Columbia Sportswear reported an increase in sales for the third quarter of 2023, but reduced its full-year guidance based on inventory challenges, retailer caution, and looming product regulations.
Annual net sales are now expected to increase 0.5% to 2%, to $3.48 billion to $3.53 billion. That’s down from a previous outlook of an increase of 2% to 3.5%.
“In the U.S., retailers continue to take a cautious approach in managing inventory levels and placing orders,” said Tim Boyle, chairman, president and CEO of Columbia, in a conference call with investors.
Consumer demand for soft goods including apparel and footwear remains weak, according to Boyle.
“There’s slowing consumer demand as well as the persistence of higher interest rates, which creates lingering economic uncertainty,” he added. “The effect of these headwinds is most pronounced in the U.S. and we’re starting to see similar conditions emerge in Europe markets.”
And the company does not believe the conditions will improve in the first part of 2024.
“Spring 2024 will be a challenging season for our business,” Boyle said. “The combination of consumer and category headwinds, retailer cautiousness, and our transition to product designed without PFAS will impact the first half of the year.”
Columbia’s Spring 2024 orderbook reflects these obstacles and has led the company to forecast a low-double-digit percent decline in wholesale sales in the 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 the first half 2024,” Boyle added.
Q3 2023 Results
Columbia posted a 3% increase in sales in constant currency to $985.7 million for the period ended Sept. 30, 2023.
Gross margin expanded 70 basis points to 48.7% compared with the same period in 2022.
Third quarter performance was led by international-direct markets, with Canada, Europe-direct and China all delivering over 20% year-over-year growth in constant currency.
Company-wide, wholesale totaled $662.4 million, up 3% in constant currency compared to the previous year period. Wholesale growth was driven by earlier shipments of Fall 2023 orders compared to the same period last year, which offset lower distributor sales.
DTC sales company-wide were $322.5 million, up 4% in constant currency compared to the same period last year.
North America Sales Increase
In the United States, sales were $635.4 million, up 5% in constant currency compared to the previous-year period.
U.S. e-commerce net sales were down high single-digit percent. “The online environment remains competitive and promotional,” Boyle said.
Canada sales were $108.9 million, up 38% in constant currency compared to the previous-year period.
International Business Mixed
In the Latin America and Asia Pacific region, sales were $120 million, up 4% in constant currency compared to the same period last year.
China net sales increased mid-20%, “reflecting strong consumer demand across all channels,” Boyle said.
“Our team in China has done an excellent job of driving engagement with consumers in new ways that are authentic to Columbia,” he added. “In the quarter, we introduced new color styles to our popular Transit product line, our premium China-specific product selection.”
China is expected to be one of Columbia’s fastest-growing markets this year.
For Europe, the Middle East and Africa, sales were $120.6 million, down 21% in constant currency compared to the previous-year period.
Columbia Brand Shows Momentum, Sorel a Bright Spot
For the quarter, Columbia brand sales were up 4% in constant currency to $803.2 million.
“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,” Boyle said.
The Omni-Heat Infinity collection is one of the fastest-growing parts of the brand, he added. The company is building on last year’s momentum with an expanded assortment.
Sorel was a bright spot for the company, with sales up 8% in constant currency.
Both Prana and Mountain Hardwear posted sales declines for the quarter. Prana was down 18% in constant currency and Mountain Hardwear declined 9%.
The Daily will break out the individual brand results in separate stories.
Opening Temporary Outlet Stores to Deal with Inventory
Columbia had 159 stores (141 outlet, 18 branded) at the end of the third quarter in 2023. As part of its plan to reduce excess inventory, the company opened temporary outlet locations. Columbia didn’t say how many of these temporary stores it’s operating.
“This year has really been about inventory management for the company,” Boyle said. “Our expectation is we’re going to have a solid sell-through for 2023.”
The company said it’s “making meaningful progress” with its inventory reduction plan, with inventory exiting the quarter down 16% year-over-year.
Columbia expects fourth quarter 2023 inventory to be down over $200 million compared to the same quarter last year.
Columbia also expects to improve the way it operates DTC stores for the balance of 2023 and into 2024. “We’re going to see some outstanding results,” Boyle said.
PFAS Challenges
Columbia is phasing out products made with perfluoroalkyl and polyfluoroalkyl substances (PFAS) chemicals across its global product line in 2024.
“Our intent is to stop manufacturing any apparel or footwear with PFAS prior to our Fall 2024 season,” Boyle said. “In the U.S., we anticipate some retailers will choose to destock the PFAS styles the first half of the year before loading into new styles designed without PFAS.”
Boyle added that this will impact the flow of wholesale business and how the company and others manage existing inventory. At the moment, this really only applies to the PFAS prohibitions starting in 2025 in California and New York, he pointed out, but Columbia is making this conversion for its global product line.
“But large, multi-state USA operations that want to have a common inventory across their entire fleet, those are the areas where they’re being quite cautious in building inventories,” Boyle said.
Columbia has a “clear plan” to sell the remainder of its PFAS inventory, he added, and almost all of it has been sold.
Weather Dependent
Columbia will be watching the weather to see how it affects the brand.
“We now await the arrival of cold weather,” Boyle said. “The last several weeks have been unseasonably warm, resulting in a slower start to the fall selling season.”
Q4 and Full-Year 2023 Outlook
Net sales are expected to increase 0.5% to 2%, to $3.48 billion to $3.53 billion. That’s down from a previous outlook of an increase of 2% to 3.5%.
Gross margin is expected to expand approximately 40 basis points (unchanged) to approximately 49.8% of net sales.
Net income is expected to be $275 million to $290 million, lower than the prior forecast of $272 million to $288 million.
For the fourth quarter of 2023, net sales are expected to be $1.05 billion to $1.1 billion, a decline of 10% to 5% from the comparable period in 2022.
Bart Schaneman can be reached at [email protected].
