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Higher Freight Costs Hang Up Columbia Sportswear Margins

With growth across brands, channels and regions, Columbia’s first-quarter sales rose 22 percent to a record $761.5 million.

In a Nutshell: Columbia Sportswear, in reporting first quarter financial results on Thursday, reiterated its forecast for net sales for the full year to be $3.63 billion to $3.69 billion, representing growth of 16 percent to 18 percent over 2021.

The manufacturer of outdoor, active and lifestyle apparel, footwear, accessories and equipment products’ upgraded its outlook for 2022 operating income to $477 million to $502 million compared to a previous forecast of $472 million to $498 million, representing operating margin of 13.2 percent to 13.6 percent, up from 13 percent to 13.5 percent. The company noted it has paused taking any new orders from its Russia-based distributor and removed any future sales to it from the outlook, equating to an approximate 2 percent headwind to full-year net sales.

Net income is expected to be $363 million to $382 million, up from the previous forecast of $359 million to $379 million, resulting in diluted earnings per share (EPS) of $5.70 to $6.00, up from the prior outlook of $5.50 to $5.80.

Gross margin is expected to contract approximately 130 basis points to about 50.3 percent of net sales from 51.6 percent of net sales in 2021. Sales, general and administrative (SG&A) expenses are expected to increase at a slightly slower rate than net sales growth. SG&A expense as a percent of net sales is expected to be 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 first quarter SG&A expenses increased 18 percent to $299.1 million or 39.3 percent of net sales from $254.4 million or 40.7 percent of net sales for the comparable 2021 period. SG&A expense growth primarily reflected expenses to support the growth of the business and investments to drive brand-led consumer-focused strategies. The increase also included higher demand creation, global retail and personnel expenses, and unfavorable year-over-year changes in bad debt provisions.

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Cash, cash equivalents and short-term investments totaled $610.3 million compared to $874.6 million as of March 31, 2021.

Inventories increased 36 percent to $714.4 million. Inventory at quarter-end primarily consisted of current and future season product, with aged inventories representing a “manageable portion of our total inventory mix,” Columbia said.

Sales: Net sales for the first quarter ended March 31 increased 22 percent to a record $761.5 million from $625.6 million for the comparable period in 2021.

The increase in net sales primarily reflects strong consumer demand and shipments of higher Spring orders, with growth across all b rands, channels and geographies.

Earnings: Net income for the period rose 20 percent to $66.8 million, or $1.03 per diluted share, compared to net income of $55.9 million, or 84 cents per diluted share, for the year-earlier period.

Operating income increased 19 percent to $83.7 million. Diluted EPS rose 23 percent to $1.03 compared to first quarter 2021 diluted EPS of 84 cents.

Gross margin contracted 170 basis points to 49.7 percent of net sales from 51.4 percent of net sales for the comparable period in 2021. Gross margin contraction was primarily driven by higher inbound freight costs, unfavorable year-over-year changes in inventory provisions, unfavorable regional sales mix and lower wholesale product margins, partially offset by higher direct-to-consumer product margins.

CEO’s Take: Tim Boyle, chairman, president and CEO, said: “Our strong financial performance in the first quarter…validates our strategies and demonstrates that our brands are resonating with consumers. Business momentum was broad based, with growth across all brands, channels and geographies. Sorel led the charge with 37 percent year-over-year growth, despite supply challenges, highlighting phenomenal demand for the brand’s year-round styles.”

“Our profitable growth trajectory, fortress balance sheet and global team of dedicated employees provide a foundation of strength from which we will continue to invest in our strategic priorities to drive brand awareness and sales growth through increased, focused demand creation investments; enhance consumer experience and digital capabilities in all our channels and geographies; expand and improve global direct-to-consumer operations with supporting processes and systems, and invest in our people and optimize our organization across our portfolio of brands.”