The late start of the winter season led to weaker than anticipated sales for Columbia Sportswear in the fourth quarter, but they were still up by 3 percent to $717.4 million, which was a rise of 2 percent in constant currencies.
The U.S. outdoor group raised its turnover for the full year by 2 percent in dollars and in constant currencies, reaching a level of $2.38 billion. It managed to raise its gross margin by 0.6 percentage points to 46.7 percent and achieved an operating profit margin of 10.8 percent, leading to a 10 percent rise in net income to $191.9 million.
Tim Boyle, Columbia Sportswear's chief executive, said in a conference call with analysts that the rise had been achieved in spite of some unseasonal weather and upheavals in several of the group's largest markets, from retail bankruptcies in the U.S. to economic and political issues in Russia and South Korea. The profit margin improved despite unfavorable exchange rates, which shaved 1 percentage point off the gross margin.
Boyle was particularly upbeat about Europe, the Middle East and Africa (EMEA), where sales were up by 9 percent to $253.5 million for the year. This includes a low 20 percent sales rise in markets covered by the group's subsidiaries, while sales to European distributors declined at a low double-digit rate. The group said that its European business had returned to profitability after several challenging years.
Columbia Sportswear's sales in the U.S. were up by 3 percent to $1.51 billion and its Canadian turnover advanced by 1 percent in constant currencies. Then again, the group's sales slipped by 3 percent in Latin America and Asia-Pacific (LAAP) to $453.7 million, amounting to a decline of 4 percent in constant currencies. It was hurt by a sales decline in the low-twenties in Korea, while sales to distributors in the entire LAAP region declined at a high-teen percentage rate. This was partly compensated by low single-digit growth in Japan and high single-digit growth in China, both in constant currencies.
The Columbia brand alone saw its sales increase by 2 percent to $1,910.1 million for the year, up by 3 percent in constant currencies. They gained 4 percent in North America and more than 20 percent in European markets covered by Columbia subsidiaries. The brand's turnover was up in constant currencies in Japan and China, but sales tumbled at double-digit rate in Korea and Russia. The same applies for sales to distributors in the LAAP markets. The Columbia brand is projected to raise its sales at mid-single-digit rate in constant currencies this year, with increases in all four regions.
The Sorel brand's sales moved up by 2 percent to $213.0 million last year, after a rise of 26 percent in 2015. Boyle said Sorel was making steady progress in establishing a broader assortment for all seasons but it remains most exposed to warm winter weather. While Sorel's turnover jumped by 14 percent in the last quarter of 2015, they declined by 1 percent for the same three months last year, chiefly due to the late arrival of the winter. It led to more cancellations of advance wholesale orders, while retail sales were weaker than anticipated.
Sorel had a pilot launch for a spring range in partnership with Nordstrom last year, and it started a wider launch with about 800 stores in North America last month. The group thus predicts that Sorel will return to low double-digit sales growth this year, most of that to come in the second half.
The Prana brand managed a sales rise of 12 percent to $139.9 million for the year, fueled by the launch of an expanded swimwear range and its yoga and fitness ranges for men, which moved faster than the women's ranges. The group is anticipating low double-digit growth for Prana this year.
Mountain Hardwear's sales slipped by another 11 percent to $104.0 million for the year and the group acknowledges that it should continue to decline in 2017, albeit modestly. It was affected by management changes as John Walbrecht left as brand president after about six months to become chief executive at Black Diamond, but Boyle said that the search for a replacement was nearly completed.
Columbia Sportswear's own retail sales were up by more than 10 percent and made up 37 percent of its turnover, compared with 34 percent in 2017. The group's online sales soared by over 20 percent to about $220 million, which is more than 9 percent of its entire turnover.
Columbia Sportswear will be adding to this business shortly by taking the European online sales business of the Columbia and Sorel brands in-house, servicing ten European countries. While orders and shipments were previously handled by a third party provider, Columbia will be using its own European infrastructure to handle these sales and to set up a call center. This will enable the group to operate European online sales more profitably, to have direct contact with online customers and to offer a wider assortment.
At the same time, Columbia Sportswear started deploying improved product displays for the Columbia brand in the last quarter for installation in the stores of its wholesale partners. The current plan is to set them up in about 200 more stores this year.
The group predicts net sales growth of about 4 percent, including a negative impact of about 1percentage point from exchange rate changes. Its Korean turnover should stabilize in the range of $75 million to $80 million and sales should move up in all four regional markets. The company is projecting operating income growth of up to 5 percent and net income of $192 million to $200 million.
Boyle said that the group has engaged a leading consulting firm to assist in an assessment of its operating model. Separately, the chief executive voiced concern during the conference call about the consequences of the threatened U.S. border adjustment tax in an industry that is already paying substantial import duties.