Columbia Sportswear raised its guidance for the full year after a second quarter that was stronger than anticipated, with a sales jump of 21 percent to $481.6 million and the outdoor group's first profit in eleven years for this seasonally small quarter.
Widely spread across regional markets, the sales increase amounted to 19 percent in constant currencies. The outdoor group's gross margin was supported by its clean inventory, which helped to sell more products at full price. It reported an operating income of $9.7 million, amounting to an increase of 6.3 percentage points in its operating profit margin to 2.0 percent. Its net income for the quarter reached $9.7 million, against a net loss of $11.5 million for the year-ago quarter.
Columbia Sportswear predicted that its sales for the full year should increase by 9.0 percent to 10.5 percent, compared with an earlier guidance of 8.0 percent to 10.0 percent. Its gross margin is predicted to increase by up to 1.4 percentage points. The group's income from operations is projected to reach $286 million to $295 million, while the net income should land at $223 million to $230 million, up from the earlier forecast of $213 million to $220 million.
Europe, the Middle East and Africa (EMEA) contributed a sales increase of 26 percent to $85.0 million for the quarter, up by 21 percent in constant currencies. This was driven by a high 20 percent increase in sales to EMEA distributors and a low 20 percent sales jump at the group's European subsidiaries, which raised their sales at a high single-digit rate in constant currencies.
Tim Boyle, Columbia Sportswear's chief executive, said in a conference call with analysts last week that the quarterly wholesale business in EMEA benefited from growing orders and early shipments of fall products. This shift in deliveries from the third into the second quarter was estimated at $10 million for the group, mostly for the Columbia brand. But the EMEA business has been aided more broadly by increased focus on a European product range and key accounts, Boyle said, which is encouraging it to re-invest in marketing.
Columbia Sportswear's U.S. sales surged by 18 percent to $280.2 million. Some of that came from its own retail business, which grew at a mid-teen rate with 134 stores at the end of the quarter, up from 122 in June 2017. But perhaps more remarkably, the group managed a high-teens percentage growth in its U.S. wholesale business as well. Canadian sales were up by 12 percent, with an increase of 7 percent in constant currencies.
Latin America and Asia-Pacific delivered a sales increase of 27 percent to $100.8 million, up by 22 percent in constant currencies. China and Japan both contributed to the rise, along with distributors across the region, but sales declined again in South Korea. They were down at a mid-single-digit rate for the first six months of this year in constant currencies.
The group is most upbeat about its potential in China, where Columbia Sportswear is buying out the 40 percent share of its joint venture partner, Swire Resources. Boyle said it was on track to finalize that purchase early next year. It intends to continue working with the existing team and structure but Jason Zhu, general manager of Columbia Sportswear in China, has decided to leave in September. Until a replacement is found, the Chinese business will be supervised by Doug Morse, senior vice president of emerging brands and Asia-Pacific. Chinese sales were up at a mid-single-digit rate in constant currencies in the first half. Boyle said about 10 percent of Columbia stores in the country are company-owned.
In absolute terms the growth in the second quarter was driven by the Columbia brand, which raised its sales by 22 percent to $414.8 million, up 20 percent in constant currencies. A standout was the PFG range for fishing, which vastly expanded its footwear range. It more than doubled its sales for the spring season, aided by a relative dearth of competition that allowed for full prices. Its fishing apparel started using its latest cooling technology, Omni Shade's sun deflector. Later this year it will launch the latest iteration of its Omni Heat platform.
Sorel's sales nearly doubled to $11.4 million, up from $6.0 million. This fits with the group's strategy to try and diversify Sorel's sales, with products such as its Kinetic casual sneakers. Prana's sales moved up by 9 percent to $38.1 million, with gains in online sales and U.S. wholesaling.
Mountain Hardwear continued to decline, with sales slipping by 1 percent to $16.0 million, but Boyle said that its wholesale orders are up for the second half, with products such as Stretch Down and technical outerwear and gloves using Gore-Tex. This should help to differentiate it more strongly from Columbia. The brand's gross margin materially improved in the first half, due to a clean inventory position after clearance activity last year. Its sales decline of 10 percent in constant currencies in the first six months relates to its decision to move out of the Korean market.
Taken all together, sales of apparel, accessories and equipment moved up by 20 percent to $394.6 million, while footwear sales jumped by 26 percent to $87.0 million. Its retail sales gained 18 percent to $220.4 million, while its wholesale business was up by 23 percent to $261.2 million.
For the first half, Columbia Sportswear's turnover advanced by 16 percent to $1,088.9 million, up by 13 percent in constant currencies with double-digit rate increases in all regions in dollars. The strongest growth came from EMEA, where sales surged by 28 percent to $156.8 million. Over the six months the sales rise from retailing amounted to 20 percent, compared with 12 percent for the group's wholesale business. Its net income for the period more than doubled to $54.8 million.
Some of the improvements could be related to Project Connect, a restructuring and investment program launched last year. As part of this project, Columbia Sportswear went live with its enterprise resource planning system (ERP) in its European subsidiaries in June. This completes the international launch of the ERP system, which the group is optimizing ahead of the fall and holiday seasons. The global retail operations will adopt their own updated systems from the first half of 2019, starting in North America, which should allow for more personalization.
The same applies to the Columbia group's digital consumer direct business. The impact of the project apparently includes improvements in the group's retail business, such as increased site traffic and conversion.
Boyle said Columbia is starting to realize some of the financial benefits from Project Connect this year, although it should yield more meaningful financial value next year and thereafter.