Inside the Call: Columbia Doubles Q2 U.S. Sales On Stronger Brick & Mortar; Raises Full-Year Guidance

Columbia Sportswear rode better-than-planned performance in its U.S. Wholesale and direct-to-consumer (DTC) brick and mortar businesses to fuel strong net sales growth that exceeded expectations and eclipsed the company’s pre-pandemic 2019 first-half results. The strong performance led the company to raise guidance for the year.

“It’s important to highlight that even as consumers return to in-store shopping, our e-commerce business also remained strong,” shared company Chairman, President and CEO Tim Boyle on a conference call with analysts. “Measuring second-quarter 2021 financial performance versus second-quarter 2019 results, which were not impacted by the pandemic, is a useful measure of our business recovery trend line. Globally, net sales were 8 percent above 2019 levels in the second quarter with all four brands surpassing pre-pandemic levels.” Boyle went on to report that Q2 net sales in the company’s U.S. DTC brick and mortar business slightly exceeded 2019 levels while U.S. DTC e-commerce sales increased over 80 percent.

“It’s clear that our brand portfolio is resonating with consumers, and we are well-positioned to benefit from current consumer and outdoor trends,” Boyle continued. “Columbia’s value proposition and differentiated innovation positions the brand to capitalize on the increasing popularity of outdoor activities.”

Overall Columbia Sportswear’s second-quarter net sales increased 79 percent to $566.4 million, driven by 89 percent growth in the company’s wholesale business and 69 percent growth in its DTC business. Wholesale growth was reportedly led by the U.S., and was primarily driven by later timing of Spring 2021 shipments, compared to Spring 2020 and higher Spring 2021 sales. Boyle said that while shipments were delayed several weeks on average, order cancellations were minimal. Wall Street’s consensus estimate had been $500.33 million in net sales for the quarter.

“In this inventory-constrained environment, retailers remain eager to get product as it arrives,” explained Boyle. “Globally, DTC brick and mortar net sales grew 149 percent and, as we lapped prior-year temporary store closures sales in this channel, significantly exceeded our expectations as store traffic levels and sales improved faster than anticipated.” Boyle did say store traffic continued to remain below pre-pandemic levels. “Overall, our spring sell-through has been exceptional,” he said.

DTC’s e-commerce net sales grew 5 percent in Q2 and represented 16 percent of its total sales mix. “These results were in line with our expectation as we lapped the prior year’s surge in e-commerce sales,” said Boyle.

Regional Performance
Overall U.S. net sales increased 107 percent reflecting low-140 percent growth in the company’s Wholesale business and mid-80 percent growth in its DTC business. Boyle pointed to the robust economic recovery, improving vaccination rates and strong consumer demand for outdoor products that created an “excellent retail backdrop” during the quarter. He said Spring 2021 season-to-date sell-through rates have been “exceptional,” driving double-digit sell-through growth compared to Spring 2019 on lower retail inventory stock levels.

The company’s U.S. DTC brick and mortar business saw Q2 net sales increase in the mid-250 percent range year-over-year as it anniversaries temporary store closures. Same-store sales and traffic trends reportedly recovered “much faster than expected.”  Boyle said it even saw a “meaningful improvement” in stores that historically relied on international tourism business despite the continued COVID-19 restrictions on travel.

U.S. DTC e-commerce net sales increased in low-single-digits percent in the second quarter. Boyle said the results were “in line with our plan with significantly less promotional activity compared to the prior year.”

On the International business front, Boyle shared that many regions continued to struggle with the vaccination rollout, and the company experienced sporadic lockdowns and temporary store closures at various points throughout the quarter in several markets, including Japan, China, Europe, Canada, and distributor markets.

Latin America and the Asia Pacific (LAAP) region net sales increased 11 percent in the second quarter. Across Asia, performance was said to be mixed. China net sales were reportedly down in the low-single-digits, primarily reflecting “lower wholesale sales resulting from earlier timing of Spring 2021 shipments, which shifted to the first quarter.” China DTC net sales were said to be “up year-over-year, led by e-commerce growth.”

“China represents one of our largest geographic growth opportunities, and we know that e-commerce will be an integral part of unlocking Columbia’s full potential in this important market,” Boyle shared. “Our management team is hyper-focused on enhancing our digital capabilities, strengthening strategic partnerships and developing talent to drive growth and enhance the consumer experience.”

Overall net sales in China increased in the low-30 percent in the first half, and Boyle said he anticipates full-year net sales to approach 2019 levels. Korea net sales decreased mid-teens percent as it anniversaried growth in the prior year that was aided by “government stimulus which boosted retail consumption.”

Japan net sales increased in the mid-50 percent range as the company anniversaried prior-year pandemic-related disruptions, which were said to be more impactful than the state of emergency declarations in various regions throughout the second quarter of 2021. LAAP distributor markets were reportedly up high-30 percent as COLM anniversaries prior-year pandemic-related order cancellations. Europe, the Middle East and Africa (EMEA) region net sales increased 46 percent in the second quarter. Europe DTC net sales increased in the mid-30 percent range driven by “higher Spring 2021 sales and later shipments of Spring 2021 orders.”

Company EMEA distributor net sales increased in the mid-50 percent range as Columbia anniversaried prior-year pandemic-related order cancellations and earlier delivery of Fall 2021 product compared to Fall 2020.

Canada net sales increased 140 percent in the second quarter primarily driven by later shipments of Spring 2021 orders and higher Spring 2021 sales.

Brand Performance
Global Columbia brand net sales increased 79 percent in the second quarter.

“Despite the delays in shipments, the sell-through of our Spring 2021 product line has been fantastic,” said Boyle. He said top-performing categories included headwear, footwear and fleece with strength in PFG products. “It’s important to note that these high sell-through rates were achieved with strong full-price selling resulting in favorable product margins.”

Sorel net sales increased 71 percent in the second quarter, with “strong wholesale growth led by exceptional sneaker and sandals performance.” Boyle said strong sell-through velocity and full-price selling reflected consumer excitement around Sorel’s gold spring/summer styles. The Kinetic sandal, shown above, was said to be the top-selling style on Sorel.com.

Prana net sales increased 43 percent in the quarter, led by wholesale growth. Boyle said they were “encouraged” by sell-through rates and full-price selling.

Mountain Hardwear’s net sales increased 95 percent in the quarter with strong wholesale and DTC performance. Boyle said Spring product sell-through was “excellent,” driven by especially strong sportswear and equipment demand. He said its Fall 2021 order book reflects “continued strength in the business.”

It was interesting to note that Boyle announced the retirement of Prana president Russ Hopcus and the decision by Mountain Hardwear president Joe Vernachio to pursue another opportunity. The company is conducting searches to fill both positions.

Profitability
Columbia Sportswear reported that gross margin expanded 540 basis points to 51.6 percent of net sales in the second quarter. Boyle said the company benefited from lower DTC promotional activity and favorable wholesale product margins and decreased inventory reserve provisions relative to elevated levels last year. This was said to be partially offset by an unfavorable channel sales mix. SG&A expense increased 20 percent, primarily reflecting the variable component with increased sales volume, resulting in operating income of $35.0 million, or 6.2 percent of net sales, compared to an operating loss of $70.3 million in the year-ago quarter.

COLM generated operating income of $35.0 million, or 6.2 percent of net sales, in Q2, compared to a Q2 2020 operating loss of $70.3 million, or (22.2) percent of net sales.

Second-quarter diluted earnings per share reached 61 cents, compared to a net loss per share of 77 cents in second-quarter 2020. Wall Street’s consensus estimate reportedly reflected a loss of 12 cents.

2021 Outlook
COLM raised its financial outlook for 2021, with net sales growth in the 25.0 to 26.5 percent range and diluted EPS of $4.30 to $4.55 per share.

“This outlook includes our current view of the impact from supply chain disruptions, which are impacting Fall 2021 production and deliveries,” explained Boyle. “Furthermore, in our revised outlook, we’re assuming approximately $40 million of incremental ocean freight costs not contemplated in our prior outlook as we emphasize supply chain continuity and market share gains over costs.”

Photo courtesy Columbia Sportswear/Sorel