While Columbia Sportswear generated both lower gross and operating margins in Q1, the company was able to report 10 percent constant-currency revenue growth to $820.6 million thanks to early shipments of Spring 2023 wholesale orders and a reported 4 percent increase in direct-to-consumer sales to $368.1 million. “2023 is off to a solid start, and we are reiterating our full-year net sales outlook while narrowing our diluted EPS range,” Tim Boyle, president and CEO, said in a statement. “We are executing our plan to reduce inventory levels while focusing on profitability.”
| Columbia - Income | |||
|---|---|---|---|
| Q1 2023 ($ thousand) | |||
| 2023 | 2022 | Change | |
| Net sales | 820,593 | 761,510 | 7.8% |
| Cost of sales | 421,093 | 383,063 | 9.9% |
| Gross profit | 399,500 | 378,447 | 5.6% |
| Gross margin | 48.7% | 49.7% | -1.0pp |
| SGA expenses | 347,398 | 299,086 | 16.2% |
| Net licensing income | 4,325 | 4,305 | 0.5% |
| Operating income | 56,427 | 83,666 | -32.6% |
| Interest income, net | 3,283 | 395 | 731.1% |
| Other non-operating income, net | 850 | 44 | 1831.8% |
| Pre-tax | 60,560 | 84,105 | -28.0% |
| Tax | 14,358 | 17,268 | -16.9% |
| Net | 46,202 | 66,837 | -30.9% |
| Diluted EPS | 0.74 | 1.03 | -28.2% |
| Source: Columbia | |||
Increased promotional activity against the year-ago quarter, partially offset by better inbound freight costs, contributed to a 100-basis point contraction in Q1 gross margin to 48.7 percent from 49.7 percent. Meanwhile, the elevated promotional atmosphere coupled with higher SG&A expenses contributed to a 410-basis point drop in operating margin to 6.9 percent. Year-over-year net income slipped by 31 percent to $46.2 million from $66.8 million. Inventories were up 34 percent year-over-year at period end to $959 million, driven by higher carryover merchandise, earlier receipts of current season goods and increased older season inventories that were described as “a manageable portion” of the overall mix. Columbia has adjusted future purchases and is leveraging its outlet store segment to clear excess goods projected to remain elevated into H2. As inventory levels are reduced, the company expects to realize approximately $600 million in positive cash flow.
Canada grows, South Korea plummets
On the sales front, international market revenues increased by 25 percent on a constant currency basis, led by a reported 35 percent improvement in Canada to $58.4 million. EMEA sales, sparked by high 20 percent omnichannel growth and earlier spring shipments, rose by 14 percent on a reported basis to $108.3 million. EMEA distributor sales, impacted by a lack of sales into Russia, fell by a low-teens percentage. LAAP region sales, including low teens percentage growth in China and a low 20 percent decline in South Korea on a challenging footwear market and the impact of retail store closures, increased by 12 percent to $136.4 million. In Columbia’s home U.S. market, Q1 revenues grew 3 percent to $517.5 million.
| Columbia - sales (reported) | ||||
|---|---|---|---|---|
| Q1 2023 ($ million) | ||||
| 2023 | 2022 | Change | ||
| Regions | ||||
| U.S. | 517.5 | 501.9 | 3.1% | |
| Latin America & Asia-Pacific | 136.4 | 121.7 | 12.1% | |
| EMEA | 108.3 | 94.7 | 14.4% | |
| Canada | 58.4 | 43.2 | 35.2% | |
| Total | 820.6 | 761.5 | 7.8% | |
| Brands | ||||
| Columbia | 702.8 | 643.8 | 9.2% | |
| Sorel | 60.5 | 63.6 | -4.9% | |
| prAna | 32.5 | 32.7 | -0.6% | |
| Mountain Hardwear | 24.8 | 21.4 | 15.9% | |
| Total | 820.6 | 761.5 | 7.8% | |
| Product categories | ||||
| Apparel, accessories & equipment | 632.6 | 565.9 | 11.8% | |
| Footwear | 188.0 | 195.6 | -3.9% | |
| Total | 820.6 | 761.5 | 7.8% | |
| Channels | ||||
| Wholesale | 452.5 | 408.2 | 10.9% | |
| DTC | 368.1 | 353.3 | 4.2% | |
| Total | 820.6 | 761.5 | 7.8% | |
| Source: Columbia Sportswear | ||||
Mountain Hardwear sells best, Sorel performs weakly
By brand, Columbia’s Q1 sales were up a reported 9 percent to $702.8 million and Mountain Hardwear revenues expanded by 16 percent year-over-year to $24.8 million. But Sorel sales, hurt by lower wholesale, declined by 5 percent to $60.5 million, and prAna revenues dipped by 1 percent to $32.5 million. By product category, challenges in the market contributed to a 4 percent decline in footwear sales to $188.0 million. Apparel/Accessories/Equipment revenues rose 12 percent to $632.6 million. Despite the quarterly contraction, Columbia remains confident in its long-term footwear strategy, which included a Be the Goat marketing campaign in Q1, with an expected re-acceleration of its hike business this year. The winter footwear segment, which faced logistics issues last year, is forecast to improve this FY due to better on-time delivery rates.
Outlook remains confident, yet not expecting “great things” in 2023
With the Q1 results, the company maintained its FY23 revenue outlook of 3 to 6 percent revenue growth to a range of $3.57 to $3.67 billion, offering that its order book is based on a conservative outlook from its retail partners with “no one expecting great things from the back half of 2023,” Boyle offered.
Columbia has tightened its expected operating margin range to 11.6 to 11.8 percent and the top end of its net profitability range. Annual net profit is now pegged at between $322 to $336 million from $322 to $347 million previously. The group also lowered the high end of its FY EPS range, citing higher SG&A expenses. Q2 is forecast to be a slower growth quarter than Q1.
Meanwhile, Columbia has hired David Theiss as the brand’s new SVP of its North American direct-to-consumer business and installed Craig Zanon, SVP of emerging brands, as interim president of its prAna business as it searches for a new segment lead.
