Columbia Sportswear Company, home of the Columbia, Sorel, Mountain Hardwear and Prana brands, saw second quarter results “generally in line with guidance” as the company worked to maximize sales in a challenging U.S. marketplace that was characterized by slow consumer demand and cautious retailers while the company saw strong demand in most international markets, including China and the Europe-direct business.

Second quarter is historically the company’s lowest volume sales quarter of the year and small shifts in the timing of shipments and expenses can have a material impact on reported results, cautioned company Chairman, President and CEO Tim Boyle on a conference call with analyst.

Consolidated net sales decreased 8 percent, or 7 percent constant-currency (CC), to $570.2 million from $620.9 million for the comparable period in 2023. The decline in net sales was said to primarily reflect lower wholesale net sales in the U.S. due to retailer cautiousness, a difficult competitive environment, and generally soft consumer demand. Results were said to be within the company’s guidance range.

“As we begin the second half of the year, our fall ’24 order book supports sequential improvement in wholesale sales with the potential for overall sales to return to growth by the fourth quarter,” Boyle suggested.

Geographic Review

U.S. region net sales reportedly decreased 15 percent to $340.2 million, said to be primarily driven by a high 20 percent decrease in U.S. wholesale.

“The combination of lower spring ’24 shipments and ongoing retailer cautiousness impacted results,” Boyle detailed. “While wholesale sell-through was trending down mid-single digit percent, in part due to lower shipments, Columbia brand channel inventories are well below prior seasons. We’re well positioned to exit the season with lean channel inventories.”

U.S. direct-to-consumer (DTC) net sales decreased in the low-single-digits range. Brick & mortar was said to be up in mid single digits for the quarter, driven by the contribution from temporary clearance locations and new permanent stores opened over the last year. U.S. e-commerce net sales were down in the high-teens.

“A challenging e-commerce environment for traditional outdoor brands, coupled with efforts to deemphasize promotions on columbia.com weighed on performance,” Boyle said. “As we have said on past calls, our goal is to establish columbia.com as the best expression of the brand, ensuring that visitors to the site see our latest products and innovations with enriched brand storytelling.”

From our review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency rates to illustrate underlying trends in each market.

Latin America Asia Pacific (LAAP) region net sales increased 13 percent CC year-over-year to $99.5 million.

  • China net sales increased in the mid-teens, said to be led by “robust e-commerce growth.” Boyle said highlights in the quarter include a successful 618 event in China and continued growth with TikTok, which remains one of the company’s fastest growing platforms.
    • “While e-commerce performance is leading, we are seeing strong performance in wholesale and DTC brick and mortar,” the CEO noted. “Overall, the China marketplace is healthy, which is translating to increased store productivity, lower discounting and leaner inventory levels. Our success in this competitive market is fueled by a localized product and marketing investments rooted in our brands deep heritage and innovation. Our brand activations in the quarter highlight the team’s focus on cultural relevance and consumer connections.”
  • Japan net sales increased the high single digits for the quarter, with the continued increase in international tourism more than offsetting softer domestic spending, according to Boyle.
  • Korea net sales declined in the low teens for Q2.
  • LAAP distributor markets were up in high 30s, “primarily reflecting earlier shipments of increased fall ’24 orders.”

Europe, Middle East and Africa (EMEA) region net sales increased 3 percent CC year-over-year to $103.9 million.

  • Europe-direct net sales increased in the low double digits, led by robust DTC growth.
    • “I recently had the opportunity to visit Europe, and meet with several leaders of our largest customers. It’s clear that we have a tremendous opportunity to build bigger businesses with these strategic partners,” Boyle shared.
    • “Our teams in Europe are doing an exceptional job creating Columbia brand visibility and relevance in the marketplace,” he continued. “This summer, our brand efforts focused on generating momentum in the hike category through a variety of marketing efforts and grassroots events. From our Get Hiked marketing campaign to the Columbia Hike Society and an exclusive partnership with Megamarsch, we are strengthening Columbia’s presence in this important geography.”
    • Boyle said the Europe-direct business remains on track to be one of the company’s fastest-growing markets this year.
  • The EMEA distributor business decreased in low single digits for the quarter.

Canada net sales decreased 4 percent CC year-over-year to $26.6 million as lower wholesale sales were partially offset by DTC growth. Boyle said Columbia remains “well positioned in Canada with high brand awareness and consumer trust.”

Brand Review

Columbia brand net sales decreased 5 percent (-4 percent CC) to $508.6 million in the second quarter, said to primarily reflect a challenging U.S. marketplace, partially offset by healthy trends in many international markets.

“For Columbia, we’re building strategy to bring new consumers into the brand through enhancing our product line and marketing,” Boyle noted.

“At the end of June, we launched our revamped U.S. Columbia Greater Rewards loyalty program with several exciting new features aimed at enhancing consumer benefits and engagement,” he offered. “Members now enjoy new rewards personalized offers tailored to their preferences and the ability to earn points on purchases. Spending over $300 annually earns members are newly launched titanium status which includes additional perks like early access to exclusive events and products.”

Boyle said that Columbia Greater Rewards program members already represent the majority of U.S. DTC sales with over 5 million active users who have made a purchase in the last year.

Mountain Hardwear net sales amounted to $18.8 million in Q2, increasing 2 percent in reported terms, or 3 percent in CC terms. DTC growth was said to be partially offset by lower Wholesale net sales.

“During the quarter, Mountain Hardwear activated its “Be Sun Wise” marketing campaign (watch the video here), which highlights key sun protective products and their benefits,” Boyle shared. “By partnering with online sports community Strava and leveraging content from athletes, influencers and media outlets, Mountain Hard Wear was able to increase visibility and bring new consumers into the brand.”

Mountain Hardwear reportedly has several brand and product activations in the second half of the year that validate its position as a premier outdoor apparel and equipment brand, including the expansion of the Ghost Whisperer collection and reigniting the brand’s snow sports offering.

Prana net sales fell 21 percent to $21.8 million in the quarter, reportedly with declines across Wholesale and DTC.

“I’m confident that Prana’s new leadership team has strengthened the brand’s talent, product and marketing strategies,” Boyle noted. “While it’s not evident in second quarter results, Prana’s revitalization is apparent in future season orders, which suggests a return to growth.”

Sorel brand net sales sank 44 percent to $21.0 million in what is historically the brand’s smallest quarter, representing 10 percent of annual sales. The brand reportedly saw “challenging demand” for spring ’24 products across wholesale and DTC, according to Boyle’s comments.

“New leadership is focused on stabilizing business trends while revitalizing the brand to drive long-term sustainable growth. This evolution will take time, but I remain confident in Sorel’s future,” he offered.

Income Statement Review
Second quarter consolidated gross margin contracted 270 basis points to 47.9 percent of net sales from 50.6 percent of net sales in Q2 2023. Gross margin contraction was said to primarily reflect the impact of efforts to spur demand and reduce inventory in the U.S., as well as changes in sales provisions, partially offset by lower inbound freight costs.

Boyle said GM was slightly below plan as they “made efforts to spur demand and reduce inventory in the U.S.”

SG&A expenses were $302.7 million, or 53.1 percent of net sales, compared to $312.5 million, or 50.3 percent of net sales, for the comparable period in 2023. The largest changes in SG&A expenses reportedly primarily reflect lower supply chain and variable demand creation expenses, partially offset by higher direct-to-consumer (DTC) expenses.

“SG&A was below plan in the quarter, resulting in our operating loss coming in slightly better than the guidance range,” Boyle noted.

The loss from operations was $23.8 million, or negative 4.2 percent of net sales, compared to operating income of $6.2 million, or 1.0 percent of net sales, for the comparable period in 2023.

Interest income, net of $8.3 million, compared to $3.5 million for the comparable period in 2023, reflects higher yields on increased levels of cash, cash equivalents, and investments.

Income tax benefit of $3.2 million resulted in an effective income tax rate of 21.6 percent, compared to income tax expense of $1.2 million, or an effective income tax rate of 12.6 percent, for the comparable period in 2023.

The second quarter net loss amounted to $11.8 million, or a loss of 20 cents per diluted share, compared to net income of $8.4 million, or 14 cents per diluted share, for the comparable period in 2023.

Balance Sheet and Cash Management
“Our fortress balance sheet remains a competitive advantage and enables us to take a thoughtful approach to unlocking the long-term growth and profit improvement opportunities we see across the business,” Boyle emphasized to the conference call participants.

“Through the first half of the year, we’ve made meaningful progress on our top line priorities,” shared Boyle. “Inventory exit in the quarter was down 29 percent year-over-year, reflecting substantial progress in our inventory reduction efforts.”

He also said the Profit Improvement Program is on track to deliver between $75 million and $90 million in cost savings this year.

“We’re reducing expenses associated with carrying excess inventory and driving cost reductions in focused areas of the business.”

  • Inventories decreased 29 percent to $823.6 million, compared to $1.16 billion as of June 30, 2023.
  • Cash, cash equivalents, and short-term investments totaled $711.1 million, compared to $302.8 million as of June 30, 2023.
  • The company had no borrowings as of either June 30, 2024 or June 30, 2023.
  • Net cash provided by operating activities for the six months ended June 30 was $108.9 million, compared to $9.7 million for the comparable period in 2023, “enabling meaningful return of capital to shareholders.”
  • Capital expenditures totaled $27.8 million for the six months ended June 30, compared to $22.8 million for the same period in 2023.

“We’re on track to generate over $350 million in operating cash flow this year,” Boyle said. “With much of the cost containment and inventory reduction actions well underway, our focus is on returning to growth.”

Share Repurchase Program
For the six months ended June 30, the company repurchased 1,414,437 shares of common stock for an aggregate of $110.7 million, or an average price per share of $78.29.

At June 30, 2024, $234.6 million remained available under Columbia’s stock repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

Quarterly Cash Dividend
The Board of Directors approved a regular quarterly cash dividend of 30 cents per share, payable on August 29, 2024 to shareholders of record on August 15, 2024.

Outlook
“Given our year-to-date performance and our current trends that we see across the business, we are reiterating our full year net sales and diluted earnings per share guidance,” Boyle said. “Overall, we remain confident that our fortress balance sheet, differentiated brand portfolio and strategies position us to reaccelerate growth and capture market share over time.”

Boyle said there are many external risks and uncertainties when looking across the global marketplace.

“Outdoor industry and U.S. consumer headwinds, geopolitical conflicts, supply chain disruptions and upcoming elections in many of our major markets,” he added. “These factors among others have the potential to impact consumer demand and our operations. We continue to monitor disruptions in the Red Sea. At this time, delays appear manageable and the vast majority of our product line is expected to be delivered on time and in full. We have also seen a spike in spot pricing for ocean freight in recent months. We utilize contracted pricing for the bulk of our ocean freight which minimizes our exposure to spot pricing. With that said, we have noted an increase in peak season surcharges and our guidance incorporates our best estimate of the impact of these supply chain risks for the balance of the year.”

Boyle reiterated the company’s net sales guidance for a 2 percent to 4 percent decline for the year.

“While there are modest changes across our portfolio, our overall sales expectations have not meaningful change,” he said.

Gross margin is now expected to expand 40 basis points to 60 basis points to an updated range of 50 percent to 50.2 percent.

“This is below our prior guidance reflecting efforts to spur demand and opportunistically work down inventory levels,” Boyle noted.

He said SG&A is expected to be between 42 percent to 43 percent of net sales for the year, leading to an operating margin of 7.7 percent to 8.4 percent.

“We are reiterating our diluted earnings per share outlook of $3.65 to $4.05,” he committed.

COLM continues to expect strong operating cash flows of at least $350 million for the year.

“While it’s too early to comment on 2025 growth prospects I’d like to share that early indications from our spring ’25 Wholesale order book suggests a return to growth in our Wholesale business in the first half of ’25. Looking beyond spring ’25, we’re encouraged with the sharpened strategic focus and growth plans for each of our brands,” Boyle said.

“For Columbia, we’re focused on bringing younger active consumers into the brand through an enhanced product line that further emphasizes innovation, performance and style,” he shared. “We also see the opportunity to elevate the brand’s presentation across channels. We know that when we target the right consumers with our innovative products we win in the marketplace. In summary, I’m confident we have the right strategies in place to unlock the significant growth opportunities we see across the business.”

He said the company is investing in its strategic priorities to accelerate profitable growth, create iconic products that are differentiated, functional and innovative, drive brand engagement with increased focused demand creation and investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that’s digitally led, omni-channel and global and empower talent that’s driven by one of our core values.

Image courtesy Mountain Hardwear