Columbia Sportswear's sales soared by 22 percent to $47.8 million in Europe, the Middle East and Africa (EMEA) for the first quarter of this year, marking a return to expansion in this regional market. It contributed to an ample increase in sales and record income for the entire group, as well as an upgraded profit forecast.
The European sales jump included incremental turnover of $2.0 million from Prana, the yoga and outdoor brand acquired by Columbia Sportswear last May, but the rise would have been more impressive without changes in currency exchange rates, which had a negative impact of about 15 percentage points on its regional sales. The Columbia group's sales in Europe as well as North America were supported by the cold weather.
The entire company's turnover reached $479.0 million for the quarter, which was an increase of 13 percent in reported terms and 17 percent in constant currencies. Prana added $37.1 million to the group's turnover. Columbia brand sales advanced by 7 percent to $401.0 million, while Sorel's turnover improved by 4 percent to $13.4 million.
Meanwhile, Mountain Hardwear's sales retreated by 23 percent to $25.1 million. The company blamed this on lower close-out sales in North America, as well as the situation in the South Korean market. However, it still predicts that Mountain Hardwear's sales for the full year will be comparable to the previous year.
Tim Boyle, the company's chief executive officer, hailed the return to expansion in Europe, where a fresh management team assembled in the last 18 months has been focusing on improving the group's product offering and rebuilding relationships with retailers in key markets. In a conference call two weeks ago, Boyle described the company's European chief, Franco Fogliato, as an apparel specialist who is taking a pragmatic approach and focusing on a narrow range of markets and high-volume retail customers.
European sales of Columbia-branded apparel jumped by 10 percent in dollars and by nearly 30 percent in constant currencies, while footwear sales soared by about 60 percent in dollars and more than 80 percent in constant currencies. Sales were inflated by early shipments as well as increased pre-orders of spring products. Footwear made up more than half of the European sales growth for the quarter, driven by the trail category.
The company's sales were also spurred by outstanding sell-through in wholesale accounts in North America – for winter products, due to favorable weather in the eastern half of North America, and for spring products, in spite of the lingering cold temperatures. The rise in sell-through was led by performance fishing ranges, outerwear and footwear. Along the same lines, the group's own retail operations saw strong sales of outerwear and cold weather footwear, as well as spring sportswear, trail running footwear and fishing gear. This demand is helping to make the company less weather-dependent, Boyle said.
Expansion in key European markets and North America easily made up for more troublesome markets such as South Korea and Russia. Boyle said that Columbia continued to have confidence in its longtime Russian distribution partner and in the recovery of a market beset by dropping oil prices as well as the collapse of the ruble. When it comes to South Korea, Boyle said that the company's managers had allowed inventories to get bloated while the market expanded rapidly. The company has hired a seasoned general manager to start in the middle of May, while working to get its inventories back into balance rapidly.
Boyle added that Sorel was poised for a strong second half and the footwear brand's sales could reach more than $200 million for the full year. The brand's potential is to be explored more thoroughly in Europe, among other markets. As for Prana, Boyle said that the brand has not been expanding in international markets as rapidly as Columbia hoped when the takeover was finalized last year, but it remains on track to deliver annualized growth of more than 20 percent and to reach sales of $120 million for the full year.
The Columbia group's sales jumped by 18 percent in the U.S. market to $283.8 million for the quarter, with Prana adding sales of $30.8 million. Sales were up by 28 percent to $34.3 million in Canada, with Prana contributing an added $4.0 million but an unfavorable impact of 12 percent from the dollar exchange rate.
Sales in Latin America and Asia-Pacific dwindled by 3 percent to $113.1 million for the quarter, but this was due to unfavorable exchange rate changes, which had a negative impact of 6 percentage points.
Sales of apparel, accessories and equipment reached $399.3 million, up by 13 percent. The same increase applies for footwear, with sales reaching $79.7 million for the quarter.
The group's gross margin rose by 1.3 percentage points to a record 47.8 percent, on the back of more online sales, the increased weight of Sorel's women's products in the mix, and Prana's increased margins. Operating income for the quarter advanced by 24 percent to $44.1 million. This amounted to an operating margin of 9.2 percent, up by 0.8 percentage points. The group ended the quarter with net income of $26.5 million, which was an increase of 19 percent.
A sharp rise in inventories at the end of the quarter was attributed to stronger demand and earlier deliveries. This rise should be further supported by expansion in Europe and continued store openings for the Columbia and Prana brands. Boyle said the company had opened 16 stores in 2014 and acquired five Prana stores in North America, and it intended to open a similar number in 2015.
With regard to logistics, the group's business with international distributors is to switch to the group's ERP system, which already handles the company's own retail operations and its North American wholesale business. This will occur after the heavy spring shipping season.
For the full year, the company still predicts high single-digit sales growth, including a negative impact of about 4 percentage points from changes in currency exchange rates, but the group has upgraded its profit forecast. The factors behind this change in guidance include improvements in Europe and the avid demand for Sorel.
The gross margin should move up by about 0.5 percentage points and operating margin is predicted to reach about 10.2 percent for the full year, up from 9.5 percent last year – despite a planned increase in marketing spend to reach 5.4 percent of sales this year, against 5.2 percent in 2014. Net income after non-controlling interests is predicted to land between $154 million and $161 million, against $137.2 million in 2014.
Much of the improvement should come in the second half, since the company predicts roughly flat operating margin of 2.5 percent in the first half, due to the seasonally weak sales in the second quarter. Net income for the first half is also expected to drop to between $7 and $10.0 million, compared with $15.9 million in the same half in 2014, partly due to a non-recurrent tax benefit of $5.6 million for the period last year.