Columbia Sportswear Company reported net sales came in flat in the fourth quarter and that growth will remain at or below 1 percent for the full year as dealers recover from with the warmest winter in decades and cope with slowing growth in Europe. The company said its largest U.S. sporting goods and specialty dealers have cut their open-to-buy budgets for the upcoming Fall/Winter season by 10 to 20 percent, but that it expects its wholesale business for the year to come in about flat because it is gaining market share.
“As expected, our first quarter results and 2012 outlook reflect muted sales growth due to the lingering effects of the warm winter globally and continued economic weakness across Europe,” said Tim Boyle, Columbia’s president and chief executive officer. “During the quarter, we implemented difficult but necessary cost containment measures designed to maintain our profitability while we work to liquidate excess inventory levels.
First quarter apparel, accessories and equipment net sales increased 2 percent to $284.3 million. Footwear net sales decreased 10 percent to $48.8 million as the warm weather took a toll on Sorel’s boot sales, particularly in Europe. First quarter Columbia brand net sales increased $5.0 million, or 2 percent, to $293.1 million, offset by a $3.9 million, or 38 percent, decline in Sorel net sales to $6.4 million, and a $1.0 million, or 3 percent, decline in Mountain Hardwear net sales to $30.7 million. Sorel’s sales had grown 68 percent in the year earlier quarter.
In the United States, net sales reached $193.0 million, or essentially unchanged from first quarter 2011. Latin America and Asia Pacific (LAAP) region net sales grew 14 percent to $76.8 million, including a 2 percentage point benefit from changes in currency exchange rates. Europe, Middle East, and Africa (EMEA) region net sales decreased 14 percent to $38.1 million, including a 3 percentage point negative effect from changes in currency exchange rates. Western Europe remained Columbia’s toughest market, while Russia remained one of its strongest thanks in part to favorable winter weather. Canada net sales decreased 13 percent to $25.2 million, including a 2 percentage point negative effect from changes in currency exchange rates.
The company ended the quarter with consolidated inventories of $366.6 million, up 21.0 percent. The increase reflected the effects of the warm winter, a shift toward lower margin outwear and higher average unit costs on 7 percent fewer units. A majority of the excess inventory is being held for disposition through our direct-to-consumer channels.
COLM expects net sales growth of up to 1 percent in 2012 compared to 2011, with higher direct-to-consumer sales in the U.S., Korea and Japan and increased wholesale sales in its Japan and international distributor businesses, largely offset by lower wholesale sales in Europe, Canada and the U.S. Wholesale shipments of fall apparel will rise in the low single-digit percentage while footwear shipments will be down high single-digits.
Boyle said COLM”s growing direct-to-consumer (DTC) sales indicate the decline in wholesale sales was due to weather and not a shift away from its brands.
For all of 2012, COLM expects gross margin to contract 30 to 50 basis points as the company resorts to a higher proportion of promotional and close-out sales to liquidate surplus inventory at lower gross margins. By moving two-thirds to three-quarters of the surplus inventory through its own discount outlets and other DTC channels, Columbia hopes to protect its brands and margins.
Excluding restructuring charges, the company expects slight operating margin improvement over 2011.
The company expects a high single-digit percentage increase in second quarter 2012 net sales compared with second quarter 2011, primarily reflecting earlier shipment of international distributors’ increased Fall 2012 advance orders and increased direct-to-consumer sales.
The company expects second quarter 2012 operating margin to improve by 50 to 100 basis points compared to second quarter 2011. The second quarter outlook anticipates approximately 275 to 325 basis points of SG&A expense leverage, partially offset by gross margin contraction of approximately 200 basis points and slightly lower licensing income. The contraction in second quarter gross margin incorporates increased promotional and close-out sales at lower gross margins, a higher proportion of distributor shipments which carry lower gross margins, and higher input costs, partially offset by favorable foreign currency hedge rates.
“These near-term challenges deepen our long-term resolve to continue to elevate each of our brands and strengthen their year-round presence in the marketplace,” said Boyle. “With Omni-Heat firmly established as a leading warmth technology, our innovation pipeline for 2013 features new visible cooling technologies that will be offered in both our Columbia and Mountain Hardwear brands.”
