Columbia Sportswear managed to pull off record results for 2018, while making substantial investments in demand creation and other strategic priorities. The growth was broad-based across its brand portfolio and geographic regions, with improvements in both the wholesale and direct-to-consumer (DTC) distribution channels.
In the seasonally important fourth quarter, the company's sales jumped by 18 percent to $917.6 million, or by 19 percent in constant currencies, exceeding analysts' expectations by exactly $69.6 million. The gross margin went up by 2.8 percentage points to 50.7 percent, driven by higher product margins in DTC operations and a favorable full-price sales mix.
The quarterly operating margin improved by 2.5 percentage points to 16.6 percent, and the group posted net income of $113.3 million. This compared with a net loss of $7.1 million in the fourth quarter of 2017, after incremental tax costs of $95.6 million.
For the whole year, sales of $2,802.3 million were 14 percent higher than in 2017 in dollars and 13 percent higher in constant currencies. The gross margin improved by 2.5 percentage points to 49.5 percent. The operating margin moved up by 1.8 points to 12.5 percent and net income soared by a whopping 155 percent to $268.3 million.
In the fourth quarter, the group's DTC sales went up by 23 percent to $467.0 million, while wholesale revenues increased by 14 percent to $450.6 million. The management noted that DTC sales represented 42 percent of the total turnover, up from 40 percent in the year before. E-commerce rose by 20 percent, growing to 11 percent of total sales.
Sales outside the U.S. grew by only 8 percent in the quarter, but they advanced swiftly in North America, thanks to favorable weather conditions. In the U.S., they increased by 20 percent, led by an increase in the low twenties in DTC and high-teen growth at wholesale. The company operated 136 U.S. retail stores as of Dec.31, 2018, compared with 129 a year earlier. In Canada, revenues jumped by 21 percent, or by 26 percent in constant currencies, reflecting strong wholesale and DTC performance.
In the EMEA region, the group's quarterly sales were up by 12 percent on a reported basis to $93.7 million and by 14 percent in constant currencies, with mid-teen DTC growth and high-single growth in distributor sales. Among the group's brands, Sorel led the growth in the region.
In the Latin America and Asia-Pacific regions, sales rose by 16 percent, or by 18 percent in constant currencies, reaching a level of $179.3 million. They were driven by growth in South Korea, Japan and China, partially offset by a decline in sales to distributors. The management said it was encouraged to see that Korea, which has been a difficult market in recent years, generated low double-digit growth in the quarter, helping to propel low single-digit growth for the full year.
In China, Columbia closed the buyout of its joint venture in January of this year and welcomed John Soh as its new general manager for the country, starting later this month. Columbia's management stressed that the country represents one of its largest regional growth opportunities. It wants to open more stores in China to more closely mirror the performance of its competitors.
In terms of brands, Columbia posted a sales increase of 21 percent to $727.8 million for the quarter, while Sorel's improved by 11 percent to $126.9 million and Prana's rose by 21 percent to $36.7 million. However, Mountain Hardwear continued to lag behind, with revenues decreasing by 8 percent to $26.1 million.
In terms of products, revenues from apparel, accessories and equipment rose by 19 percent to $688.8 million, while footwear sales increased by 16 percent to $228.8 million. The group wants footwear revenues to double quickly following the recruitment of a specialist like Peter Ruppe.
Looking at 2019, the management said it continues to project profitable growth, even though the record performance in 2018 creates challenging comparisons. It expects sales of $2.97 billion to $3.03 billion, implying growth of between 6 and 8 percent from last year. The gross margin should improve by 0.7 percentage points to as much as 50.2 percent, and the operating margin should grow or shrink by one percentage point, ranging from 12.4 to 12.6 percent.
The management's strategic priorities for this year are to drive brand awareness and sales growth through increased demand creation investments, and to enhance the consumer experience and digital capabilities in all its channels and geographies. It plans to support the global expansion of its DTC operations with appropriate processes and systems.