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Columbia Reports Record Q2 and First Half 2021 Financial Results & Raises Full Year Outlook

Financial Highlights

• The Company generated record second quarter and first half 2021 net sales, gross margin, operating income and diluted earnings per share, exceeding pre-pandemic levels.
• Second quarter 2021 net sales increased 79 percent to $566.4 million, compared to second quarter 2020.
• Second quarter 2021 operating income of $35.0 million, or 6.2 percent of net sales, compared to a second quarter 2020 operating loss of $70.3 million, or (22.2) percent of net sales.
• Exited the quarter with $820.9 million in cash and short-term investments and no borrowings.

Full Year 2021 Financial Outlook
Net sales of $3.13 to $3.16 billion, representing net sales growth of 25.0 to 26.5 percent compared to 2020.

Operating income of $365 to $386 million, representing operating margin of 11.7 to 12.2 percent. The updated financial outlook includes approximately $40 million of incremental ocean freight costs that were not contemplated in the previous outlook.

Chairman, President and Chief Executive Officer Tim Boyle commented, “Our record financial performance clearly reflects the powerful fundamental recovery that is underway in our business. Second quarter results exceeded our expectations, driven by better than planned performance in our U.S. wholesale and DTC brick & mortar businesses. We eclipsed pre-pandemic first half 2019 financial results, marking an important milestone in our recovery. It is clear that our brand portfolio is resonating with consumers and we are well positioned to benefit from current consumer and outdoor trends. Overall, our Spring sell-through has been exceptional and our Fall 21 and Spring 22 order books point to continued momentum in the business. We are raising our full year financial outlook for 2021 despite ongoing pandemic-related supply chain disruptions and higher ocean freight costs.”

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 second quarter 2021. Overall brick & mortar store traffic trends improved during the quarter but remain below pre-pandemic levels. In recent months, ocean freight costs have significantly exceeded our expectations and limited upside to our full year financial outlook. Rising COVID-19 cases in sourcing countries across southeast Asia could further disrupt product availability and deliveries. Additionally, port congestion and logistics constraints continue to impact the timing of inventory receipts and deliveries.

Second Quarter 2021 Financial Results
Net sales increased 79 percent to $566.4 million from $316.6 million for the comparable period in 2020. Net sales growth primarily reflects a strong fundamental recovery in the U.S. wholesale and direct-to-consumer (“DTC”) brick & mortar channels and fewer pandemic related disruptions and temporary store closures compared to second quarter 2020.

SG&A expenses increased 20 percent to $261.8 million, or 46.2 percent of net sales, from $217.7 million, or 68.7 percent of net sales, for the comparable period in 2020. The increase in SG&A expenses primarily reflects the variable component of the Company’s SG&A expense structure which correlates with changes in sales volume. SG&A expense growth included an increase in global retail, demand creation, personnel and incentive compensation expenses, partially offset by the non-recurrence of prior year COVID-19 related expenses and a decrease in bad debt expense.

Operating income of $35.0 million, or 6.2 percent of net sales, compared to an operating loss of $70.3 million, or (22.2) percent of net sales, for the comparable period in 2020.

First Half 2021 Financial Results
Net sales increased 35 percent to $1,192.0 million from $884.8 million for the comparable period in 2020.

SG&A expenses increased 4 percent to $516.2 million, or 43.3 percent of net sales, compared to $494.5 million, or 55.9 percent of net sales, for the same period in 2020.

Operating income increased 246 percent to $105.5 million, or 8.8 percent of net sales, compared to an operating loss of $72.3 million, or (8.2) percent of net sales, for the same period in 2020.

Balance Sheet as of June 30, 2021.
Inventories decreased 16 percent to $676.0 million, compared to $806.9 million at June 30, 2020. The reduction in inventory was driven by increased sales combined with delayed Fall 2021 inventory receipts due to ongoing supply chain disruptions. Inventory at quarter-end primarily consisted of current and future season product. Aged inventories represent a manageable portion of our total inventory mix and excess inventory decreased significantly compared to the same period in 2020.

Cash Flow for the Six Months Ended June 30, 2021
Net cash flow from operating activities was $117.2 million, compared to net cash flow used in operating activities of $37.3 million for the same period in 2020.

Capital expenditures totalled $12.4 million, compared to $21.0 million for the same period in 2020.

Full Year 2021 Financial Outlook
Net sales are expected to increase 25.0 to 26.5 percent (prior 21.5 to 23.0 percent) to $3.13 to $3.16 billion (prior $3.04 to $3.08 billion) from $2.50 billion 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 38.4 to 38.7 percent (prior 38.7 to 39.1 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.

Net income is expected to be $287 to $304 million (prior $271 to $288 million), resulting in diluted earnings per share of $4.30 to $4.55 (prior $4.05 to $4.30).

Second Half 2021 Commentary
The Company expects low-20 percent year-over-year net sales growth in second half 2021. The timing of Fall 2021 inventory receipts and wholesale shipments can have a significant impact on quarterly financial performance. Based on current forecasted product delivery dates, the Company anticipates that both third and fourth quarter year-over-year net sales growth will be in the low-20 percent range.

Comments on Freight rates and delivery from conference call
Our revised gross margin outlook includes approximately $40 million of incremental ocean freight costs not contemplated in our prior outlook. Currently, global demand for ocean vessels and containers is far outstripping available capacity. In general, we’ve been successful in securing allocation of containers and vessel bookings to transport our products. We have worked to incorporate what we know about ocean freight rates into the financial outlook we are providing today. But these markets are highly volatile, and rates are difficult to estimate. In this environment, we have prioritized supply continuity and market share gains over costs. This has resulted in very low channel inventories and high retail restocking demand for our spring-summer product line. As a result, our spring ’22 order-taking process has been substantially completed far earlier than the season is normal. Our bookings point to high teens to low 20% growth in our spring ’22 order book over spring ’21 sales levels.

With inflationary pressures building across our business, we have implemented price increases to help mitigate these higher costs. We’re confident that our brands’ portfolio’s pricing power. We’re continuing to experience that three to four-week delay, generally speaking, as it relates to the timing of our inventory receipts in our wholesale shipments. And so we will see some pushout out of the third the fourth quarter. We think actually the only thing that will significantly impact the ocean freight rates will be government intervention, whether that’s European government or the U.S. government acting to break up some of these monopolistic organizations that are really causing the bulk of the problems. I mean it’s one to deal with delays, which we all understand that that’s possible due to the container dislocation, but the freight rates are clearly monopolistic in my opinion. We would expect that we’ll continue to see elevated freight charges through the Chinese New Year. And so by then, we’ll effectively receive all of our spring ’22 inventory. So the first half of the year would be impacted by what we’re currently seeing based on everything that we know today. And obviously, there’s a ton of volatility. The rates have skyrocketed in the last 60 days. And if we had this conversation 60 days ago, we wouldn’t be having this. We saw a fourfold increase in ocean freight from June 1 through, call it, the middle part of July.