Due to the unstable situation in the U.S. retail market, Columbia Sportswear has slightly downgraded its guidance for the full year. It predicts that sales will gain 3 percent, compared with an earlier forecast of 4 percent, with a lower U.S. wholesale turnover and 1 point of currency headwinds. The group's forecast for net income remains unchanged with a projected growth of up to 4 percent, to end up with $192 million to $199 million.
The change comes after the group's U.S. sales slipped by 1 percent to $333.2 million for the first quarter, after an 18 percent jump aided by favorable weather in the same quarter last year. The management still expects to achieve growth in the U.S. market in 2017, pushed up by its own retail business, with 13 store openings and an uptick in online retail sales.
Tim Boyle, Columbia Sportswear's chief executive, said in a conference call with analysts that about 800 stores that previously sold its brands in the U.S. had shuttered or were about to close. Other retailers have generally become more cautious about orders in the winter business. The group's U.S. wholesale turnover thus declined at a mid-single digit for the quarter. However, the U.S. wholesale business increased slightly when factoring out the store reductions. The group has also been supporting its stronger remaining customers, taking advantage of its balance sheet.
The issues in the U.S. wholesale market were almost entirely compensated by a low single-digit increase in U.S. retail sales. It was driven by outlet stores, while online sales declined, after favorable weather led to a sharp increase in online sales for the same quarter last year.
The slight contraction in quarterly U.S. sales was more than compensated by robust demand in other markets, leading to an overall quarterly sales rise of 4 percent to $543.8 million. Boyle said the group's multi-brand and international strategy meant it was well-equipped to withstand pressure in specific markets.
The Columbia group's sales advanced by 8 percent in Europe, the Middle East and Africa (EMEA) to $55.4 million, up by 10 percent in constant currencies. It was driven by European subsidiaries, which delivered a sales increase at a mid-teens rate, led by the Columbia brand and spread across the group's largest markets. EMEA sales were up at double-digit rate in terms of wholesale turnover, in the group's stationary stores and online sales. EMEA is expected to contribute mid-single-digit sales growth for the year.
The quarter marked the launch of the Columbia and Sorel brands' own online retailing operations in ten European countries at the start of March, taking over from a third-party arrangement. Boyle said the shift would help to drive profitable growth in Europe while leveraging the capacity of Columbia's distribution facility in Cambrai and a call center in Strasbourg.
Sales to EMEA distributors were down at a mid-twenties rate for the quarter, but Boyle said that this was caused by a shift in the timing of deliveries and that orders actually increased, with some of the improvement coming from Russia. Orders from the group's Russian distribution partner returned to double-digit growth for the spring and it's apparently projecting a double-digit increase in orders of Columbia products for the fall. The long-term relationship is expanding to include fixtures in several of their stores and key markets this year.
Columbia Sportswear's sales gained 16 percent to $118.3 million in Latin America and Asia-Pacific (LAAP), which was an increase of 17 percent in constant currencies. Sales jumped at a low double-digit rate in China in reported terms, due to a rise in own retail sales as well as accelerated shipments to retailers ahead of the launch of a new enterprise resource planning system.
Japan delivered low double-digit sales growth, led by the group's own retail operations, but South Korean sales declined at a mid-single-digit rate. The group is predicting the same decline for the full year, as geopolitical tensions have affected tourism and added more pressure to an already weak consumer market.
Sales were up by 3 percent to $449.1 million for the Columbia brand, with marketing focusing on raingear and the group's fishing gear. Boyle said PFG has grown into a franchise worth $120 million in the U.S. and $130 million on a global scale.
The brand's marketing efforts have included digital campaigns around its Directors of Toughness and a short film on the Ultra-Trail du Mont-Blanc. The group is also rolling out updated Columbia in-store displays, in partnership with its leading wholesale customers and independent distributors, and in its own stores in the U.S., China, Canada, Europe, Japan and Korea. The current plan is to install more than 300 of them in 2017, about 200 in the third quarter. Columbia Sportswear is budgeting low single-digit growth for the Columbia brand in the full year.
Sorel's sales soared by 50 percent to $27.2 million for the quarter. This strong performance was marked by the launch of an expanded spring assortment with sandals and lightweight, low profile footwear, which produced encouraging sell-through reports from wholesale customers. The footwear brand's sales are predicted to expand at a mid-single-digit rate for the full year.
A decline in the U.S. wholesale market caused a dip of 7 percent to $38.7 million for the Prana brand's sales in the quarter, while its own retail sales were up. Due to the brand's strong exposure to the U.S. retail market, the full-year forecast for Prana was revised to a low single-digit sales increase.
Mountain Hardwear managed a 10 percent sales increase to $27.7 million for the quarter. The rise was aided by increased closeout sales to U.S. wholesale customers, and more own retail sales. Joe Vernachio, who was appointed in early April to become Mountain Hardwear's new president, is meant to reinvigorate it as a leading Alpine climbing brand. The Columbia group is projecting an unchanged high single-digit sales decline for Mountain Hardwear in the full year but working on an upswing with an improved assortment from the second half of 2018.
Columbia Sportswear raised its gross margin by 0.4 percentage points to 47.5 percent for the quarter. Its operating income advanced by 8 percent to a first-quarter record of $48.0 million and it ended the three months with net income of $36.0 million, up 13 percent.