A shaky fourth-quarter won’t keep Columbia Sportwear’s top boss from being “bullish” on the year ahead.
In a Nutshell: Columbia Sportswear beat Wall Street’s fourth quarter revenue estimate by $10 million, but the blamed inventory problems that emerged in Q3 for a profit miss in the year-end frame.
“We know there’s a strong demand for our products, and our recent financial performance could have even been higher, absent the product delivery delays we experienced,” chairman and CEO Tim Boyle told investors during an earnings conference call Thursday, saying the Oregon company based in Portland “achieved these results while navigating numerous supply chain challenges.”
Boyle said Sorel’s function-first fashion footwear is resonating with consumers, and is “on its way to $1 billion in sales.” At September’s Investor Day event, Columbia described Sorel as its fastest-growing brand, generating a 20 percent to 22 percent three-year compound annual growth rate thanks to a seasonless product offering and brand momentum.
This year Columbia will try to match demand with inventory. “Our product offering includes a large percentage of evergreen styles that do not change season-to-season. This reduces our exposure to promotional pricing. Given our strong balance sheet we can be patient as to when and where we sell our product,” Boyle pointed out, saying Columbia will use outlets stores to “profitably liquidate remaining excess inventories.”
Columbia shipped more of its products to wholesale partners in the third quarter compared to the same year-ago period, which affected its wholesale performance. And supply chain disruptions drove delivery delays in the quarter. “We were unable to maximize early season, full-price sales. And we experienced higher order cancellations resulting from the late receipt of inventories,” Boyle said.
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On the marketing side, the company’s partnership with Philadelphia Eagles star quarterback Jalen Hurts was featured in several NFL broadcasts. Columbia also worked with “micro-to-macro influencers,” including sports and entertainment group and YouTube sensation Dude Perfect, made up of former Texas A&M roommates Tyler “TT” Toney, twins Cory and Coby Cotton, Garrett “Purple Hoser” Hilbert, and Cody “Tall Guy” Jones. This season, they will test out Columbia’s proprietary thermal reflective warmth technology, Omni-Heat Infinity, when they hit the slopes wearing the brand’s winter jackets.
Boyle said the company will continue to prioritize digital investments in consumer data and analytics, and supply chain capabilities. “When it comes to supply chain capabilities, we’re investing in people, processes and systems to improve supply and demand planning, drive inventory efficiency, and support growth,” he said.
Despite 2022’s challenges, the CEO remains “bullish” about the company’s prospects this year. “We’re in great shape. We’ve brought our service levels nearly back to pre-pandemic levels, and we’re shipping like crazy right now,” he said.
Columbia hasn’t had any “substantial” spring cancellations, and Boyle doesn’t expect anything different for a fall order book that’s pretty much complete. “We’re matching the fall order book against our inventory levels that exist today style by style, color by color,” he said.
Jim Swanson, executive vice president and chief financial officer, said the company expects the footwear category will “outpace” apparel growth.
Net Sales: For the three months ended Dec. 31, net sales rose 4 percent to $1.17 billion from $1.13 billion.
The company said the increase was driven by Columbia’s brand growth, offset by declines in sales in the emerging brands. The quarter also saw higher SG&A (selling, general and administrative) expenses connected to supporting the growth of the business, inflationary pressures and investments to drive consumer-focused strategies.
For the quarter, sales in the U.S. rose 2 percent to $780.8 million, while sales in Latin America and Asia Pacific rose 11 percent to $164.0 million. EMEA (Europe, Middle East and Africa) sales spiked 32 percent to $132.8 million, while sales in Canada increased 23 percent to $92.0 million.
For the full year, net sales increased 11 percent to $3.46 billion from $3.13 billion.
Earnings: Net income for the quarter fell 20 percent to $125.7 million, or $2.02 a diluted share, from $157 million, or $2.39, in the year-ago quarter.
For the first half, the company expects mid-single-digit percent net sales growth, versus the same 2022 period. Diluted earnings per share (EPS) was forecast at between 75 cents to 90 cents.
For the full year, the 2023 outlook reflects current estimates on the Covid-19 pandemic on operations, economic conditions, inflationary pressures, supply chain disruptions, elevated marketplace inventories and changes in consumer behavior, as well as geopolitical tensions. Current guidance anticipates net sales to grow 3 percent to 6 precent to $3.57 billion to $3.67 billion, which compares with $3.46 billion in sales in 2022.
For the full year, net income was down 12 percent to $311.4 million, or $4.95 a diluted share, from $354.1 million, or $5.33, in 2021. Net income was forecasted to be in the range of $322 million to $347 million, or diluted EPS of $5.15 to $5.55.
CEO’s Take: The “only reason we received such significant cancels [in 2022] versus prior periods is because of our deliveries from Asia,” according to Boyle, who described the order change-ups as “significantly later than they had been in past periods.”