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Columbia Sportswear Company Reports Q3’23 & First Nine Months Financial Results

Columbia Sportswear Company’s Third Quarter 2023 Highlights

Net sales increased 3 percent (3 percent constant-currency) to $985.7 million, compared to third quarter 2022.
Operating income decreased 7 percent to $134.6 million, or 13.7 percent of net sales, compared to third quarter 2022 operating income of $145.3 million, or 15.2 percent of net sales.
Exited the quarter with $214.8 million of cash, cash equivalents and short-term investments and no borrowings.

Full Year 2023 Financial Outlook

Net sales of $3.48 to $3.53 billion (prior $3.53 to $3.59 billion) representing net sales growth of 0.5 to 2.0 percent (prior 2.0 to 3.5 percent) compared to 2022.
Operating income of $343 to $363 million (prior $348 to $368 million), representing operating margin of 9.8 to 10.3 percent (unchanged).

Chairman, President and Chief Executive Officer Tim Boyle commented, “Third quarter performance was led by international-direct markets, with Canada, Europe-direct and China all delivering over 20 percent year-over-year growth in constant currency. In the U.S., the marketplace remains challenging, but we are making meaningful progress on our inventory reduction plan, with inventory exiting the quarter down 16 percent year-over-year. As we enter our peak selling season, we have numerous activations across our brand portfolio to engage consumers and drive sales, including product collaborations, pop-up shops and continued momentum in Columbia’s Omni-Heat Infinity collection.

“As we finish the year and look forward to 2024, economic and geopolitical uncertainty is high. We know there will be challenges, particularly in the first half of next year. In this environment, we are focused on what we can control, delivering exceptional value and innovation to consumers, while diligently managing expenses. Our strong balance sheet and operating discipline will enable us to navigate near-term headwinds and position us to emerge in a stronger position.

“I’m confident in our team, our strategies, and our ability to achieve the significant long-term growth opportunities we see across the business. The strength of our diversified global business model and balance sheet enables us to continue investing in our strategic priorities to:

accelerate profitable growth;
create iconic products that are differentiated, functional and innovative;
rive brand engagement through increased, focused demand creation investments;
enhance consumer experiences by investing in capabilities to delight and retain consumers;
amplify marketplace excellence, with digitally-led, omni-channel, global distribution; and,
empower talent that is driven by our core values, through a diverse and inclusive workforce.”

Third Quarter 2023 Financial Results
(All comparisons are between third quarter 2023 and third quarter 2022, unless otherwise noted.)

Net sales increased 3 percent (3 percent constant-currency) to $985.7 million from $955.0 million for the comparable period in 2022. Net sales growth was balanced across our direct-to-consumer (DTC) and wholesale businesses. Within wholesale, growth was driven by earlier shipments of Fall 2023 orders compared to the same period last year, which more than offset lower distributor sales.

Gross margin expanded 70 basis points to 48.7 percent of net sales from 48.0 percent of net sales for the comparable period in 2022. Gross margin expansion primarily reflects lower inbound freight costs and favorable channel mix, which more than offset the impact of inventory reduction efforts across our wholesale and DTC businesses.

SG&A expenses increased 10 percent to $351.6 million, or 35.7 percent of net sales, from $319.0 million, or 33.4 percent of net sales, for the comparable period in 2022. SG&A expense growth primarily reflects higher expenses across DTC, demand creation, and supply chain.

Operating income decreased 7 percent to $134.6 million, or 13.7 percent of net sales, compared to $145.3 million, or 15.2 percent of net sales, for the comparable period in 2022.

Interest income, net of $1.9 million, compared to net interest income of $0.8 million for the comparable period in 2022, reflects higher yields on increased levels of cash, cash equivalents, and investments.

Net income decreased 7 percent to $103.5 million, or $1.70 per diluted share, compared to net income of $111.8 million, or $1.80 per diluted share, for the comparable period in 2022.

First Nine Months 2023 Financial Results
(All comparisons are between the first nine months 2023 and the first nine months 2022, unless otherwise noted.)

The first nine months of 2023 are a cummulative result of this third quarter, the second quarter and Q1.

Net sales increased 6 percent (7 percent constant-currency) to $2,427.2 million from $2,294.6 million for the comparable period in 2022.

Gross margin expanded 30 basis points to 49.2 percent of sales compared to 48.9 percent of net sales for the comparable period in 2022.

SG&A expenses increased 12 percent to $1,011.5 million, or 41.7 percent of net sales, from $899.3 million, or 39.2 percent of net sales, for the comparable period in 2022.

Operating income decreased 17 percent to $197.2 million, or 8.1 percent of net sales, compared to operating income of $237.7 million, or 10.4 percent of net sales, for the comparable period in 2022.

Interest income, net was $8.7 million, compared to net interest income of $1.7 million for the comparable period in 2022.

Net income decreased 15 percent to $158.1 million, or $2.56 per diluted share, compared to net income of $185.8 million, or $2.94 per diluted share, for the comparable period in 2022.

Balance Sheet as of September 30, 2023
Cash, cash equivalents and short-term investments totaled $214.8 million, compared to $160.2 million as of September 30, 2022.

The Company had no borrowings as of September 30, 2023, compared to borrowings of $4.4 million as of September 30, 2022.

Inventories decreased 16 percent to $885.2 million, compared to $1,056.9 million as of September 30, 2022. The decrease was driven by a reduction in current season and carryover inventory resulting from lower inventory purchases and earlier receipt and shipment of Fall 2023 product.

Columbia Sportswear Company’s Full Year 2023 Financial Outlook
Net sales are expected to increase 0.5 to 2.0 percent (prior 2.0 to 3.5 percent), resulting in net sales of $3.48 to $3.53 billion (prior $3.53 to $3.59 billion), compared to $3.46 billion in 2022.

Gross margin is expected to expand approximately 40 basis points (unchanged) to approximately 49.8 percent of net sales (unchanged) from 49.4 percent of net sales in 2022.
SG&A expenses, as a percent of net sales, are expected to be 40.2 to 40.6 percent (prior 40.1 to 40.5 percent), compared to SG&A expense as a percent of net sales of 37.7 percent in 2022.
Operating income is expected to be $343 to $363 million (prior $348 to $368 million), resulting in operating margin of 9.8 to 10.3 percent (unchanged), compared to operating margin of 11.3 percent in 2022.

Interest income, net is expected to be approximately $14 million (prior approximately $13 million).

Net income is expected to be $275 to $290 million (prior $272 to $288 million), resulting in diluted earnings per share of $4.45 to $4.70 (prior $4.40 to $4.65). This diluted earnings per share range is based on estimated weighted average diluted shares outstanding of 61.8 million (prior 61.9 million).

Balance Sheet and Cash Flows
Operating cash flow is expected to be approximately $500 million (prior $550 to $600 million).
Capital expenditures are planned to be in the range of $60 to $70 million (unchanged).

Fourth Quarter 2023 Financial Outlook
Net sales are expected to be $1,054 to $1,106 million, representing a decline of 10 to 5 percent from $1,169.5 million for the comparable period in 2022.

Operating income is expected to be $146 to $166 million, resulting in operating margin of 13.8 to 15.0 percent, compared to operating margin of 13.3 percent in the comparable period in 2022.

Preliminary Full Year 2024 Commentary
The Company is providing limited commentary regarding early planning efforts for 2024.
Spring 2024 will be a challenging season for our business. The combination of consumer and category headwinds, retailer cautiousness, and our transition to product designed without perfluoroalkyl and polyfluoroalkyl substances (PFAS) will impact the first half of the year. Our Spring 2024 orderbook reflects these challenges and as a result, we are forecasting a low-double-digit percent decline in wholesale net sales in first half 2024. We expect this wholesale net sales decline will be partially offset by continued growth in our global DTC businesses, resulting in total net sales declining a mid-single-digit percent in first half 2024.

We believe that generating full year net sales growth with modest operating margin expansion is achievable. Generating full year 2024 sales growth will be dependent upon several factors including, but not limited to, retailer and consumer sentiment, economic conditions, geopolitical tensions, and our transition to product designed without PFAS.

Read back over Columbia Sportswear Company’s fiscal 2023 thus far: