Bloated inventories and challenging market conditions in the USA are forcing Columbia Sportswear to take a “more conservative” stance on its H2 and full-year results despite explosive year-over-year Q2 sales growth in China and in its lower-margin international distributor businesses.
Saddled with a 21 percent year-over-year increase in Q2 end inventories to nearly $1.2 billion despite early shipments of key Q3 orders, Columbia is now forecasting FY23 operating income to be down -6 to -12 percent ($348 to $368 million) versus its prior guidance of +5 to +10 percent. The net income outlook, meanwhile, is now forecast to decline by -8 to -10 percent to $272 to $288 million versus prior expectations of 3 to 8 percent growth.
The company, which wants to get its business into stronger form heading into FY24, has lowered its H2 inventory buys, will increase sales within its outlet stores over the six months, and intends to lower its year-end inventory level by more than $200 million.
In Q2, Columbia’s lowest sales volume quarter of the FY, global net sales increased by 7 percent on a reported basis to $620.9 million from $578.1 million, driven by international sales growth, earlier Fall ’23 shipments of distributor orders, and 140 percent year-over-year sales growth in China. Wholesale revenues increased by 9 percent to $328 million and were up by 7 percent in the DTC channel to $293 million. The earlier distributor shipments helped to offset slower growth in the company’s U.S. DTC business. Net income slipped by 16.6 percent to $8.4 million from $7.2 million, and operating margin was down by 29 percent to $6.2 million, impacted by an 11 percent rise in SG&A expense to $312.5 million that was related to DTC costs, supply chain, and spending on enterprise technology. Lower inbound freight costs and, to a lesser degree, changes in inventory provision, contributed to 140 basis point expansion in quarterly gross margin to 50.6 percent.
Regional Q2 sales showed a 3 percent decline in the U.S. to $399 million, with wholesale down by a high-single-digit, DTC brick-and-mortar up by mid-single digits and e-commerce down by mid-single digits as the company opened temporary outlets to move excess inventory. Sales in the EMEA rose by 75 percent to $101 million, fueled by “healthy” DTC results and were 28 percent higher in the LAAP, with revenues in China up 140 percent year-over-year, sales increased by 28 percent to $93 million. Sales in Canada fell by 16 percent on a constant-currency basis to $28 million. By product segment, footwear, helped by early shipments of Fall ’23 orders and higher closeout sales, increased by 22 percent on a constant-currency basis to $132 million. Apparel/Accessories/Equipment sales were 6 percent higher on a constant-currency basis to $489 million.
As for brand performance in Q2, Columbia sales lifted 11 percent higher to $537 million, and Sorel sales increased by 32 percent to $38 million. Both brands benefited from early Fall ’23 shipments. PrAna revenues declined by 32 percent to $28 million, and Mountain Hardwear sales were down 19 percent to $18 million.
