Columbia Sportswear's sales jumped by 27 percent in the fourth quarter of 2014 to $677.0 million, generating a 57 percent higher operating profit, equal to 12.1 percent of sales, and a 51 percent higher net income of $55.6 million. On an adjusted basis, the operating margin reached 13.0 percent, up sharply from 9.8 percent in the same period a year earlier. About half of the improvement in profits came from the group's new joint venture in China.
Organically, excluding the Chinese joint venture and the recent acquisition of Prana, sales went up by 15 percent, and they would have risen by 17 percent if currencies had remained the same. Sales went up in dollars by 31 percent in the U.S. as well as in the Latin America/Asia Pacific (LAAP) region, thanks to a very cold winter in North America and the Chinese joint venture. They were essentially flat in dollars and up by 2 percent in local currencies in Europe, the Middle East and Africa (EMEA), due to mild weather conditions.
By brand, sales in dollars increased in the quarter by 23 percent for Columbia, driven by its Turbo Down products, and by 40 percent for Sorel, but they fell by 7 percent at Mountain Hardwear. By product, footwear had the highest growth at 43 percent, while apparel, accessories and equipment were up by 23 percent.
At 9.5 percent, the operating margin was lower for the full year than in the quarter, but the group's annual operating earnings grew by 51 percent on 25 percent higher sales of $2,100.6 million, and one of the group's priorities is to raise it to higher levels. Organically, the annual turnover increased by 12 percent in dollars and by 13 percent on a currency-neutral basis.
Geographically, total sales grew in the U.S. by 23 percent for the year to $1,198.4 million, in LAAP by 39 percent to $491.6 million, and in EMEA by 8 percent to $259.2 million, with currency-neutral growth in that region of 7 percent. Most of the growth in Europe took place in directly controlled market, where the new management is focusing on key accounts. The business with Sportmaster in Russia grew, too, in spite of the local economy, but was below expectations.
The Columbia brand grew by 24 percent in the year, driven by Turbo Down. Sorel went up by 29 percent, with a 60 percent jump in its direct-to-consumer business, as the brand continues to develop a more fashionable offer for young women all year ‘round. Mountain Hardwear declined by 10 percent, due in part to the weakness of the Korean market, which is expected to persist in 2015. Prana contributed sales of $53.7 million for the year.
Sales of footwear jumped by 37 percent across the group, reaching $424.4 million for the year, and the management sees further potential for growth in this category, which may one day represent half of total sales. Sales of apparel, accessories and equipment increased by 22 percent to $1,676.2 million.
The group's gross margin reached a ten-year record of 45.5 percent of sales in 2014, up from 44.1 percent in 2013. Net earnings increased by 45 percent to $137.2 million, and the management predicts that they will grow further in 2015, reaching a level of between $150 and $157 million in spite of the strong U.S. dollar, which is expected to shave revenue growth by three percentage points and operating profits by 0.4 percentage points. Most of the improvement in profitability should take place in the second half, thanks in part to the implementation of the group's new ERP platform in Europe and Asia, which has helped to increase inventory turns to 2.8 times in the U.S.
The group is facing several adverse conditions this year including currency headwinds, the problems in Russia and relatively saturated markets in China and Korea. Nevertheless, sales will probably grow at a low double-digit rate in local currencies, driven by Columbia, Prana and Sorel, but at only a high single digit in dollars. Prana will add more accounts outside the U.S. The introduction of lower entry prices should help Mountain Hardwear's recovery. Sales in Europe could drop by a mid-single digit as a strong direct business will be offset with a weaker performance in Russia.
The group's operating margin for the year is budgeted at 9.7 percent, with a slight erosion in Europe due to the weakness of the euro. Prices will be raised selectively outside the U.S. to soften the effect of the dollar, which could halve the projected increase in gross margins to only around 0.2 percentage points.
The group plans to raise its marketing spend from 5.2 to 5.3 percent of sales in 2015, making it more efficient. It plans to spend more in marketing also in Europe.
