Columbia Sportswear has embarked on a project to increase brand awareness and sales growth across its wholesale and retail business, with a focus on digital sales and infrastructure. This comes after an assessment of the outdoor group's operating model, which has already led to a substantial management reshuffle last month.
Project Connect, unveiled by Columbia last week, is reminiscent of the plans discussed by many other sports and outdoor companies in the last months. Extra investments in direct-to-consumer sales come after several U.S. retail failures, and they more broadly address ongoing concentration in the retail market and the rise of online retailing. However, Columbia made it clear that its own investments are meant to strongly support its wholesale business as well.
Tim Boyle, Columbia Sportswear's president and chief executive, explained in a conference call with analysts that the management changes were meant to create a brand-led structure in which each of the brand leaders could implement their distinct strategy across regional markets and distribution channels. As previously reported, the changes include Franco Fogliato's relocation to Portland as executive vice president and general manager of the group's wholesale and retail channels in North America, while Matthew Schegg has become vice president and general manager for the same channels in Europe.
Project Connect constitutes the second phase of the realignment at Columbia Sportswear. The group's first priority is to drive brand awareness and sales growth in its wholesale and retail channels through increased marketing spend. The second item is to enhance consumer experience and digital infrastructure. Then, the U.S. outdoor group wants to expand and improve its global direct-to-consumer channels, with investments in the supporting processes and systems. The fourth item on the list is investment in employees and the organization across all brands.
More broadly, the group wants to adjust its organization and infrastructure and increase strategic investments to move faster in areas where it has identified the largest growth opportunities. Columbia is working to shift resources to these business areas, in terms of digital infrastructure, product innovation and marketing investment.
An objective that apparently applies across business areas is to optimize global online platforms. Boyle explained that this would help to efficiently engage with consumers, but he emphasized that online investments should be even more important to draw customers to each of its brands through all distribution channels.
Columbia Sportswear conducted a thorough consumer insight study to support the entire project. The outcome will be used by product creation and marketing teams to create more efficient product ranges, built around the products and functions that consumers find most valuable.
Boyle was eager to emphasize that the company is embarking on the project from a position of strength, including a balance sheet with more than $600 million in cash and no long-term debt.
The plans were detailed as the Columbia group reported a sales increase of 3 percent to $398.9 million for the second quarter. The performance was strongest in Europe, the Middle East and Asia (EMEA), where the group's sales advanced by 16 percent in constant currencies.
Columbia Sportswear also expanded by 4 percent to $238.2 million in the U.S. market, although that came entirely from own retail sales, while the group's wholesale business was down at a high single-digit percentage rate. Sales in Canada advanced by 5 percent in constant currencies but they declined by 8 percent in Latin America and Asia Pacific (LAAP), due to lower sales in China and South Korea.
The Columbia brand's sales alone were up by 2 percent to $340.5 million, an increase of 3 percent in constant currencies for the quarter. Its turnover was up by 2 percent to $789.6 million and by 3 percent in constant currencies for the first half, including a double-digit sales hike in constant currencies in EMEA. Both the brand's wholesale and retail sales climbed at a high-teens percentage rate in the region for the six months.
The only negative regional development for the Columbia brand in the six months was a decline at a high-single digit rate in the U.S. market, but this was chiefly due to customer bankruptcies, restructuring measures and liquidations, and its U.S. retail business was up by a high single-digit rate.
The Columbia brand's distributor business in Latin America and Asia Pacific generated increased revenues for the first half, with extra orders and a favorable shift in timing. The brand's turnover in China was up at a mid-single-digit rate in constant currencies, driven by online sales, while the department store business in the country appeared sluggish. The company's Chinese joint venture for the Columbia brand implemented a new ERP system in the quarter, which is fully up and running.
The Columbia brand's global marketing campaign for the coming autumn will focus on its lightweight warm and waterproof gear, under the tagline Columbia Warm. The company anticipates low single-digit growth in the Columbia brand for the second half.
The Sorel brand's sales soared by 71 percent to $6.0 million in the quarter and by 54 percent to $33.2 million in the six months. The big uptick was fueled by growing demand for spring products, and particularly sandals. The updated forecast for Sorel is that its sales should increase at a low single-digit rate in the second half and at a mid-single-digit rate for the full year.
Prana raised its sales by 9 percent to $35 million in the quarter and it was flat at $73.7 million for the six months. Its U.S. wholesale business firmed up, which compensated for a temporary decline in Prana's online business due to a cyber incident disclosed earlier this year. The forecast for the full year is that the brand's sales will move up at a low single-digit rate, concentrated in the fourth quarter.
Mountain Hardwear suffered a sales decline of 5 percent to $16.1 million for the quarter but after a stronger start this year its sales were up by 4 percent to $43.8 million for the six months. After the appointment of Joe Vernacchio as brand president, Mountain Hardwear has been reducing inventories and assessing current spending in order to improve its performance. Vernacchio has also been rebuilding Mountain Hardwear's product team with a focus on design, which should be fully reflected in the fall 2019 range. The brand's sales are predicted to drop at a mid-teen percentage rate in the second half and at a high single-digit rate for the full year.
The Columbia group's loss from operations reached $17.3 million for the quarter, including costs of about $4.0 million relating to the reassessment of the operating model. This compares with a loss of $11.8 million for the same quarter last year. It ended the quarter with a net loss of $11.5 million, widening a loss of $8.2 million in the same three months in 2016.
However, the group's net income for the first half moved up by 4 percent to $24.5 million, including costs of $5.2 million for the assessment, equivalent to $.3.3 million after tax. Without these costs, the group's income for the first half would have jumped by 18 percent.
The Columbia group is projecting a sales increase of 3 percent for the full year, including a currency hit of less than 1 percentage point, and most of the added sales should come from its own retail sales in the U.S. market. The group's operating income is projected to grow at the same rate, as an increase in gross margin should be offset by extra marketing spend. This would imply operating income in the range of $256 million to $265 million, while net earnings should increase by 4 percent to reach between $193 million and $200 million.