Columbia Sportswear saw sales for the second quarter rise 2 percent to a record $578.1 million, but net income fell 82 percent to $7.2 million.
In a Nutshell: Columbia Sportswear Company, a producer and marketer of outdoor, active and lifestyle apparel, footwear, accessories and equipment, while announcing second quarter financial results on Wednesday, cut its full-year sales and income outlook due to a “challenging” operating environment and “economic uncertainty.”
Columbia forecast net sales of $3.44 to $3.50 billion, compared to prior estimates of $3.63 billion to $3.69 billion, representing net sales growth of 10 percent to 12 percent, down from a previous expectation of 16 percent to 18 percent, compared to 2021.
Net income is expected to be $315 million to $340 million, down from the prior outlook of $363 million to $382 million, resulting in diluted earnings per share (EPS) of $5.00 to $5.40, from the previous estimate of $5.70 to $6.00.
Operating income is now forecast to come in at $415 million to $449 million, from the prior estimate of $477 million to $502 million, representing operating margin of 12.1 percent to 12.8 percent, down from 13.2 percent to 13.6 percent. Diluted earnings per share is expected to now be $5.00 to $5.40, compared to $5.70 to $6.00 previously forecast.
Gross margin is expected to contract 210 to 180 basis points from the prior estimate of a 130 basis points contraction, to 49.5 percent to 49.8 percent, from the prior approximately 50.3 percent, of net sales from 51.6 percent of net sales in 2021.
SG&A expenses are expected to increase roughly in line with net sales growth. SG&A expense as a percent of net sales is expected to be 37.6 to 38.0 percent, compared to prior estimates of 37.3 percent to 37.7 percent, compared to SG&A expenses as a percent of net sales of 37.8 percent in 2021.
“In the U.S., inflationary pressures, rising interest rates and recession fears are weighing on consumer and retailer sentiment,” Tim Boyle, chairman, president and CEO of Columbia Sportswear told analysts on a conference call. “Our updated outlook contemplates higher order cancellation risks and more conservative DTC assumptions. It also assumes a more promotional environment as the marketplace seeks to rationalize inventory levels. We have navigated numerous economic cycles in our company’s 84-year history. I’m confident that our differentiated brand portfolio, operating discipline and strong financial position will enable us to effectively manage this cycle.”
The company reported SG&A expenses increased 7 percent to $281.3 million, or 48.7 percent of net sales, from $261.8 million, or 46.2 percent of net sales, for the 2021 comparable period. SG&A expense growth primarily reflected broad-based increases across the enterprise led by personnel expenses, which were driven by incremental headcount, as well as wage increases.
Inventories increased 42 percent to $962.9 million in the period, compared to $676 million as of June 30, 2021. Inventory growth reflected increased inventory purchases in anticipation of sales growth for Spring and Fall 2022 merchandise, lower than normal inventory levels at the same time last year and lower than initially expected year-to-date net sales due to a combination of factors, including substantially lower Russia-based distributor shipments, the impact of zero-Covid restrictions in China and softer than expected net sales in the U.S.
Increased Fall in-transit inventory was also a meaningful contributor to increased inventory. With anticipated higher inventory levels, Columbia said it was adjusting future inventory purchases and planning to more heavily utilize its outlet stores to sell excess merchandise.
Boyle said he was confident in the quality of Columbia’s inventory, which includes a high proportion of evergreen styles that do not change season to season, which reduces exposure to promotional pricing.
“We also have a fleet of outlet stores, which enables us to sell remaining high quality inventory profitably,” he said. “As the demand environment shifts, were focused on restraining expense growth to manage profitability..Outerwear and winter merchandise inventories are very lean at retail after an exceptional sell-through last season. We have a robust fall ‘22 order book to deliver against and retailers are keen to get initial floor sets in place ahead of weather-driven consumer demand.”
Sales: Net sales for the second quarter ended June 30 increased 2 percent compared to second quarter 2021 to a record $578.1 million, from $566.4 million for the comparable period in 2021.
The increase primarily reflected growth across the U.S., Canada, Europe-direct, Japan and South Korea, partially offset by substantially lower Russia-based distributor and China net sales.
Earnings: Net income for the quarter declined 82 percent to $7.2 million, or 11 cents per diluted share, compared to net income of $40.7 million, or 61 cents, for the comparable period in 2021.
Operating income decreased 75 percent to $8.8 million, or 1.5 percent of net sales, compared to second quarter 2021 operating income of $35 million, or 6.2 percent of net sales.
Gross margin contracted 240 basis points to 49.2 percent of net sales from 51.6 percent of net sales for the comparable period in 2021. The decline was mainly attributable to higher inbound freight costs and lower wholesale margins, partially offset by favorable channel and regional sales mix.
CEO’s Take: Boyle said: “First half net sales increased 12 percent, reflecting the strength of our brand portfolio amidst a rapidly changing and increasingly challenging economic environment. All of our brands contributed to this growth, with Sorel leading the charge, surging 33 percent, fueled by the brand’s bold new summer and year-round styles. During the second quarter, which is our lowest volume sales quarter, performance trends varied greatly by region. Many markets continued to experience meaningful sales growth, while others were impacted by external headwinds and shipment delays. As we head into the important Fall sales season, we are eager to get our innovative product into the marketplace.”
“Our confidence in our strategies and ability to unlock tremendous long-term growth opportunities remains intact,” Boyle added. “However, as 2022 has progressed, it is increasingly clear that the operating environment has become more challenging. Based on growing economic uncertainty we believe it is prudent to take a more conservative approach to our financial outlook for the balance of the year.”