Date: Wednesday, August 4, 2021
Source: Sourcing Journal
A better-than-expected second quarter led Columbia Sportswear Co. to raise full year guidance, even as higher ocean freight costs and pandemic-related disruptions impact the timing of inventory receipts and deliveries.
In a Nutshell: Despite some isolated temporary store closures, Columbia Sportswear said the majority of the company’s owned stores were open throughout the quarter.
“Our record financial performance clearly reflects the powerful fundamental recovery that is underway in our business,” Tim Boyle, chairman, president and CEO, said of second quarter results.
Spring sell-through has been exceptional and the Fall 2021 and Spring 2022 order books point to continued momentum, leading Columbia Sportswear to raise its full year financial outlook for 2021.
However, the CEO noted “ongoing pandemic-related supply chain disruptions and higher ocean freight costs,” which were topics of prolonged discussion at the company’s Wall Street conference call Monday.
In general, ocean freight costs “significantly exceeded” Columbia’s expectations, as rising Covid-19 cases in sourcing countries across Southeast Asia could potentially disrupt product availability and deliveries. That’s on top of port congestion and logistics constraints that continue to impact the timing of inventory receipts and deliveries for the outerwear and active apparel giant.
“Industry wide supply chain disruptions are causing production and delivery delays, as well as shipping cost pressures. Ongoing periodic lockdowns, and temporary store closures, are also impacting DTC [direct-to-consumer] and wholesale at brick-and-mortar store performance in several international markets,” Boyle told analysts.
Columbia Sportswear’s revised outlook assumes “approximately $40 million of incremental ocean freight costs not contemplated in our prior outlook,” he added.
At the moment, “global demand for ocean vessels and containers is far outstripping available capacity,” Boyle continued. “In general, we’ve been successful securing allocation of containers and vessel bookings to transport our products. We have worked to incorporate what we know about OSHA 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. We are diligently working with their logistic partners, industry representatives, and government officials to address these challenges.”
Addressing the possibility of raising pricing to improve margins in light of higher costs, Boyle said, “What we’re realizing is the brand really has the power to price appropriately…. This industry has been incredibly deflationary over the last 20 years, merchandise becoming less and less expensive. So this is an area where we’ve been very focused on managing our ability to raise prices, and to be mindful of what the cost portions of the business are going to be, as well as continuing to invest in innovations which will separate us and allow us to differentiate ourselves.”
Government intervention might be the only action that could significantly impact the ocean freight cost pressures, “whether that’s European government or U.S. government acting to break up some of these monopolistic organizations that are really causing the bulk of the problems,” Boyle said. “It’s one thing to deal with delays—which we all understand—that’s possible due to the container dislocation, but the freight rates are clearly monopolistic in my opinion.”
Columbia “eclipsed pre-pandemic first half 2019 financial results,” Boyle said during the call, “which represented record performance at that time. This marks an important milestone in our recovery.”
Boyle also gave a shout out to the upcoming product launch for its global Omni Heat Infinity campaign later this month. The new line, an addition to the Omni Heat family, “is the next evolution of thermal reflective warm,” he said.
As for its distribution channel strategy, Boyle said the company has continued to evaluate the strong relationships it has built with top global retail partners for the Columbia brand. “We believe broad democratic omnichannel distribution is an integral part of the brand’s success,” adding that the company will continue to partner with retailers to meet its loyal consumers wherever they choose to shop. “We will also continue investing in our profitable, and growing DTC business with our broad omnichannel strategy in mind,” he said, noting that the company sees opportunities as other brands exit wholesale accounts.
Columbia Sportswear’s brands include the Columbia brand, Mountain Hard Wear, Sorel and Prana, which are sold in 90 countries.
Net Sales: Net sales for the quarter ended June 30 rose 79 percent to $566.4 million from $316.6 million. The gains reflect a strong recovery in the U.S. wholesale and direct-to-consumer channels, fewer pandemic-related disruptions and temporary store closures compared with the prior year’s quarter.
Boyle said that net sales on a global basis were 8 percent above 2019 levels in the second quarter.
Gross margin for the quarter was 51.6 percent of net sales, up from 46.2 percent in the same year-ago quarter. Columbia Sportswear said the gain in gross margin was driven by decreased inventory reserve provision versus the same 2020 quarter, and to a lesser degree lower direct-to-consumer promotional levels and favorable wholesale product margins that were partially offset by unfavorable channel sales mix.
For the half, net sales rose 35 percent to $1.19 billion from $884.8 million. Gross margin for the half was 51.5 percent of net sales, up from 47.2 percent in the same year-ago period in 2020.
Earnings: Net income for the quarter was $40.7 million, or 61 cents a diluted share, against a net loss of $50.7 million, or 77 cents, in the same year-ago quarter.
For full year 2021, the company expects net sales to rise between 25.0 percent to 26.5 percent to $3.13 to $3.16 billion from $2.50 billion in 2020. That’s an increase from prior estimates of a 21.5 to 23.0 percent rise in net sales to $3.04 to $3.08 billion. Net income is expected to be tween $287 to $304 million, or between $4.30 to $4.55 in diluted earnings per share (EPS). That’s up from prior guidance of $271 to $288 million in profits, or $4.05 to $4.30 in diluted EPS.
For the half, net income was $96.6 million, or $1.44 a diluted share, against a net loss of $50.5 million, or 76 cents, a year ago. The company said that cash flow from operating activities for the six months was $117.2 million, versus $37.5 million for the same 2020 period.
CEO’s Take: “Our fortress balance sheet remains strong, with cash and short-term investments totaling $821 million with no bank borrowings at quarter end,” Boyle said. He added that the company is committed to driving sustainable and profitable long-term growth and investing in its strategic priorities to drive brand awareness and sales growth, expand its global direct-to-consumer operations and enhance the customer experience and digital capabilities.