Columbia Sportswear has met robust demand in Europe, the Middle East in Africa (EMEA) in the third quarter, with a regional sales increase of 15 percent in constant currencies.
The increase has helped the U.S. outdoor company to report a sales increase of 1 percent to $747.4 million for the quarter. Its sales dipped by 6 percent in the U.S. market to $456.0 million, but they increased in all other regional markets.
Based on its advance orders for early next year, Columbia Sportswear is optimistic that it will continue to generate global growth in the first half of 2018, including a return to expansion in its U.S. wholesale business.
The most substantial rise for the three months until the end of September came from EMEA, where Columbia Sportswear reported a sales jump of 20 percent to $87.5 million. The company saw increases in the same range in its own retail and wholesale business, which was fueled by advance orders from its Russian partner. The growth was said to be broad-based for the Columbia brand, across product categories, customers and countries, and it was further fueled by a 30 percent rise in regional sales of the Sorel brand.
After achieving break-even in EMEA last year, Columbia Sportswear anticipates that its European wholesale and retail business will be profitable this year. As previously reported, Franco Fogliato, who drove the expansion, was asked in June to relocate to Portland to support the increased focus on the North American market, while Matthieu Schegg took over as general manager in Europe.
Sales in Latin America and Asia-Pacific (LAAP) were up by 9 percent to $123.0 million, which was a rise of 11 percent in constant currencies. Sales to regional distributors surged by more than 30 percent in sales to regional distributors, due to a shift in the timing of orders. The sales of Columbia Sportswear's joint venture in China moved up at a high single-digit rate, fueled by digital wholesale and own e-commerce sales. The outdoor group's South Korean sales increased at a mid-teens rate, with new wholesale customers who helped to clean up inventories. Japanese sales were down at a low single-digit rate in reported terms, but they moved up at a mid-single-digit rate in yen.
Canadian sales climbed by 8 percent to $80.9 million, up by 4 percent in constant currencies. However, the group's wholesale business in the U.S. market was down at a low double-digit rate, due to a shift in deliveries and the impact of retail business failures. Without the timing shift, Columbia Sportswear's U.S. wholesale business in the third quarter would have declined by 5 percent instead of the reported drop of 12 percent, and the group's U.S. sales would have been flat for the quarter.
This was partly compensated by a low double-digit rise in U.S. own retail sales, with increases in comparable sales of its stationary stores, extra stores and high single-digit growth in online sales. Columbia Sportswear operated 127 retail stores and four online stores in the U.S. in the quarter, up from 115 outlets and five brand online stores at the same time last year.
The Columbia brand's turnover reached $598.3 million for the quarter, up by 2 percent in constant currencies and in reported terms. It has installed over 150 Columbia shop-in-shops and enhanced brand presentations in key partner stores, with plans to nearly double that number by the end of the year. Columbia has also benefited from investments in the Tested Tough marketing platform and the brand is launching a new seasonal campaign, Columbia Warm.
The Sorel brand's sales shrank by 7 percent to $81.7 million, and they were off by 8 percent in constant currencies, despite the sharp rise in Europe. Prana's sales of $36.8 million meant a sales decline of 3 percent with or without exchange rate changes, which was blamed on weaker wholesale business. But sell-through in the early fall has been strong for key wholesale customers, led by demand for yoga and swimming products, which has encouraged the group to predict low single-digit growth for Prana for the full year.
Sluggish demand from U.S. retailers was the primary cause for the Mountain Hardwear brand's sales decline of 4 percent to $29.4 million. Mountain Hardwear's new president, Joe Vernachio, is continuing to build a new product team to come up with a high-performance product offering. The Columbia group's guidance anticipates a low single-digit percentage sales decline for the brand in the full year.
Across all of the group's brands, sales of apparel, accessories and equipment moved up by 1 percent to $580.0 million, while footwear sales dipped by 2 percent to $167.4 million. This was a decline of 3 percent in constant currencies, caused by lower Sorel brand sales, while demand firmed up for Columbia footwear.
Columbia Sportswear's gross margin was up by 0.3 percentage points to 46.7 percent. Its operating profit margin amounted to 16.4 percent, down by 0.2 percentage points, but this year's figure included one-off costs of $3.3 million for Project Connect, which was launched to reassess the company's operating model and to accelerate the implementation of its strategic plan. The group's income improved by 5 percent to $87.7 million, including costs of about $2.1 million related to Project Connect.
The project includes some short-term plans, such as online sales optimization and indirect procurement. Others have longer lead times, for example those relating to assortment optimization, meaning it could take until 2020 to fully implement them and realize the benefits. The group intends to redirect a significant portion of any benefits toward extra marketing spend.
For the first nine months of this year, Columbia Sportswear's sales moved up by 2 percent to $1,690.1 million. About $8.6 million of the Project Connect costs were incurred in this period. The group's operating income was down by 2 percent but its net income climbed by 5 percent to $112.2 million, with $5.4 million of costs relating to the Project Connect.
The group's adjusted guidance for the full year calls for sales to move up by about 3 percent from $2.38 billion in 2016, with a positive impact of less than 1 percentage point related to exchange rate changes. Columbia Sportswear's operating income is set to reach between $243 million and $252 million, amounting to an operating profit margin in the range of 10.3 percent, with $15.0 million of expenses relating to Project Connect. Net income should land at about $183 million to $190 million.
The group added that, given the level of advance orders for early next year, it was optimistic that it would continue to generate growth in the first half of 2018, including a return to expansion in its U.S. wholesale business.