Columbia Sportswear saw revenues decline by 4.0 percent to $434.5 million for the third quarter ended Sept. 30, and net income fell by 19.6 percent to $46.9 million. However, the sales decline was more than $30 million better than forecast. The company attributed this to relatively cold weather and higher-than-expected demand in the U.S. According to Tim Boyle, the company’s chief executive, the third quarter is usually the strongest for sales in the entire fiscal year.
The gross margin fell by 1.3 percentage points to 43.4 percent, largely because of decreased wholesale margins in outerwear in Europe and in North America.
Total orders are down by 9 percent. Columbia’s wholesale backlog for spring deliveries was down by 5 percent to $350.8 million, despite a 2 percent benefit from currency, with an ominous 22 percent drop in its Europe, Middle East and Africa (EMEA) business
The management pointed to the significant exposure that the company has to the weak Russian market. In the U.S. and elsewhere, backlogs were essentially flat.
By brand, Columbia's revenues fell by 6.3 percent to $370.3 million; Mountain Hardwear was flat at $35.2 million; Sorel jumped by 42.1 percent to $27.0 million; and others, including Pacific Trail and Montrail, fell by 33.3 percent to $2.0 million.
From a category perspective, sportswear sales fell by 9.3 percent in the third quarter to $142.9 million, outerwear decreased by 4.6 percent to $199.1 million, footwear rose by 10.5 percent to $70.3 million and accessories/equipment dropped by 2.2 percent to $22.2 million. While sales of Columbia-branded footwear were down, this development was offset by strong sales of the Sorel brand, notably in North America and Europe.
By region, EMEA sales fell by 13.4 percent in dollars to $67.7 million, with 3 percentage points attributable to currency effects. Footwear rose by 10 percent in this region, boosted by Sorel. Latin America and Asia-Pacific sales declined by 3.9 percent to $44.3 million, with a 2 percent negative currency impact. The softest markets were Argentina and Chile, and Japan is said to be weakening. Korea is performing well.
U.S. sales dropped by 1.4 percent to $267.4 million as a boom in retail sales balanced a decline in wholesale; Columbia has 47 stores now open in the U.S., compared with 29 at the end of the third quarter last year.
Sportswear suffered the most in the U.S., while Sorel grew by more than 10 percent. Canadian sales decreased by 3.0 percent to $55.1 million. There was a 2 percent positive impact on sales from currency. Sorel again contributed, with a 20 percent increase in footwear. Orders are down in that region.
Columbia noted that an early cold snap was a good indicator for fourth-quarter sales because that period is normally more weather-driven than any other. Also, there have been some signs that retailers are responding to the company’s initiatives to sell higher-priced products, especially in the specialty channel, where orders are positive.
The biggest bright spot was the improvement in Sorel brand sales, which was felt in EMEA, the U.S. and Canada, and Columbia will launch a new marketing campaign in November aimed at attracting the typical UGG customer. Its major challenge remains its heavy exposure in Russia, where macro-economic conditions have been challenging.
Boyle stated that he wished to blame problems on macro-economic issues and noted that he could not do that in Western Europe, while he definitely could in the east of the continent. As far as the spring 2010 backlog is concerned, wholesales were favorable compared with spring 2009 backlog, which included several retailers in the U.S. that liquidated or reorganized during 2009. For Western Europe, Boyle mentioned one insolvency of a major account: Karstadt in Germany.
With the budding upturn, Columbia said it now expects an 8-9 percent decline in sales for the year compared with an earlier forecast of a low-double-digit decline. Wholesale revenues are expected to be down in the mid-teens, partially offset by improved sales in the direct-to-consumer business.
The gross margin is expected to decline 1.0 percentage point on lower volumes, more close-outs and currency impact. The operating margin will fall by about 3.0 percentage points against 2008, including a $24.7 million impairment charge.
Columbia continues to develop its go-to-market strategy by opening more corporate stores. It plans to open its third corporate store after the ones in London and Frankfurt in the heart of Munich, just a few steps away from the door of The North Face in the city. The opening of the 450-square-meter surface is scheduled for December.
Shortly after the opening of a factory outlet in Salzburg, Columbia has opened another one in a factory outlet center in Zweibrücken, a German town close to the French border. It is the second Columbia and Sorel store of its type in Germany after it launched a factory store in Ingolstadt, a city between Munich and Nuremberg.