After delivering strong sales and earning gains in the second quarter–net sales increased 9 percent to a record $526.2 million and net income jumped 137 percent to $23 million–company executives told analysts global markets are trending up even as potential tariffs on Chinese imports loom and footwear sales across divisions are on a rapid climb.
Footwear sales were “great” in the first half of the year, according to president and CEO Tim Boyle.
“We’re excited to launch a new footwear platform innovation next month called Shift, which targets younger adults who are not willing to compromise city inspired style and athletic comfort for outdoor function,” he said. “Shift provides them with a modern aesthetic–athletic comfort and is engineered with Columbia’s technologies for uncompromising performance on the trail. We will be launching this product August 9 with a select number of retail partners around the world, including some very limited production styles with influential retailers.”
Boyle said the company will support the launch with a coordinated marketing campaign, including launch events, influencers, digital, in-store and out-of-home advertisements.
“This is just the first of many new Columbia footwear product introductions that you’ll see in the coming years, as we realize the brand’s full potential in this important category,” Boyle said.
Net sales for the Sorel footwear brand increased 31 percent in the first half of the year, he noted, led by growth in U.S. wholesale and direct-to-consumer (DTC) business. Boyle said Spring 2019 product was well received with strong performance noted across the Ella sandals, Joanie collection and kinetic sneakers.
“Working through the second half of the year, we’re positioned to capitalize on this momentum during the higher volume fall and winter seasons,” Boyle said. “We really believe the opportunity to make Sorel a billion dollar brand at some point in time is really there. But it’s going to have to be a year- round brand,” adding that it’s developing a “winter plus strategy” to help achieve that.
Jim Swanson, senior vice president and chief financial officer, said, “We would anticipate an acceleration in the footwear business as we get into the second half of this year” for Columbia brand footwear and with Sorel. “So we should see nice growth there in the latter part of the year,” Swanson added.
Weather and activity-related footwear have been “particularly strong,” according to Swanson, including performance fishing gear styles.
“We have a really strong footwear product, which is now getting stride, called the Newton Ridge,…a heritage product for the company, as well as very solid rainwear, which is just based on the amount of rain that the United States had,” Boyle said. “So those were the primary drivers of the good results in the first half.”
The company is also expanding globally through sourcing and marketing, even as it deals with trade tensions and economic woes.
“We continue to view our diversified supplier base as a competitive strength and looking at our Spring 2020 assortment and beyond, the product sourced in China is expected to represent a low double-digit percent of total imported value into the U.S.,” Boyle said. “If the U.S. seeks to impose additional tariffs on China products, the potential impact will be primarily felt in 2020 and beyond.”
At the same time, net sales outside the U.S. grew 6 percent in the first half with Europe, the Middle East and Africa (EMEA), Latin America and Asia Pacific (LAAP) and Canada all reporting growth.
“Japan’s high single-digit percent growth in the first half reflects the Columbia brand’s strong market position, with healthy growth noted across both wholesale and DTC channels,” Boyle said. “Europe direct was up mid-single-digit percent, driven by DTC and wholesale growth. Given economic pressures, the retail environment is challenging in several of our largest European markets, resulting in growth rates below what we’ve seen recent years. That said, given our relatively low market share today, we continue to see tremendous long-term growth opportunities in Europe.”
The most negative impact was seen in France and the U.K., between the yellow vest movement and the ongoing Brexit discussions.
“Although we do have very strong performance in Spain and great connections with our customer there, as well as a strong business in Germany, we were underperforming,” Boyle said. “What my personal expectations are, and the plan is, to continue to reinvest there, increase the brand awareness and to take advantage of what the opportunities in the European market.”
China sales were up low single-digit percent in the first half, with a decline in the first quarter followed by a return to growth in the second quarter.
“The Columbia brand has a strong market position in China and we believe new management and the investments we’re making will reinvigorate growth in this market, which remains one of our largest geographic growth opportunities,” the CEO added.