Sales at Columbia Sportswear fell by 16 percent to $179.3 million for the second quarter ended June 30, with declines in most geographic, category and brand areas. Four percentage points were due to currency fluctuations.
The second quarter typically accounts for just 15 percent of the company’s annual sales. The gross margin went up by 1.3 percentage points to 41.5 percent on a more favorable regional sales mix, a drop in lower-gross-margin sales through distributors and more high-gross-margin sales in U.S. retail stores.
The company reported a net loss of $9.9 million, up from a drop of $1.8 million last year. The results were better than forecast in the spring as sales didn’t decline as much as expected, and the company worked hard to manage expenses even beyond the cost-cutting measures it had implemented before.
Revenues from Europe, the Middle East and Africa (EMEA) dropped at an ominous rate of 47 percent to $33.7 million in dollar terms, with some key distributors hurt by the global economy and some product issues affecting other markets. The drop would have been 5 percentage points lower without the regained strength of the dollar.
The distributor business in the EMEA was down just over 50 percent as Columbia’s biggest regions in this respect (we suspect various Eastern European markets) were hardest hit by the economic downturn. In the countries where Columbia controls the distribution, sales were off by more than 30 percent in dollars, including a negative effect of 11 percentage points from currencies. Also, some shipments of autumn merchandise were delayed until the third quarter.
Sales in Latin America and Asia/Pacific declined just slightly to $39.9 million, affected by currencies – Japanese sales got a 5-percentage point gain, while Korea’s 20-percent-plus increase ended up being a drop of 2 percent in reported dollars.
Canadian sales dropped by 44 percent to $7.9 million, 10 percent of which was from currency effects. Turnover increased in the U.S., growing by 2 percent to $97.7 million, helped by an increase in the direct business, which offset a high-single-digit decline in the wholesale business.
By category, sportswear sales fell by 14.8 percent to $98.4 million, outerwear sales dropped by 16.0 percent to $35.1 million, footwear was down by 21.4 percent to $33.4 million, and equipment and accessories dropped by 7.5 percent to $12.3 million. Average selling prices for apparel were up by about 10 percent. The drops in footwear and outerwear were attributed partly to weakness in Europe.
Of the company’s brands, Columbia’s sales were down by 16.5 percent to $162.0 million, Mountain Hardwear fell by 4.3 percent to $13.2 million, Sorel had a decline of 33.3 percent to $1.6 million and Montrail decreased by 14.3 percent to $2.4 million.
Columbia said it is encouraged by the product flow that is being delivered by its revamped staff, and expects to see improvement next spring and a major upgrade in autumn 2010. It has restructured it team to focus on six activities – winter, water, trail, travel, golf and hunting/fishing – instead of its former approach that focused on various generic categories of apparel and footwear.
The company said it would not speculate on inventory for the second half, but it expects sales to drop in the low double digits in the third quarter and for the full year based on a 15 percent drop in orders. Wholesale sales are expected to fall by the mid-teens. Columbia plans to add 19 stores to its total in North America and Europe by the end of the year, ending up with 48 stores in the U.S., 10 in Europe and three in Canada.
Last week, Columbia launched – as reported earlier – its online store where consumers can purchase directly from the company. The e-commerce distribution channel complements other direct-to-consumer activities such as regular corporate stores and factory outlets. Columbia’s internet business is, however, limited to the U.S. market for now. The website also does referrals to independent retailers that are closest to the consumer.