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Columbia Sportswear Raises 2021 Outlook On Solid Q1 Results

Columbia reported first-quarter sales and earnings well above forecasts and are seeing positive early Spring 2021 sell-through and Fall 2021 orders.

First Quarter 2021 Highlights

• Net sales increased 10 percent to $625.6 million, compared to first quarter 2020.
• Operating income of $70.5 million, or 11.3 percent of net sales, compared to first quarter 2020 operating loss of $2.0 million, or (0.3) percent of net sales.
• Diluted earnings per share of $0.84, compared to break even diluted earnings per share in first quarter 2020.
• Exited the quarter with $874.6 million in cash and short-term investments and no borrowings.
• The Company repurchased $11.2 million of common stock during the quarter.
• On April 23, 2021, the Board of Directors approved a regular quarterly dividend of $0.26 per share.

Full Year 2021 Financial Outlook

• Net sales of $3.04 to $3.08 billion, representing net sales growth of 21.5 to 23.0 percent compared to 2020.
• Operating income of $347 to $369 million, representing operating margin of 11.4 to 12.0 percent.
• Diluted earnings per share of $4.05 to $4.30.

Chairman, President and Chief Executive Officer Tim Boyle commented, “I’m pleased to report the pace of fundamental recovery exceeded our expectations in the first quarter, resulting in a return to net sales growth and financial results that were stronger than we anticipated. Business momentum was led by our direct-to-consumer e-commerce business which grew 35 percent year-over-year, reaching 20 percent of our total net sales mix. In our wholesale business, we experienced a strong finish to the Fall 2020 sales season as well as excellent early season sell-through of our Spring 2021 assortment. Consumer demand is high and retail inventories are lean, resulting in a favorable full price selling environment. I’d like to thank our operations and distribution center teams that did an amazing job mitigating industry-wide supply chain disruptions and enabling us to deliver these results today.

“Based on first quarter results and visibility provided by early Spring 2021 sell-through, our Fall 2021 order book and business fundamentals, we are increasing our full year financial outlook. I’m encouraged by the strong start to the year, but mindful that we must continue to carefully navigate operational challenges and quickly adapt to changing business conditions and ongoing pandemic related disruptions.

“Our fortress balance sheet remains strong, with cash and short-term investments totaling $875 million with no bank borrowings at quarter end.

COVID-19 Update
While there were isolated temporary store closures resulting from local regulations or safety concerns, the majority of the Company’s owned stores remained open throughout first quarter 2021. Overall brick & mortar store traffic trends vary by region but remain below prior year levels. First quarter 2021 results include the impact of port congestion and logistics constraints that resulted in later timing of Spring 2021 inventory receipts and deliveries. Please refer to the CFO Commentary and Financial Review presentation for a detailed review of COVID-19 pandemic related issues and our responses.

First Quarter 2021 Financial Results
(All comparisons are between first quarter 2021 and first quarter 2020, unless otherwise noted.)

Net sales increased 10 percent to $625.6 million from $568.2 million for the comparable period in 2020. Business momentum was led by direct-to-consumer (“DTC”) e-commerce net sales growth as well as better than planned sequential improvement in DTC brick & mortar trends.

Gross margin expanded 360 basis points to 51.4 percent of net sales from 47.8 percent of net sales for the comparable period in 2020. Gross margin expansion was primarily driven by decreased reserve provisions related to less excess inventory, lower DTC promotional levels and favorable channel and region sales mix.

SG&A expenses decreased 8 percent to $254.4 million, or 40.7 percent of net sales, from $276.8 million, or 48.7 percent of net sales, for the comparable period in 2020. The decrease in SG&A expenses primarily reflects a reduction in bad debt expense driven by a healthier wholesale customer base, partially offset by higher incentive and personnel expenses. The reduction in bad debt expense was driven by incremental COVID-related bad debt reserve provisions in first quarter 2020, compared to a reduction of bad debt reserves in first quarter 2021.

Operating income of $70.5 million, or 11.3 percent of net sales, compared to an operating loss of $2.0 million, or (0.3) percent of net sales, for the comparable period in 2020.

Net income of $55.9 million, or $0.84 per diluted share, compared to net income of $0.2 million, or break even diluted earnings per share, for the comparable period in 2020.

Balance Sheet as of March 31, 2021
Cash, cash equivalents and short-term investments totaled $874.6 million, compared to $706.9 million at March 31, 2020.

The Company had no borrowings, compared to short-term borrowings of $174.4 million at March 31, 2020.

Inventories decreased 9 percent to $525.7 million, compared to $577.1 million at March 31, 2020. The reduction in inventory was primarily driven by lower Spring 2021 inventory purchases, a reduction of excess inventory and delayed receipts of Spring 2021 inventory. Inventory at quarter-end primarily consisted of current and future season product. Aged inventories represent a manageable portion of our total inventory mix.

Cash Flow for the Three Months Ended March 31, 2021
Net cash flow from operating activities was $110.9 million, compared to net cash flow from operating activities of $12.8 million for the same period in 2020.

Capital expenditures totaled $3.9 million, compared to $9.5 million for the same period in 2020.

Full Year 2021 Financial Outlook
(Additional financial outlook details can be found in the CFO Commentary and Financial Review presentation.)

The Company’s 2021 Financial Outlook outlook assumes a sequential recovery in brick & mortar retail traffic and sales throughout 2021.

Net sales are expected to increase 21.5 to 23.0 percent (prior 18 to 20 percent) to $3.04 to $3.08 billion (prior $2.95 to $3.00 billion) from $2.50 billion in 2020.

Gross margin is expected to improve 110 to 130 basis points to 50.0 to 50.2 percent of net sales (prior approximately 50 percent) from 48.9 percent of net sales in 2020.

SG&A expenses are expected to increase at a slower rate than net sales growth. SG&A expenses as a percent of net sales is expected to be 38.7 to 39.1 percent (prior 39.2 to 39.7 percent), compared to SG&A expenses as a percent of net sales of 43.9 percent in 2020. Demand creation as a percent of net sales is anticipated to be 6.0 percent in 2021, compared to 5.7 percent in 2020.

Operating income is expected to be $347 to $369 million (prior $320 to $346 million), resulting in operating margin of 11.4 to 12.0 percent (prior 10.8 to 11.5 percent) compared to operating margin of 5.5 percent in 2020.

Net income is expected to be $271 to $288 million (prior $250 to $270 million), resulting in diluted earnings per share of $4.05 to $4.30 (prior $3.75 to $4.05).

Operating cash flow is expected to be $250 to $270 million (prior $300 to $320 million). The lower operating cash flow forecast for 2021 is primarily driven by changes to projected year-end inventory. This change in outlook is based on the expectation of receiving Spring 2022 inventory earlier than previously projected.

Capital expenditures are planned to be $60 to $80 million.

First Half 2021 Commentary
Annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal net sales and profitability pattern weighted toward the second half of the year.

Based on first quarter 2021 results, advance wholesale orders for the Spring 2021 season and plans for growth in their global DTC businesses as they anniversary prior year temporary store closures, they believe mid to high-20 percent first half year-over-year net sales growth is achievable (prior high-teens percent to low-20 percent). In second quarter 2021, year-over-year net sales growth by channel will be impacted by the anniversary of prior year temporary brick & mortar store closures as well as elevated DTC e-commerce net sales penetration levels as demand shifted online when consumers were unable shop in store.

Please note the second quarter is typically Columbia‘s lowest volume sales quarter and small changes in the timing of product shipments and expenses can have a material impact on reported results. Historically, second quarter profitability has been challenging given their fixed cost structure, resulting in the Company reporting a second quarter earnings loss in most years.

Read the full article: https://investor.columbia.com/news-events/press-releases/detail/306/columbia-sportswear-company-reports-first-quarter-2021