Columbia Sportswear is cutting back planned investments in marketing and retailing after a poor fourth quarter in which group revenues fell by 6 percent to $354.9 million, with three percentage points attributable to foreign exchange rates. In terms of dollars, sales in Europe fell by 21 percent to $59.9 million, partly because of weak assortments.
The group performed slightly better in other territories during the quarter. Sales declined by 3 percent to $205.0 million in the U.S. and by 12 percent to $27.0 million in Canada, thanks to a cold spell in North America. They rose by 6 percent to $63.0 million in Latin America and Asia. By category, sportswear sales were off by 4 percent to $540.9 million, outerwear sales decreased by 1 percent to $491.7 million, and footwear sales went to down by 4 percent to $217.4 million. Sales of accessories increased by 4 percent to $68.0 million.
Operating profit fell to $12.4 million from $56.8 million in the same period a year earlier. The net result for the quarter was a drop of 59 percent in net income to $18,557,000, mainly due to a $24.7 million write-down of goodwill and intangible assets related to the 2006 acquisition of Pacific Trail and Montrail, neither of which have met expectations. These charges were partially offset by a $5.0 million tax benefit that helped Columbia exceed the profit guidance it gave last November, excluding the charges.
The poor economy was evidently a factor in the disappointing results. Inventories have fallen by about 4 percent but are still high because of order cancellations. On the other hand, the cold weather helped Columbia clear much of its outerwear inventories at relatively good margins. The company has since shed some of the remaining excess inventory through its dealer network, outlet stores and some discount channels.
Orders for the next spring/summer season are off by 11 percent. In view of the bleak consumption outlook and based on the situation in its own stores, the group’s management is budgeting a drop of between 10 and 12 percent in revenues for the current first quarter, including a 6-7 percent decline in local currencies. The gross margin should drop by 4 percentage points, and operating expenses should rise by 5 percentage points, resulting in an expected indicated net profit of around $2.1 million for the quarter.
No guidance was offered for the balance of the year, but management says it will cut costs. At the beginning of 2008, Columbia’s management seemed determined to reignite its growth with new investments in brand marketing and retail expansion, but it now admits that it has not reaped the expected benefits, so it will cut back media spending and its plans for store openings in 2009. The two exceptions will be the opening of 15 outlet stores for close-out in the U.S. and one in Europe, and the launch of an e-commerce operation in the summer. It will go ahead with the opening in late 2009 of a full price store on Chicago’s Michigan Avenue but plans in other markets will be delayed.
Much of the 2008 spending was focused on the Columbia brand, which has continued to see its market share hurt by specialty brands in the performance segment and by private label in the bigger accounts. In fact, the Columbia brand saw its sales drop by 4 percent for the full year to $1,162.0 million, while Mountain Hardwear recorded growth of 15 percent to $95.0 million. Driven by its initiatives in the women’s sector, Sorel went up by 5 percent to $48.1. Together, Montrail and Pacific Trail recorded sales of $12.7 million for the year, down by 23 percent from 2007. Sales fell by 36 percent for Pacific Trail to $2.5 million, and the company has decided to license it out in 2009. Columbia remains committed to Montrail, which fits in well with the distribution of Mountain Hardwear.