Columbia Sportswear CEO Says Hike and Trail’s Glory Days Are Over
“2023 is off to a solid start,” said Tim Boyle, Columbia Sportswear chairman, president and CEO.
In a Nutshell: The outdoor apparel and footwear company reiterated full-year guidance for Fiscal 2023 after posting first quarter earnings.
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“We are executing on our plan to reduce inventory levels, while focusing on profitability,” Boyle said.
Columbia finished the first quarter with more than $460 million in cash and short-term investments, and no bank borrowings.
“International markets were resilient, growing 17 percent,” Boyle told investors on a conference call Thursday. U.S. outlet stores did brisk business. “Apparel category performance was also a bright spot as sales trends benefited from better availability of Spring ’23 product,” he said.
But the rest of the year could be a whole different story, especially with retail trying to get inventory under control.
“So no one is expecting great things from the back half of 2023,” Boyle said on the call. “Our order book is built on a conservative outlook from our retailers.”
E-commerce had a soft start to the first quarter, but higher promotions in February and March improved performance. U.S. e-commerce net sales declined by a high single-digit percent.
Columbia and Sorel suffered from footwear challenges and higher footwear channel inventory.
“Additionally, key categories such as hike and trail have softened following growth over the last several years,” Boyle said. Columbia is working to align inventory with demand.
He said SG&A expenses will be high until inventory gets back on track. While inbound freight costs are lower, the company is expecting higher-than-expected warehousing and fulfillment expenses to manager the higher inventory.
“We’re executing our plan to manage down inventory levels while focusing on profitability. We have a clear path to reducing year-end inventory by over $200 million compared to last year,” he told analysts.
Boyle also addressed Columbia’s latest innovation, Omni-Shade Broad Spectrum. It uses “engineered combinations of fiber, yarn and fabric structures to block wider range of harmful UVA and UVB rays,” he said. “Columbia is the first brand to label clothing as having broad-spectrum protection.”
At the end of the first quarter, inventories rose 34 percent to $959.2 million, from $714.4 million a year ago. “Elevated carryover inventory, earlier receipt of current season inventory, and to a lesser extent, increased older season inventory resulted in higher inventory levels,” the company said. It expects to liquidate carryover inventory in outlet stores this fall. Inventory was an issue in the fourth quarter as well.
Columbia expects inventory to be higher than it wants in the second quarter before falling in the third.
Net Sales: Net sales for the three months ended March 31 rose 8 percent to $820.6 million from $761.5 million a year ago.
“The increase in net sales primarily reflects earlier shipment of Spring 2023 wholesale orders and direct-to-consumer (DTC) growth,” Columbia said. U.S. DTC sales “increased low single-digit percent.”
As for the Columbia brand, Boyle said the spring selling season performance has been “encouraging with apparel sell-through trending above last year.” Sorel net sales fell 3 percent in the quarter, mostly due to the tough footwear environment. Boyle said “logistics issues really didn’t allow us to fulfill” its “enormous order book.” For Sorel, Fall 2022 product came in late, resulting in some fall product missing the peak selling window.
Overseas, Boyle said Latin America and the Asia Pacific region saw net sales rose 22 percent, with China net sales up mid-20 percent. Japan net sales rose in the high-teens percent, while Korea net sales declined in the high-teen percent. In Europe, Middle East and Africa region, net sales rose 20 percent, and Europe direct net sales grew high 20 percent.
Boyle said Columbia was named the first exclusive partner of Megamarsch, a series of hiking events across Europe. The events had over 35,000 participants in 2022 and Megamarsch is slated to host 2023 this year. “We expect this partnership with one of the largest hiking communities in Europe to help drive continued momentum in the important hike category,” he said.
During the quarter, Columbia also committed to purchasing up to $200 million in products as part of an investment in Central American sourcing.
Earnings: Net income fell 31 percent to $46.2 million, or 74 cents a diluted share, against net income of $66.8 million, or $1.03 a diluted share, in the year-ago quarter.
The company guided diluted earnings per share (EPS) for the second quarter to be at the low end of the range between 75 cents to 90 cents. The lower-end forecast takes into account the expected higher SG&A expenses in the quarter.
“The second quarter is typically the company’s lowest volume sales quarter and small changes in the timing of product shipments and expenses can have a material impact on reported results,” the company said.
For the full year, net sales are forecasted to rise by 3 to 6 percent to between $3.57 billion to $3.67 billion. That compares with $3.46 billion in net sales in 2022. Net income is projected to be between $322 million to $336 million, with diluted EPS between $5.15 and $5.40. Full year forecasts are unchanged from February when the company posted fourth quarter results.
CEO’s Take: “After three years of pandemic related supply chain constraints, it’s gratifying to see that our wholesale on-time delivery rates have returned to pre-pandemic service levels,” Boyle said. “As we look towards the summer, Columbia’s differentiated portfolio of sun protection and cooling technologies has never been stronger, including our latest innovation, Omni-Shade Broad Spectrum.”