Stronger reorders and robust own retail sales lifted Columbia Sportswear’s revenues by 24 percent to $221.8 million for the second quarter, amounting to a rise of 22 percent in constant currencies. It enjoyed double-digit increases in all product categories, due to more abundant demand as well as a shift in the timing of deliveries.
Although this is not a very significant quarter for the company, the performance encouraged the Columbia group to raise its outlook for the full year, now predicting a sales increase of 14 to 16 percent compared with 2009 – albeit with a lower increase in gross margin than previously expected.
Columbia’s improved sales forecast for the full year is partly triggered by an increase of 19 percent in orders for the second half of the year and stronger own retail sales. For the third quarter, the company expects its revenues to rise in the mid-teen range, with a low- to mid-single-digit hike in selling prices. However, its gross margin is expected to contract by about 1.0 percentage point for the third quarter, chiefly due to the fact that the company has to resort to air freight to get its autumn products delivered on time, due to labor shortages in China. Operating expenses should increase by 1.0 percentage point, so its operating margin should end the quarter down by about 2.0 percentage points compared with the same period last year.
The 24 percent sales increase for the second quarter was driven by the U.S. market, where sales went up by 27 percent to $123.7 million. The company enjoyed more reorders and fewer cancellations in its U.S. wholesale business, which saw its sales increase by more than 20 percent, while its own retail sales jumped by over 50 percent, with nine more stores at the end of the quarter compared with the same time last year.
Columbia pumped up its sales by 15 percent to $38.6 million in Europe, the Middle East and Africa, amounting to an increase of 16 percent in constant currencies, driven by the Columbia brand. Sales to European distributors increased by more than 20 percent, partly aided by earlier shipments and improvements in the Russian economy. Columbia’s own retail sales in the EMEA region also increased at a double-digit rate, even though exchange rates shaved 3 percentage points off this growth.
Columbia’s turnover in the Latin America/Asia-Pacific region inflated by 30 percent to $51.8 million, although this included 9 percentage points of growth from currency changes. The impact was strongest in South Korea, where sales jumped by more than 50 percent, but exchange rates contributed more than 20 percentage points of growth for the country. Exchange rates also accounted for 6 percentage points of Columbia’s sales growth in Japan, which was in the high teens.
The only weak spot in the quarter was Canada, where the company’s sales declined by 3 percent to $7.7 million, even though exchange rates improved the performance by 13 percentage points. This was chiefly blamed on a shift in the timing of deliveries.
The sportswear category performed well, with sales up by 24 percent to $121.9 million. Outerwear sales expanded at the same pace to reach $43.4 million for the quarter, while footwear sales jumped by 16 percent to $38.7 million. However, accessories and equipment trumped all other categories with a sales hike of 45 percent to $17.8 million.
Split by brands, Columbia’s sales climbed by 23 percent to $199.4 million and Mountain Hardwear’s sales jumped by 39 percent to $18.3 million, while the quarter was insignificant for Sorel, Montrail and Pacific Trail.
The company’s gross margin for the quarter landed at 43.7 percent, up by 2.2 percentage points, as it sold more products at their full price and more through its own stores. Columbia still ended the quarter with a higher net loss of $10.6 million, compared with $9.9 million at the same time last year, due to higher expenses and lower income tax benefits.
Adding the first quarter, Columbia Sportswear enjoyed a sales increase of 15.7 percent to $522.2 million for the first half. Its gross profit margin jumped by 1.9 percentage points to 42.9 percent for the six months, and it ended the period with a reduced net loss of nearly $1.4 million, compared with a loss of almost $3 million for the same period last year.
Columbia Sportswear now expects its gross margin for the full year to increase by about 0.75 percentage points compared with 42.1 percent last year. This is lower than its previous forecast of a gross margin hike of 1.0 percentage point, again due to the unforeseen production and delivery issues, shared by many in the industry. However, Columbia managers pointed out that they may not be affected by rises in Chinese input prices as strongly as other firms, as the country only accounts for only about one-third of Columbia’s supply volume.
The group’s gross margin for the year will be lifted by increased sales through Columbia’s own retail business, but at the same time the company is spending more on marketing for the launch of its “Omni-Heat” technology. Its plans call for marketing expenses to reach 5.5 percent of sales this year, compared with 5.25 percent last year. Columbia will also have higher costs for its organization – ranging from the reinstatement of personnel and benefit programs to spending on IT and transitional costs as the company internalizes its sales organizations in Europe and North America. The company expects to end the year with an operating margin of about 7 percent, around the same as last year.