Columbia Sportswear has upgraded its guidance for the full year, after broad-based increases in sales and profits for the third quarter.
The group's turnover moved up by 6 percent to $795.8 million for the three months, up by 7 percent in constant currencies, with equivalent increases for the apparel and footwear categories. Its operating income was up by 5 percent to $129.1 million, and its net income came in at $100.2 million, up by 14 percent.
The sales hike was fueled by own retail sales, which were up by 23 percent to $251.0 million for the quarter. The group's wholesale business was nearly flat at $544.8 million, up by 1 percent in constant currencies.
Tim Boyle, Columbia Sportswear's chief executive, said in a statement that he was particularly enthused about the performance of the Columbia brand in the U.S. market, and the outstanding early sell-through of its product range for the second half of the year. He regarded this as an indication that the group's investments to become a more brand-driven and consumer-focused organization are starting to pay off.
Columbia Sportswear managed a 9 percent increase in U.S. sales to $496.2 million for the quarter. They moved up at a low single-digit rate in wholesaling and by more than 20 percent in its direct-to-consumer business, which outperformed projections in terms of store productivity gains and online sales. The group operated 135 stores across the U.S. market at the end of September, eight more than the previous year.
Europe, the Middle East and Africa (EMEA) generated a sales hike of 15 percent to $100.3 million, as Columbia Sportswear's regional subsidiaries raised their sales at a high-teens rate, making up for flat sales to regional distributors.
Boyle told analysts in a call last week that the group's own European business has become profitable again in the last two years, but it has the infrastructure and the teams in place to support a much larger business. Columbia implemented the SAP platform in Europe in the first half of this year.
Sales in Latin America and Asia-Pacific actually declined by 4 percent to $118.4 million for the three months, down by 3 percent in constant currencies. While the group saw sales increases in Japan and Korea, its sales were off in China and the same applied for sales to regional distributors.
The China business alone was down at a low double-digit rate for the quarter. Columbia is hiring a new general manager for China and investing in its Chinese stores, with full renovation to be completed in 135 of them this year. Columbia Sportswear anticipates that growth will resume in its Chinese business in the fourth quarter.
Boyle said last week that the group considers China its largest single geographic opportunity. The purchase of the remaining 40 percent interest in its Chinese joint venture is on track to be finalized early next year.
Canadian sales remained flat at $80.9 million, which was a rise of 3 percent in constant currencies. It was driven by own retail business, while sales to wholesale partners were flat.
Three of Columbia Sportswear's largest brands met stronger demand in the quarter. Columbia's sales jumped by 7 percent to $640.9 million, up 8 percent in constant currencies. It obtained favorable reactions to its Omni-Heat 3D range, and sell-through so far has been promising. Columbia continues to invest in the trail footwear category as well, including a three-year extension of its partnership with the Ultra-Trail du Mont Blanc.
Sorel contributed sales of $91.2 million, up by 12 percent in reported terms and by 13 percent in constant currencies. Prana's sales moved up by 8 percent to $39.9 million. But Mountain Hardwear suffered another setback, with a slump of 22 percent to $23.0 million, down by 21 percent in constant currencies.
The company said this was chiefly due to lower closeout sales, and Mountain Hardwear's decision to exit the Korean market. Its inventory is clean and the group has been encouraged by indications of a return to growth for the brand in the U.S. market.
For the first nine months of this year, Columbia Sportswear's sales advanced by 12 percent to $1,844.7 million, up 10 percent in constant currencies. It brought in net profit of $155.0 million, up by 38 percent.
The group is projecting a sales increase of 11.0 percent to 11.5 percent for the full year, up from an earlier forecast of 9.0 percent to 10.5 percent. While it previously anticipated an increase of up to 1.4 percentage points in its gross margin, this projection has been upgraded to a rise of up to 1.65 percentage points. The operating profit margin should end up between 11.2 percent and 11.3 percent, up from the earlier forecast of 10.6 percent to 10.8 percent.
For next year the group is projecting high-single-digit sales growth and a low-double-digit net income increase, with meaningful financial gains related to Project Connect. Because of its buyout in China, the company added that it will no longer record a non-controlling interest share of net income, which amounted to $7.2 million in 2017 and $6.6 million in the first nine months of 2018.
Boyle told analysts that the escalating global trade battles have the potential to disrupt Columbia's business and affect its customers in many countries. This includes the U.S., where tariffs on apparel and footwear already average double digits.
However, the direct impact on Columbia's business is mitigated by the diversity of its product range and sourcing. Products sourced in China will make up 10 percent of the group's imported value in the U.S. market this year, more heavily weighted toward footwear than apparel. Boyle said that its primary product categories will not be impacted by the $200 billion round of tariffs set to go into effect at the start of January. It faced a small impact on an accessory category, which will not have a material impact on its financial performance.