Columbia Sportswear reported an increase in sales for the second quarter of 2023 but cut its guidance for the year based on macroeconomic headwinds and high inventory levels.
“The current environment is making it difficult to achieve the long-term growth algorithm that I believe we’re capable of,” said Tim Boyle, chairman, president and CEO of Columbia, in a conference call with investors.
Columbia posted a 9% increase in sales in constant currency to $620.9 million for the second quarter of 2023.
Gross margin expanded 140 basis points to 50.6% of net sales compared with the same period in 2022.
The sales increase came from growth in international markets, while North America posted a decline in sales.
“During the quarter, we experienced continued strength across many international markets, including China, while the U.S. environment proved more challenging,” Boyle said.
The decline in the U.S. added to the company reducing its outlook for the year.
Softer Outdoor Market
Boyle added that the outdoor market has been a little tougher for the Columbia brand. However, Sorel is outperforming the rest of the company’s brands.
“The outdoor category has been softening a bit,” he said. “The Sorel brand, on the other hand, is primarily a women’s fashion brand. We’ve seen great successes in the sandal category with that brand. And the expectation for the balance of the year is solid growth in women’s protective footwear as well as fashionable products.”
Both Prana and Mountain Hardwear posted sales declines for the quarter.
For the quarter, Columbia brand sales were up 12% in constant currency to $543 million.
The brand is focusing on cooling technology and sun-protection products.
Looking forward to fall, the Columbia brand is building on the success of its Omni-Heat Infinity products with an expanded assortment of styles.
“This differentiated visible technology remains one of the fastest-growing parts of our product line and will be our top marketing story this fall,” Boyle said.
Boyle also highlighted the Omni-Heat Helix, with poly-fleece visible digital technology. Columbia will also further invest in footwear, including the launch of the Facet 75 Alpha.
“Despite near-term category headwinds, footwear remains a key growth accelerator for the Columbia brand,” Boyle said.
Sorel sales were up 32% in constant currency to $37.9 million for the quarter. That was primarily driven by earlier fall 2023 shipments and increased wholesale closeout sales.
“Overall, Sorel spring sell-through is up versus last year, largely reflecting higher clearance and promotional activity in a challenging footwear environment,” Boyle said.
The sandals category has been a top performer this spring, led by Sorel’s Kinetic Impact Sandal.
Mountain Hardwear sales were down 18% in constant currency to $18.6 million for the quarter. Boyle said that was driven in large part by on-time spring 2023 shipments, which resulted in sales shifting into the first quarter.
Boyle said the company believes it has the right team managing the business, though the brand has been challenged in the past.
“There’s a large opportunity for us, especially in the U.S., as we approach some specialized area where we’re sort of a smaller niche,” Boyle said. “And I believe … we’ll be successful with that brand,
Prana sales were down 32% in constant currency to $27.6 million from the prior-year period. The decline in wholesale was driven in part by on-time spring 2023 shipments, which resulted in sales shifting to the first quarter.
Prana DTC sales also declined.
North America Sales Down
In the U.S., Columbia brand’s spring selling performance was down slightly compared to last year.
“After a stronger start to the season, driven in part by better inventory availability, sell-through trends slowed in the second quarter,” according to Boyle.
U.S. direct-to-consumer net sales increased by low single-digits on a percentage basis. Brick-and-mortar was up mid-single digits, driven by new stores that opened last year as well as incremental sales from temporary outlet stores, Boyle said.
U.S. e-commerce net sales were down mid-single digits. “The online environment has become more competitive and promotional as consumers seek out value in the marketplace,” Boyle said.
Canada net sales were down 16% as Spring 2023 shipments shifted into the first quarter. This was partially offset by healthy DTC growth, which was strong across both e-commerce and brick-and-mortar, according to Boyle.
International Business Increase
In the Latin America and Asia Pacific region, net sales increased 35% for the quarter, with China being the standout.
China net sales increased over 140%, “reflecting strong consumer demand compared to last year, which included the impact of pandemic restrictions,” Boyle said.
Columbia’s new premium China-specific collection Transit is attracting new, younger consumers, according to Boyle.
“Sell-through has been exceptional,” he said. “We’re building on the success of our initial launch with new styles for fall.”
Columbia expects China to be one of its fastest-growing markets this year. Japan sales were up mid-single digits, with Korea net sales down double-digits.
In the Europe, Middle East and Africa region, net sales increased 75%.
Boyle said reducing inventory is Columbia’s top priority. At the end of the quarter, inventory was up 21% year-over-year.
Through the second half of the year, Boyle said the company is trying to reduce its inventory position through lower inventory buys, shipment of fall 2023 orders, and increased excess inventory sales in its outlet stores.
“Our inventory reduction plan is on track, and we are positioned to reduce year-end inventory by over $200 million compared to last year,” Boyle added. “Returning inventory to a healthy position is a vital step to improving our financial performance.”
Boyle also said the company is carrying slightly more footwear inventory than apparel.
First-Half 2023 Results
For the first half of 2023, net sales increased 10% in constant currency to $1.44 billion.
Net income decreased 26% to $54.6 million.
Gross margin was flat at 49.5%.
Full-Year 2023 Outlook
Net sales are expected to increase 2% to 3.5%, to $3.53 billion to $3.59 billion. That’s down from a previous outlook of an increase of 3% to 6%, to $3.57 billion to $3.67 billion.
Gross margin is expected to expand approximately 40 basis points to approximately 49.8% of net sales from 49.4% of net sales in 2022.
Net income is expected to range from $272 million to $288 million, lower than the prior forecast of $322 million to $336 million.
Columbia exited the second quarter with over $300 million in cash and short-term investments and no bank borrowings, Boyle said.
“This position will strengthen further as we are on track to generate $550 million to $600 million of operating cash flow this year,” he added.