Columbia Sportswear saw second-quarter sales rise 2% to a record $578.1 million, but net profit fell 82% to $7.2 million.
In a word: Columbia Sportswear Company, a producer and distributor of outdoor, sports and lifestyle apparel, footwear, accessories and equipment, while announcing its second-quarter financial results on Wednesday, cut its sales and revenue outlook for the year due to a “challenging” operating environment and “economic uncertainty”.
Columbia forecasts net sales of $3.44 billion to $3.50 billion, down from earlier estimates of $3.63 billion to $3.69 billion, representing net sales growth of 10% to 12%, down compared to previous expectations of 16% to 18%, compared to 2021.
Net income is expected to be $315 million to $340 million, down from the prior guidance of $363 million to $382 million, which will result in diluted earnings per share (EPS) of 5. 00 to $5.40, down from the previous estimate of $5.70 to $6.00.
Operating profit is now expected to be between $415 million and $449 million, compared to an earlier estimate of $477 million to $502 million, representing an operating margin of 12.1% to 12.8% , down from 13.2% to 13.6%. Diluted earnings per share are now expected to be between $5.00 and $5.40, compared to $5.70 and $6.00 previously forecast.
Gross margin is expected to contract 210 to 180 basis points from the previous estimate of a contraction of 130 basis points, to 49.5% to 49.8%, from around 50.3% previously, net sales compared to 51.6% of net sales in 2021.
SG&A expenses are expected to increase roughly in line with net sales growth. SG&A expense as a percentage of net sales is expected to be 37.6-38.0%, compared to previous estimates of 37.3%-37.7%, versus SG&A expense as a percentage of net sales of 37.8 % in 2021.
“In the United States, inflationary pressures, rising interest rates and fears of recession are weighing on consumer and retailer sentiment,” Tim Boyle, chairman and chief executive of Columbia Sportswear, told analysts during a briefing. a conference call. “Our updated outlook contemplates higher order cancellation risks and more conservative DTC assumptions. It also assumes a more promotional environment as the market seeks to rationalize inventory levels. We have been through many economic cycles in the 84 years of our company’s history, I am confident that our portfolio of differentiated brands, our operational discipline and our strong financial position will enable us to manage this cycle effectively.
The company said SG&A expenses rose 7% to $281.3 million, or 48.7% of net sales, from $261.8 million, or 46.2% of net sales, for the period. 2021 comparable. Growth in general and administrative expenses primarily reflects broad-based increases across the business, driven by personnel costs, which were driven by increased headcount, as well as salary increases .
Inventory increased 42% to $962.9 million during the period from $676 million as of June 30, 2021. Inventory growth reflects increased inventory purchases in anticipation of sales growth of spring and fall 2022 merchandise, lower than normal inventory levels for the same period of the year and net sales lower than originally forecast since the start of the year due to a combination of factors, including a decrease substantial shipments from Russia-based distributors, the impact of zero-Covid restrictions in China and lower-than-expected net sales in the United States
The increase in stocks in transit in the fall also contributed significantly to the increase in stocks. With higher inventory levels expected, Columbia said it is adjusting its future inventory purchases and plans to make more use of its outlet stores to sell excess merchandise.
Boyle said he’s confident in the quality of Columbia’s inventory, which includes a high proportion of evergreen styles that don’t change from season to season, reducing promotional price exposure.
“We also have a fleet of factory outlets, which allows us to profitably sell remaining high-quality inventory,” he said. “As the demand environment evolves, we have been focused on limiting expense growth to manage profitability. Outerwear and winter merchandise inventories are very thin at retail after a bumper sale We have a strong backlog for Fall 22 to deliver and retailers are eager to put in place initial lows ahead of consumer demand due to weather conditions.
Sales: Net sales for the second quarter ended June 30 increased 2% from the second quarter of 2021 to a record $578.1 million, compared to $566.4 million for the comparable period in 2021.
This increase mainly reflects growth in the United States, Canada, direct in Europe, Japan and South Korea, partially offset by a substantial decline in net sales from distributors based in Russia and China.
Earnings: Net income for the quarter fell 82% to $7.2 million, or 11 cents per diluted share, from net income of $40.7 million, or 61 cents, for the comparable period in 2021.
Operating profit decreased 75% to $8.8 million, or 1.5% of net sales, compared to second quarter 2021 operating profit of $35 million, or 6.2% of net sales. net sales.
Gross margin contracted by 240 basis points to 49.2% of net sales, compared to 51.6% of net sales for the comparable period in 2021. The decline was mainly due to higher costs inbound freight and lower wholesale margins, partially offset by favorable channel mix and regional sales.
Opinion of the CEO: Boyle said, “First half net sales increased 12%, reflecting the strength of our brand portfolio in a rapidly changing and increasingly challenging economic environment. All of our brands contributed to this growth, led by Sorel, up 33%, fueled by the brand’s bold new summer and year-round styles. During the second quarter, which is the quarter where we recorded the lowest volume of sales, the performance trends varied greatly from one region to another. Many markets continued to see significant sales growth, while others were impacted by external headwinds and shipping delays. As we head into the important fall sales season, we can’t wait to bring our innovative product to market. »
“Our confidence in our strategies and our ability to unlock huge long-term growth opportunities remain intact,” Boyle added. “However, as 2022 progresses, it is increasingly clear that the operating environment has become more challenging. Given the growing economic uncertainty, we believe it is prudent to take a more cautious approach to our financial outlook for the rest of the year.