Columbia Sportswear raised its sales by 19 percent in Europe, the Middle East and Africa (EMEA) to $83.5 million for the fourth quarter of 2017, up by 14 percent in constant currencies. It was the strongest regional increase in a better-than-expected quarter for the U.S. outdoor company, which ended the year with unprecedented sales and underlying profit.
With sales moving up across all regional markets, the group's turnover advanced by 8 percent to $776.0 million for the three months. The rise in the European sales was achieved through increased demand in the group's direct business as well as sales to distributors.
Columbia Sportswear's sales were on the rise in the U.S. market as well, up by 8 percent to $492.6 million for the quarter. Due to the pressure of U.S. retail bankruptcies, the group's wholesale business in the country was down at a mid-single-digit rate last year. But its wholesale turnover actually picked up by 6 percent in the fourth quarter, aided by a shift in deliveries from the third quarter, which played a major part in the better-than expected quarterly performance. The group estimates that it has been gaining share in the U.S. wholesale market and predicts that it will raise its turnover at a low single-digit rate in this market in 2018, after the favorable weather helped to clean up retail inventories.
At the same time, Columbia Sportswear has accelerated its investment in its U.S. retail business, which expanded at double-digit rate in the last quarter. However, the company added that it strategically decided to forestall online promotions around the end of the year, to give wholesale customers an opportunity to liquidate their inventories at a high margin rate.
Latin America and Asia-Pacific (LAAP) generated a sales rise of 2 percent to $154.3 million, up by 3 percent in constant currencies. As for Canadian sales, they increased by 14 percent to $45.6 million, with exchange rate changes accounting for 5 percentage points of the growth.
Columbia Sportswear reported a small net loss of $7.1 million for the quarter, compared with income of $87.4 million for the same three months in 2016, but this was due to adjustments in U.S. tax rules. Excluding the tax-related costs as well as other expenses of $6.3 million, mostly relating to the Project Connect transformation program, net income was up by 9 percent for the quarter.
The robust fourth quarter enabled Columbia Sportswear to report a sales jump of 4 percent to $2.47 billion for the year. It was buoyed by a sales hike of 16 percent to $293.7 million in EMEA, up by 14 percent in constant currencies, again including increases in direct sales and in sales to distributors.
Tim Boyle, the group's chief executive, said in a conference call with analysts that Columbia had been encouraged by the performance of its European direct business, marking a third consecutive year of double-digit sales gains in constant currencies. It reached breakeven in 2016 and returned to a meaningful level of profitability last year (more about the European business and the group's planned investments below).
When it comes to EMEA distribution partners, Boyle singled out Sportmaster, which returned Columbia's large-scale business in Russia to significant expansion last year. The group is forecasting a mid-single-digit percent increase in sales to EMEA distributors in 2018. This compares with a projected rise at a low double-digit rate in constant currencies for its direct European business, adding up to a projected rise at a high single-digit rate in constant currencies for EMEA sales this year.
Despite the robust U.S. demand in the fourth quarter, sales in the country moved up by just 1 percent to $1.52 billion for the full year. Canadian sales advanced by 8 percent to $177.3 million.
The Columbia group's sales in LAAP climbed by 5 percent to $475.1 million, with a negative impact of 1 percentage point from exchange rate changes. Sales firmed up in China and Japan, while they flattened in South Korea. The group predicts that its Korean sales will decline at mid-single-digit rate in constant currencies this year, but Boyle said the business could improve going forward as inventories are getting cleaner. The Chinese market, covered chiefly by the Columbia brand, is projected to deliver mid-single-digit percent growth for the full year.
The Columbia brand alone raised its sales by 4 percent to $1,990.3 million for the year. It has invested abundantly in retail support, by installing and refurbishing over 300 Columbia shop-in-shops, and improving presentations at key partner stores. It launched marketing campaigns with retailers and a seasonal brand campaign named Columbia Warm. The brand is worn at the Winter Olympics by athletes from the U.S., Canada, Belarus, Kazakhstan and the Ukraine.
The Sorel brand's sales jumped by 7 percent to $228.8 million in 2017, and Boyle said it was set for further growth this year. The Defy marketing campaign was launched to reinforce Dorel's brand statement as a fashionable outdoor brand and an outdoor brand in fashion. The latest marketing efforts included a partnership with Chloé, the French fashion brand, to make Sorel boots that were sold in department stores such as Galeries Lafayette.
Prana raised its sales by just 1 percent to $140.9 million for the year, but Columbia Sportswear predicts more growth this year under recently-appointed management. Sales already advanced by 8 percent in constant currencies in the fourth quarter, with a hike in online sales.
Another change of management was implemented at Mountain Hardwear, where Joe Vernachio has been building his team. Boyle said that the new leadership wanted to underscore Mountain Hardwear's positioning as a high-end alpinist brand, focusing on the climbing community.
Mountain Hardwear suffered a sales dip of 2 percent to $101.6 million in 2017. The group predicts continued pressure on this brand in 2018 but was encouraged by a return to growth in its order book for fall 2018. Boyle told analysts that the response to new products has been favorable, and that the brand has been recapturing floor space in several key accounts.
The Columbia Sportswear group's retail business as a whole accounted for about 40 percent of its turnover, up by two percentage points. The group said it should continue to outpace the growth of the wholesale business in 2018. It should add about eight stores in the U.S. market and four or five in Europe, while continuing to build out its Chinese joint venture.
Columbia Sportswear's gross profit margin moved up by 0.3 percentage points to 47.0 percent. The operating profit margin contracted by 0.1 percentage point to 10.7 percent but it would have firmed up by 0.5 percentage points to 11.3 percent without the costs related to Project Connect. Compared with net income of $191.9 million in 2016, the group's net profit for 2017 shrank by 45 percent to $105.1 million in reported terms but it was up by 9 percent to $210.1 million on an underlying basis.
The outdoor group predicts a sales hike of 5.5 percent to 7.5 percent in reported terms for 2018, with an operating margin of 10.1 percent to 10.3 percent and net income of $203 million to $211 million. The guidance integrates modest financial benefits from its Project Connect initiatives in 2018, but the group wants to capture more meaningful financial value from this project next year.