Columbia Sportswear Company Reports Record Second Quarter and First Half Net Sales

 

Second Quarter and First Half 2016 Highlights:

Second quarter net sales increased 2 percent (2 percent constant-currency) to a second quarter record $388.8 million.
Second quarter net loss totaled $8.2 million, or $(0.12) per share.
First half net sales increased 6 percent (8 percent constant-currency) to a first half record $913.9 million.
First half net income increased 19 percent to $23.6 million, or $0.33 per diluted share, aided by a tax benefit of $4.5 million, or $0.06 per diluted share, from the adoption of a newly issued accounting standard.

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The board of directors approved a regular quarterly dividend of $0.17 per share, payable on September 1, 2016 to shareholders of record on August 18, 2016.

Fiscal Year 2016 Outlook Reiterated:

Mid-single-digit percentage net sales growth, including less than 1 percentage point negative effect from changes in currency exchange rates.
Mid-single-digit percentage increase in operating income to between $254 million and $263 million, representing operating margin of up to 10.7 percent of net sales.
An estimated full year tax rate of approximately 25.0 percent.
High-single-digit percentage increase in net income to between $184 million and $191 million, or approximately $2.60 to $2.70 per diluted share, on approximately 70.7 million diluted shares outstanding.

Columbia Sportswear Company (COLM) (NASDAQ: COLM) announced record second quarter net sales of $388.8 million for the quarter ended June 30, 2016, a 2 percent increase (2 percent constant-currency) compared with net sales of $380.2 million for the second quarter of 2015. Second quarter 2016 net loss totaled $8.2 million, or $(0.12) per share, compared to second quarter 2015 net loss of $6.5 million, or $(0.09) per share.

Through the first six months of 2016, net sales grew $54.7 million, or 6 percent (8 percent constant-currency), to $913.9 million, compared to $859.2 million in the first half of 2015. First half 2016 operating income declined 8 percent, to $32.5 million, compared with operating income of $35.2 million in the first half of 2015. First half net income increased 19 percent, to $23.6 million, or $0.33 per diluted share, including a tax benefit of $4.5 million, or $0.06 per diluted share, related to the company’s adoption of a newly issued accounting standard. First half 2015 net income totaled $19.9 million, or $0.28 per diluted share.

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Chief Executive Officer Tim Boyle commented, “Our successful first half results were highlighted by solid growth from three of our four major brands and improved gross margins in a challenging global environment. High-single-digit wholesale growth and low-20-percent direct-to-consumer growth in the U.S., combined with mid-20-percent constant-currency growth in Europe-direct markets and 20 percent constant-currency growth in Canada, demonstrate that we gained market share in each of these important geographies during the first half of 2016.»

Boyle concluded, «Our powerful brand portfolio, strong balance sheet and disciplined cost management provide us the financial flexibility to continue making strategic investments to build our brands, drive consumer demand, and improve profitability over the long term.”

Second Quarter Results
(All comparisons are between second quarter 2016 and second quarter 2015, unless otherwise noted.)

The second quarter is the company’s smallest revenue quarter, historically accounting for a mid-teens percentage of annual net sales. As a result, year-over-year regional, brand and category net sales comparisons often produce large percentage variances in relation to the prior year’s comparable period due to the small base of comparison and shifts in the timing of shipments which, when coupled with the company’s fixed cost structure, can have an amplified effect on operating results.

Second quarter consolidated net sales growth of 2 percent (2 percent constant-currency) was driven by:

U.S. net sales growth of 8 percent to $228.8 million, consisting of mid-teen percentage growth in the company’s direct-to-consumer channels and low single-digit percentage growth in wholesale channels; and
a 20 percent net sales increase (27 percent constant-currency) in Canada, to $13.6 million.
This growth was partially offset by:

a 1 percent net sales decline (2 percent constant-currency) in the Europe, Middle East and Africa (EMEA) region to $59.1 million, including a low-double-digit percentage decline in net sales to EMEA distributors, largely offset by high-teen percentage growth (mid-teen constant-currency) in the company’s Europe-direct business; and
a 10 percent net sales decline (11 percent constant-currency) in the Latin America, Asia Pacific (LAAP) region to $87.3 million, primarily reflecting a low-twenty percent net sales decline in Korea (high-teen constant-currency), a low-twenty percent decline in net sales to LAAP distributors, and a mid-teen net sales decline (low-double-digit constant-currency) in China, partially offset by a low-double-digit percentage (low-single-digit constant-currency) net sales increase in Japan. (See “Geographical Net Sales” table below.)
Global Columbia brand net sales increased 3 percent (2 percent constant-currency) to $333.4 million compared with the second quarter of 2015. Global SOREL brand net sales declined 19 percent (16 percent constant-currency) to $3.5 million. Global prAna brand net sales increased 23 percent (23 percent constant-currency) to $32.2 million, and global Mountain Hardwear brand net sales declined 20 percent (20 percent constant-currency) to $17.0 million. (See “Brand Net Sales” table below.)

Global Apparel, Accessories & Equipment net sales increased 4 percent (4 percent constant-currency) to $321.5 million and Footwear net sales declined 4 percent (4 percent constant-currency) to $67.3 million. (See “Categorical Net Sales” table below.)

Second quarter loss from operations totaled $11.8 million, or (3.0) percent of net sales, compared to $9.0 million, or (2.4) percent of net sales, for the same period in 2015.

The effective income tax rate was 29.1 percent in the second quarter of 2016, comparable to 29.2 percent for the same period in 2015.

Second quarter net loss totaled $8.2 million, or $(0.12) per share, compared with second quarter 2015 net loss of $6.5 million, or $(0.09) per share.

Balance Sheet and Cash Flow

Consolidated inventories of $653.6 million at June 30, 2016 were 12 percent higher than the $581.0 million balance at June 30, 2015, consisting primarily of current Fall 2016 and Spring 2016 product.

The company generated $102.7 million in operating cash flow in the first half of 2016, and finished the quarter with $428.8 million of cash and short-term investments, compared with $417.5 million at June 30, 2015.

Dividend

The board of directors authorized a regular quarterly dividend of $0.17 per share, payable on September 1, 2016 to shareholders of record on August 18, 2016.

Reiterated 2016 Financial Outlook

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties that may cause actual results to differ, perhaps materially.

The company’s annual net sales are weighted more heavily toward the fall/winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the fiscal year, with virtually all of the company’s anticipated growth in 2016 operating income and earnings concentrated in the fourth quarter.

The company currently expects mid-single-digit percentage 2016 net sales growth, including approximately 1 percentage point negative effect from changes in foreign currency exchange rates, on a base of 2015 net sales of $2.33 billion.

The company expects fiscal year 2016 gross margins to improve by up to 10 basis points, and for selling, general and administrative expenses (SG&A) to increase at a rate slightly faster than net sales, resulting in approximately 15 basis points to 45 basis points of SG&A expense deleverage. The company continues to expect a full year tax rate of approximately 25 percent.

Based on the above assumptions, the company expects a mid-single-digit percentage increase in operating income, to between $254 million and $263 million, resulting in anticipated 2016 operating margin of up to 10.7 percent. The company expects a high-single-digit percentage increase in net income after non-controlling interest, to between approximately $184 million and $191 million, or approximately $2.60 to $2.70 per diluted share, up to 10 percent higher than 2015 EPS of $2.45. Included in the above 2016 EPS outlook is an unfavorable impact of approximately $(0.26) resulting from the strengthening of the U.S. dollar, in addition to an estimated unfavorable impact of $(0.10) per share in 2015. This currency impact primarily consists of lower gross margins within many of our foreign subsidiaries as a result of increased local currency costs of inventory purchased in U.S. dollars.
Supplemental Constant-Currency Financial Information

The company reports its financial information in accordance with accounting principles generally accepted in the United States (“GAAP”). To supplement financial information reported in accordance with GAAP, the company discloses constant-currency net sales information, which is a non-GAAP financial measure, to provide a framework to assess how the business performed excluding the effects of changes in the exchange rates used to translate net sales generated in foreign currencies into U.S. dollars. The company calculates constant-currency net sales by translating net sales in foreign currencies for the current period into U.S. dollars at the exchange rates that were in effect during the comparable period of the prior year. Management believes that this non-GAAP financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may find the non-GAAP measures useful by reviewing our net sales results without the volatility in foreign currency exchange rates. This non-GAAP financial measure also facilitates management’s internal comparisons to our historical net sales results and comparisons to competitors’ net sales results. Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The company provides a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP. (See “Supplemental Financial Information – Constant-currency Basis” tables below.) The constant-currency information presented may not be comparable to similarly titled measures reported by other companies.

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Fuente: Seeking Alpha


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