As store traffic improved, Columbia Sportswear scored a 15 percent net sales gain, as net income jumped 60 percent in the third quarter.
In a Nutshell: Columbia Sportswear Company, a marketer of outdoor, active and lifestyle apparel, footwear, accessories and equipment products, said in reporting third quarter financial results on Thursday that during the period, government mandated factory closures in Vietnam disrupted its manufacturing partners operations and impacted production of Fall 2021 and Spring 2022 product.
Columbia Sportswear said supply chain constraints continue to impact operations, resulting in delayed receipt and delivery of products for Fall 2021 and Spring 2022 seasons. Demand for ocean vessels and containers continues to far outstrip available capacity, resulting in significant year-over-year increases in ocean freight costs.
The company said that while there were isolated temporary store closures resulting from local regulations or safety concerns, the majority of the company’s owned stores remained open throughout third quarter. Overall brick and mortar store traffic trends improved significantly compared to the third quarter of 2020, but still remain below pre-pandemic levels.
The company updated its fourth quarter and fiscal year outlook, as well. For the fourth quarter, Columbia expects net sales of $1.04 billion to $1.08 billion, representing net sales growth of 14 percent to 18 percent. Diluted EPS is expected to be $1.60 to $1.85.
For the full year, Columbia Sportswear said it expects net sales of $3.04 billion to $3.08 billion, down from the prior projection of $3.13 billion to $3.16 billion, representing net sales growth of 21.5 percent to 23 percent, below the prior 25 percent to 26.5 percent outlook, compared to 2020.
Net income is expected to be $302 million to $319 million, up from the prior outlook of $287 million to $304 million, resulting in diluted earnings per share (EPS) of $4.55 to $4.80, up from $4.30 to $4.55 previously forecast.
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Operating income of $384 million to $405 million is now forecast, up from the $365 million to $386 million previously projected, representing operating margin of 12.6 to 13.2 percent, higher than the 11.7 percent to 12.2 percent previously forecast.
Cash, cash equivalents and short-term investments totaled $600.6 million, compared to $314.5 million at quarter’s end. Inventories decreased 7 percent to $720.9 million. The reduction in inventory was driven by increased sales and to a lesser extent, delayed Fall 2021 inventory production resulting from the cumulative effects of supply chain disruptions.
Exiting the quarter, finished goods inventory in distribution centers was down 35 percent year-over-year, while in-transit inventory increased 127 percent year-over-year.
Looking ahead, the company said its Spring 2022 wholesale sales forecast reflects over 30 percent growth.
“We anticipate ongoing supply chain disruptions will continue to impact the timing of receipts and shipments of Spring 2022 inventory and may result in higher than planned cancellations that would impact net sales performance,” Columbia said. “We recently commenced our Fall 2022 order taking process. It is important to note that Fall 2021 sell-through performance can have a material impact on our Fall 2022 orders and resulting Fall 2022 wholesale sales forecast. Based on momentum we see across the business, we believe mid-teens percent or better net sales growth for the full year is attainable.”
The company said given its current view of product and freight costs, as well as the likelihood of a more normalized promotional environment, it anticipates gross margin pressure in 2022.
“We do not expect planned price increases will be able to fully offset these headwinds,” the company said. “We are also planning to make investments across the business, including demand creation, supply chain and digital capabilities that will add to our overall spending levels. With these factors in mind, our preliminary planning for 2022 contemplates an operating margin similar to the range provided in our 2021 financial outlook.”
Sales: Net sales for the third quarter ended Sept. 30 increased 15 percent to $804.7 million compared to $701.1 million for the comparable period in 2020.
The increase in net sales primarily reflected direct-to-consumer (DTC) growth and higher Fall 2021 wholesale orders. Net sales growth was constrained by supply chain disruptions that resulted in later inventory receipts and reduced wholesale shipments during the quarter.
Earnings: Net income in the quarter rose 60 percent to $100.6 million, or $1.52 per diluted share, compared to net income of $62.8 million, or 94 cents per diluted share, for the comparable period in 2020.
Operating income increased 56 percent to $133.5 million, or 16.6 percent of net sales, compared to operating income of $85.6 million, or 12.2 percent of net sales, for the comparable 2020 period.
Gross margin expanded 180 basis points to 50.7 percent of net sales from 48.9 percent of net sales for the comparable period in 2020. Gross margin expansion was primarily driven by lower DTC promotional levels and favorable wholesale product margins, partially offset by higher inbound freight costs, the non-recurrence of inventory provision activity that benefited third quarter 2020 and unfavorable channel sales mix.
CEO’s Take: Tim Boyle, chairman, president and CEO, said: ”Our third quarter results reflect high consumer demand for our products and strong operating performance amidst unprecedented supply chain challenges. Despite delayed inventory receipts, which impacted U.S. wholesale shipments, favorable gross margin performance and expense management fueled above plan earnings. Early-season Fall sell-through has been encouraging and our global marketing campaign to support the largest innovation launch in our company’s history, Omni-Heat Infinity, is off to a great start.”
“As we finish the year and look forward to 2022, I’m excited about our innovative product pipeline and the momentum we see across the brand portfolio,” Boyle added. “Based on this strength, we believe we can achieve mid-teens or better net sales growth in 2022, on top of the low-twenties percent growth we anticipate in 2021.Our profitable growth trajectory and fortress balance sheet, with cash and short-term investments of over $600 million and no borrowings, provide a foundation of strength and 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.”