Columbia said late inventory receipts and slower consumer demand resulted in order cancellations and higher inventory levels.
In a Nutshell: Columbia Sportswear Company, a multi-brand marketer of outdoor, active and lifestyle products, including apparel, footwear, accessories and equipment, on Thursday said based on strong third quarter performance, it was reiterating its full year outlook for net sales of $3.44 billion to $3.50 billion, representing growth of 10 percent to 12 percent compared to 2021.
Net income is expected to still be $315 million to $340 million. Expectations for operating income were lowered to $410 million to $443 million from the prior $415 million to $449 million, representing operating margin of 11.9 percent to 12.7 percent, from the previous estimate of 12.1 percent to 12.8 percent).
Diluted earnings per share (EPS) is still seen coming in at $5.00 to $5.40, while gross margin is now expected to contract 250 to 220 basis points to 49.1 percent to 49.4 percent of net sales from 51.6 percent of net sales in 2021.
The outlook for the fourth quarter is for net sales of $1.14 billion to $1.21 billion, representing net sales growth of 1 percent to 7 percent from $1.13 billion in the comparable period 2021. Diluted EPS is expected to be $2.07 to $2.47 compared to $2.39 in the comparable period in 2021.
“We are investing in strategic priorities to accelerate profitable growth; create iconic products that are differentiated, functional and innovative; drive brand engagement through increased, focused demand creation investments; enhance consumer experiences by investing in capabilities to delight and retain consumers; amplify marketplace excellence, with digitally-led, omnichannel, global distribution, and empower talent that is driven by our core values, through a diverse and inclusive workforce,” Tim Boyle, chairman, president and CEO, said.
Inventories increased 47 percent to $1.06 billion at quarter’s end, compared to $720.9 million as of Sept. 30, 2021. Columbia said late inventory receipts and slower consumer demand have resulted in greater than anticipated order cancellations and higher inventory levels.
To align inventory levels more closely with anticipated demand, the company said it is adjusting inventory purchases and utilizing outlet stores to sell excess merchandise. Columbia said it expects inventory to remain elevated for the next several quarters, as it balances reducing inventory levels with maintaining profitability.
In the third quarter, sales, general and administrative (SG&A) expenses increased 14 percent to $319 million, or 33.4 percent of net sales, from $280.1 million, or 34.8 percent of net sales, for the comparable period in 2021. SG&A expense growth was mainly attributed to expenses to support the growth of the business and investments to drive brand-led consumer-focused strategies. The increase in SG&A expenses includes higher personnel, demand creation and global retail expenses, partially offset by lower accrued incentive compensation.
Cash, cash equivalents and short-term investments totaled $160.2 million, compared to $600.6 million as of Sept. 30, 2021. The company had $4.4 million in borrowings as of Sept. 30, 2022, compared to no bank borrowings a year earlier.
Sales: Net sales for the third quarter ended Sept. 30 increased 19 percent, compared to the same period in 2021 to a record $955 million, primarily reflecting earlier shipment of higher Fall 2022 wholesale orders and direct-to-consumer (DTC) growth.
Earnings: Net income for the quarter rose 11 percent to $111.8 million, or $1.80 per diluted share, compared to net income of $100.6 million, or $1.52 per diluted share, for the comparable period in 2021.
Operating income increased 9 percent to $145.3 million, or 15.2 percent of net sales, compared to third quarter 2021 operating income of $133.5 million, or 16.6 percent of net sales. Diluted earnings per share increased 18 percent to $1.80, compared to $1.52 a year earlier.
Gross margin contracted 270 basis points to 48 percent of net sales from 50.7 percent of net sales for the comparable period in 2021. Gross margin contraction was primarily driven by higher inbound freight costs, unfavorable channel and regional sales mix, increased inventory provisions and lower DTC product margins, partially offset by higher wholesale product margins.
CEO’s Take: Boyle said: “Third quarter net sales and earnings growth reflect broad momentum across our business and the power of our collective brand portfolio. Net sales growth was led by the Sorel and Columbia brands, which increased 28 percent and 19 percent, respectively.”
“I’m excited about the iconic and innovative products we are delivering to consumers this fall, including Columbia’s expanded Omni-Heat Infinity collection and our new disruptive polyfleece innovation, Omni-Heat Helix,” Boyle added. “Our strong balance sheet, balanced global distribution and operating discipline position us to successfully navigate this dynamic environment. I’m confident we have the right strategies in place to unlock the significant growth opportunities we see across the business.”