The Columbia Sportswear group has been making ample progress in the European countries where it operates directly, with a sales rise at the upper end of the 20 percent range for the third quarter. Tim Boyle, the company's chief executive, told analysts in a conference call that it was expecting to break even in terms of operating profit in these markets this year, despite significant currency headwinds.
Boyle said that the growth was broad-based, applying to each of the European markets directly operated by the group, in each distribution channel and for each of its brands. Sales have been supported by marketing investments such as the Tested Tough campaign, sponsorship of the Ultra-Trail du Mont-Blanc and a partnership with Manchester United football club.
Columbia Sportswear's turnover jumped by 8 percent to $73.0 million in Europe, the Middle East and Africa (EMEA) for the quarter. The growth in European markets with company-owned distribution was mitigated by a decline at a low thirties rate in sales to European distributors. As part of this unfavorable development Boyle said that sales to Columbia's Russian distributor, (the company went unnamed but Columbia has long been working with Sportmaster) have declined significantly in the last 18 months. He predicted a return to moderate growth in the first half of 2017.
The sales rise in EMEA includes an increase in own retail sales in the mid-teen range. Boyle said that the group was investing in the opening of four outlets and two partner stores this year, and a similar number next year. The company is also preparing for the migration of the Columbia and Sorel brands' e-commerce business to in-house platforms in ten European countries in the first quarter of 2017. That should help to drive incremental sales and to leverage European infrastructure.
The entire group's sales dipped by 3 percent to $745.7 million for the third quarter. The drop chiefly affected the apparel, accessories and equipment business, which was down by 4 percent to $574.1 million, while footwear sales were broadly flat at $171.6 million.
Boyle said that Columbia continued to perform well, with the right products and compelling marketing, but sales were impacted by weak consumer traffic, cautious ordering from retailers and the bankruptcy of several U.S. customers. The three months compare with a buoyant third quarter in 2015, when sales were inflated by a favorable shift in the timing of shipments. That drove a 26 percent increase in U.S. sales, a 14 percent increase in consolidated net sales, and a 39 percent increase in net income.
The group's U.S. sales slipped by 6 percent to $484.8 million for the third quarter this year. Its own retail sales advanced at a mid-teen rate in the U.S., but this could not make up for a low-double-digit percentage sales decline in wholesale turnover.
The outdoor company's turnover in Latin America, Asia-Pacific (LAAP) moved up by 3 percent to $112.7 million for the quarter. Its turnover advanced at a mid-teen rate in Japan (although that amounted to a low single-digit decline in constant currencies) and at a high single-digit rate in China, but it declined at a rate in the low twenties in Korea.
Boyle said that the Korean outdoor market was struggling to absorb its inventory overhang, and consumer preference has moved away from outdoor brands. Columbia has been using its balance sheet to strengthen its own position in the country. Columbia's Korean inventory levels are gradually declining, but Boyle predicts that the glut in the market will continue, making it very unlikely that growth will return at least through 2017.
The Columbia brand's sales contracted by 4 percent to $587.3 million for the quarter. Boyle said the brand was moving ahead with the adoption of the Outdry Extreme membrane technology in more apparel and other products. It has also started investing in a large-scale program of retail displays. The brand already has about 20 of them in the U.S. and key international cities, it should have several hundred by the end of 2017 and many more beyond that, Boyle said. The group is projecting global sales growth of 4 percent for the Columbia brand this year.
The Sorel brand, which has continued to make its business less seasonal, raised its turnover by 2 percent to $87.6 million. The footwear brand's sales are projected to move up by 6 percent for the full year. The Prana brand's sales jumped by 11 percent to $38.1 million and the Columbia group is anticipating an increase of 14 percent for the year.
As for the Mountain Hardwear brand, its sales tumbled by 12 percent to $30.5 million for the quarter but it remains focused on its turnaround strategy, aiming to return to profitable growth by 2018. Mountain Hardwear is going through what Boyle described as a brand reset, to put more emphasis on its technical aspects. It has launched a campaign that is running in leading alpinist publications.
Columbia Sportswear's gross margin was unchanged at 46.4 percent and its operating income margin amounted to 16.6 percent, down by 0.6 percentage points. The U.S. group ended the three months with income of $83.6 million, down by 8.2 percent.
For the first nine months of this year, the company's turnover advanced by 2 percent to $1,660.0 million, which was an increase of 3 percent in constant currencies. Then again, its operating profit shrank by 7 percent and its net income was off by 3 percent to $107.2 million for the nine months.
After the decline in turnover and net income for the third quarter, and the warm weather in October, Columbia Sportswear has adjusted its sales guidance for the full year, estimating that sales should increase by about 4 percent, including less than 1 percentage point of negative impact from currency exchange rates.
The group predicts that its gross margin for the full year should improve by up to 0.1 percentage points. Operating income should increase by up to 4 percent, to between $250 million and $259 million, meaning that the operating margin would reach up to 10.7 percent. The group's net income would then rise by up to 8 percent to reach between $180.0 million and $187.5 million.