joint venture in China, and the transition to a new distributor in Australia. Sales in China, where Columbia owns 80 stores, rose 20 to more than $150 million in 2012 and are generating double-digit EBIDTA. 



2013 sales of Columbia and Mountain Hardwear products are expected to be flat, while Sorel is expected to decline modestly. In the second quarter, net sales are expected to decline approximately 4 to 6 percent compared with second quarter 2012, primarily reflecting lower wholesale net sales, partially offset by increased direct-to-consumer sales.


Full year 2013 gross margin is expected to be comparable to 2012, including the effect of deferring approximately $3.0 million of gross profit into 2014 to prepare for the Jan. 1, 2014 launch of a joint venture in China, where the company has been working through a distributor for 10 years.


General and administrative expenses are expected to increase approximately 3 percent, including approximately $3.7 million in pre-operating expenses related to the China joint venture and pre-tax restructuring charges of approximately $4.1 million related to terminating employees in Europe and closing its store in Munich. The company recently dispatched long time employee to right-size its European business, but long term success will require developing merchandise specifically for Europeans, said Boyle.


COLM now expects 2013 operating margin of approximately 6.6 percent. Excluding charges related to the changes in Chin and Europe, full year 2013 operating margin is expected to be approximately 7.5 percent.


Now that weve concluded the SG&A reductions we felt were appropriate, the focus for the management team here has been on drawing the business from the top line, said Tom Cusci, SVP and CFO. We dont have much to show for it now, but that is where we are focusing our time and effort. At the end of the day, that is going to reflect much better on the business than further cost cutting.