Shares of Columbia Sportswear are trading up about 4 percent in mid-day trading Friday after the company reported third-quarter earnings that topped Wall Street targets, boosted by 29 percent growth at Sorel and 19 percent at the Columbia brand. The company reiterated revenue and earnings targets despite order cancellations due to delayed shipments as well as heightened promotions.

In the quarter ending September 30, sales increased 19 percent, 22 percent constant-currency, to $955.0 million, short of Wall Street’s consensus estimate of $966 million.

By channel, wholesale sales increased 24 percent reflecting earlier shipments of its strong fall 2022 order book. DTC sales grew 8 percent, driven by 9 percent e-commerce growth and 8 percent brick & mortar growth.

Gross margin contracted 270 basis points, largely in line with expectations with the decline largely due to higher inbound expenses. SG&A leverage partially offset gross margin pressure, but the operating margin still contracted 140 basis points.

Net income increased 11 percent to $111.8 million, or $1.80 per diluted share, surpassing Wall Street’s consensus estimate of $1.67.

On a conference call with analysts, Chairman, President and CEO Tim Boyle said results were broadly in line with expectations and “very strong” considering the ongoing economic, geopolitical and supply chain headwinds.

“Looking at the current environment, it’s increasingly evident that the threat of recession is weighing on the market,” said Boyle. “Despite this challenging background, our DTC business was up 8 percent year-over-year in the quarter with balanced growth across brick and mortar and e-commerce.”

He noted that on its second-quarter conference call in late July, Columbia Sportswear slashed its guidance to account for higher order cancellation risk and a more promotional environment. The CEO added, “We experience both these trends in the third quarter and anticipate similar headwinds in the fourth quarter as the marketplace seeks to rationalize inventory levels.”

He also noted that Columbia’s inventories remain elevated, ending the quarter ahead 47 percent. Boyle noted that the company’s inventory includes a high percentage of “evergreen” styles that do not change season to season, reducing exposure to promotional pricing. Columbia’s strong balance sheet enables Columbia to carry over product to the next season and the company also has outlet stores to optimally liquidate excess inventory.

Boyle said, “Overall, I’m confident our strategies are working and that our brand portfolio has tremendous long-term growth potential. With two very important sales months left in the year, we are reiterating our full-year net sales and diluted earnings per share outlook.”

U.S. Sales Increase 19 Percent
In the region, U.S. sales increased by 19 percent. Wholesale growth grew in the mid-20s with the timing of fall 2022 shipments improving versus fall 2021 although still later than historical shipping patterns. The late arrivals led to increased order cancellations.

“Early season sell-through trends reflect healthy demand and are tracking slightly below fall 2021, which you will remember was exceptionally strong,” said Boyle. “Sell-through is well above pre-pandemic levels, reflecting growing consumer interest in our product. Our U.S. DTC business was resilient in the third quarter, despite broader economic headwinds. We generated high-single-digit DTC growth with balanced performance across e-commerce and brick and mortar.”

International results were negatively impacted by foreign exchange rates.

In the LAAP region, sales on a currency-neutral basis increased 24 percent. Despite the ongoing impacts of China’s COVID policy, China was up mid-single-digit percent in the quarter, driven by strong dtc.com performance. Japan increased high-teens, driven by strong consumer demand as state of emergency declarations a year ago were anniversaried. Korea grew low single-digit percent, led by strong DTC performance. LAAP distributor markets were up almost 150 percent due to higher fall 2022 shipments after shipment delays a year ago.

In EMEA, sales increased 54 percent on a currency-neutral basis. Europe direct grew 20 percent despite mounting economic pressures in the region. Strong gains were seen in its DTC e-commerce and wholesale business. EMEA distributor business was up almost 150 percent due to the later shipments of fall 2022 Orders to its Russia-based distributor.

Canada sales were flat with strong DTC performance offset by lower wholesale shipments, which were unfavorably impacted by timing shifts.

Columbia Brand Sales Jump 19 Percent  
By brand, Columbia brand’s 19 percent growth was relatively balanced across apparel and footwear.

“Following the highly successful launch of Omni-Heat Infinity last year, we’re building on this momentum with an expanded collection for fall 2022. This differentiated visible technology remains a top priority from a product and marketing standpoint,” said Boyle.

Columbia’s Omni-Heat Infinity technology received numerous accolades in several top publications this fall. This fall, Columbia introduced Omni Heat Helix, its latest poly fleece technology also featured in a recent Forbes article about a gear test conducted on Alaska’s Spencer Glacier.

In footwear, the Peak Free 2 collection of lightweight technical hiking footwear was recently launched and the Columbia Montreal performance running line received several callouts during the quarter.

Sorel’s Sales Jump 28 Percent
Sorel’s sales grew 28 percent, driven by strong wholesale and DTC e-commerce performance. Sorel’s growth rate in the quarter was aided by the favorable timing of fall shipments compared to the prior year. Boyle said, “The Sorel brand remains laser-focused on bringing our relentless flow of compelling products to its unstoppable consumer.”

During the quarter, growth was led by winter-style categories as well as strong performance in wedge styles. Sorel launched its first partnership with Hypebae, which showcases female leaders within fashion and culture, and also launched the “Powered By Sorel” social campaign, featuring celebrity stylists as their clients prepare for New York Fashion Week and the Emmys.

Last week, Sorel announced that it will be relocating its headquarters to its own building on the Columbia Sportswear campus. Boyle said, “The new location provides additional space with the brand’s growing team and enables Sorel to continue attracting industry best talent.”

Prana Sales Expand 3 Percent
Prana sales increased 3 percent. Boyle said, “The Prana team is focused on repositioning the brand in the marketplace to energize growth in the coming seasons. Early next year, Prana will sponsor the HBO Max reality series, “The Climb,” which will be hosted by Jason Momoa, along with Prana ambassadors, Chris Sharma and Megan Martin. This show will focus on a group of amateur climbers outfitted in Prana, as they ascend some of the most intimidating rock faces in the world.”

Mountain Hardware’s Sales Jump 11 Percent
Mountain Hardware revenues increase 11 percent. Boyle said, “Strong sportswear category sell-through was a highlight in the quarter as well as the introduction of the Summit grid collection, a super packable fleece for lightweight performance on the trail. The Amplify Mountain Hardware’s product-driven resurgence, the team is keenly focused on solidifying the brand’s identity and growing brand awareness.”

Looking ahead, Columbia’s updated outlook for the current year calls for:

  • Sales to increase 10 percent to 12 percent, unchanged, to $3.44 to $3.50 billion, unchanged;
  • Gross margin to contract 250-to-220 basis points, prior to approximately 210-to-180 basis points of contraction, to 49.1 to 49.4 percent, prior 49.5 percent to 49.8 percent;
  • SG&A expenses to increase roughly in line with net sales growth. SG&A expenses as a percent of sales are expected to be 37.4 percent to 37.8 percent, prior to 37.6 percent to 38.0 percent;
  • Operating income is expected to be $410 million to $443 million, prior $415 million to $449 million, resulting in an operating margin of 11.9 percent to 12.7 percent, prior 12.1 percent to 12.8 percent, compared to an operating margin of 14.4 percent in 2021; and
  • Net income is expected to be $315 million to $340 million, unchanged, or between $5.00 to $5.40 a share, unchanged.

For the fourth quarter, sales are expected in the range of $1.14 billion to $1.21 billion, representing net sales growth of 1 percent to 7 percent from $1.13 billion in the comparable period 2021. EPS is expected to be $2.07 to $2.47 compared to $2.39 in the comparable period in 2021.

Looking further ahead, Boyle said Columbia has visibility to fall 2023 orders and planned expenditures. As indicated at its recent Investor Day, the spring 2023 order book supports modest wholesale net sales growth in the first half of 2023.

Said Boyle, “In summary, I’m confident we have the right strategies in place to navigate this dynamic environment and unlock the significant growth opportunities we see across the business. We are investing in our strategic priorities to accelerate profitable growth create iconic products, tie brand engagement, enhanced consumer experiences, amplify marketplace excellence and empower talent that is driven by our core values.”

Photo courtesy Columbia/Sorel