Third quarter net income totaled $54.6 million, or $1.57 per diluted share, compared with net income of $64.4 million, or $1.88 per diluted share, for the same period in 2012. A higher effective tax rate in the current quarter accounted for $2.2 million, or $0.06 per diluted share, of the decline.
“Our third quarter results benefited from strong performance across
our direct-to-consumer platform while we continue to focus on
reinvigorating growth in our wholesale channels globally,” said Tim
Boyle, Columbia’s president and chief executive officer. “A 14 percent
decline in inventory levels and our continued focus on managing
discretionary spending also contributed to better-than-expected
profitability and cash flow during the quarter, leading us to raise our
financial outlook for 2013.
“These trends are encouraging and we’re very focused on several initiatives to return to growth in 2014, beginning with improved seasonal product assortments,” Boyle continued. “We also expect to generate growth through our new joint venture in China, grow and expand our direct-to-consumer operations, generate growth in our North American and European wholesale businesses, and grow in key international markets served by independent distributors. We also expect to implement our new global ERP platform in the U.S. in order to improve our business processes and financial performance.
With the above factors in mind, the board of directors approved a 14 percent increase in the company’s quarterly dividend, bringing it to $0.25 per share from the prior $0.22 per share rate.”
Third quarter results
(All comparisons are between third quarter 2013 and third quarter 2012, unless otherwise noted.)
Apparel, Accessories & Equipment net sales of $428.6 million were essentially unchanged, down less than 1 percent. Footwear net sales of $94.5 million declined 18 percent.
Columbia brand net sales decreased 1 percent to $431.5 million, Sorel brand net sales declined 23 percent to $47.4 million, and Mountain Hardwear net sales declined 9 percent to $40.6 million. (See “Brand Net Sales” table below.)
Balance sheet
The company ended the third quarter with $303.2 million in cash and short-term investments, compared with $96.3 million at Sept. 30, 2013. Approximately 47 percent of cash and short-term investments were held in foreign jurisdictions where a repatriation of those funds to the United States would likely result in a significant tax cost to the company.
Consolidated inventories totaled $410.1 million at Sept. 30, 2013, a reduction of $65.6 million, or 14 percent, compared with $475.7 million at Sept. 30, 2012. Reduced inventory purchases, primarily reflecting the planned later receipt of Fall inventory to be more aligned with delivery dates requested by wholesale customers, improved inventory management, and lower Fall 2013 advance wholesale orders.
Upward revised full year 2013 financial outlook
The company expects 2013 net sales to decline up to 1.5 percent compared to 2012, including an approximate 2 percentage point negative effect from anticipated changes in foreign currency exchange rates.
Full year 2013 gross margin is expected to improve by approximately 50 basis points compared to 2012.
Full year 2013 selling, general and administrative expenses are expected to increase approximately 2.0 percent, including approximately $3.7 million in pre-operating expenses related to the China joint venture and pre-tax restructuring charges of approximately $5.2 million, resulting in approximately 125 basis points of SG&A expense deleverage.
Full year 2013 licensing income is expected to be comparable to 2012, including the effect of deferring approximately $3.5 million of licensing income into 2014 in conjunction with the transition to the China joint venture.
As a result, full year 2013 operating margin is expected to be approximately 7.25 percent. Full year 2013 operating margin is expected to be approximately 8.1 percent if the following items are excluded: approximately $5.2 million in restructuring charges, the deferral of approximately $2.1 million of gross profit and $3.5 million of licensing income into 2014 and pre-operating costs of approximately $3.7 million related to the China joint venture.
The company is modeling a full year effective tax rate of 27.5 percent; however, the actual rate could differ based on the status of tax uncertainties, the geographic mix of pre-tax income, as well as other discrete events that may occur during the year.
Fourth quarter 2013 financial outlook
The company expects fourth quarter net sales to decline up to 2.0 percent compared with the fourth quarter of 2012. Fourth quarter operating margins are expected to contract approximately 220 basis points compared with the fourth quarter of 2012, consisting of approximately 290 basis points of SG&A deleverage and lower licensing income due to the deferral of approximately $2.0 million in licensing income related to the China JV transition, partially offset by anticipated gross margin expansion of approximately 90 basis points. Excluding a total of approximately $5.3 million of anticipated pre-operating costs and deferral of gross profit and licensing income related to the China joint venture, fourth quarter 2013 operating margin is expected to contract approximately 120 basis points. The company is modeling a fourth quarter effective tax rate of 27.0 percent.
The company’s annual net sales are weighted more heavily toward the second half of the fiscal year, while operating expenses are more equally distributed, resulting in a highly seasonal profitability pattern weighted toward the second half. All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties which may cause actual results to differ, perhaps significantly.
Dividend
The board of directors authorized a 14 percent increase in the company’s regular quarterly dividend to $0.25 per share from the prior $0.22 per share, payable on December 2, 2013 to shareholders of record on November 14, 2013.
| COLUMBIA SPORTSWEAR COMPANY | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (In thousands, except per share amounts) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Net sales | $ | 523,084 | $ | 545,005 | $ | 1,151,886 | $ | 1,168,503 | ||||||||
| Cost of sales | 290,735 | 301,320 | 645,949 | 659,014 | ||||||||||||
| Gross profit | 232,349 | 243,685 | 505,937 | 509,489 | ||||||||||||
| 44.4 | % | 44.7 | % | 43.9 | % | 43.6 | % | |||||||||
| Selling, general and administrative expenses | 162,951 | 160,154 | 437,789 | 437,881 | ||||||||||||
| Net licensing income | 7,501 | 4,287 | 11,482 | 10,817 | ||||||||||||
| Income from operations | 76,899 | 87,818 | 79,630 | 82,425 | ||||||||||||
| Interest income (expense), net | 56 | (17 | ) | 403 | 421 | |||||||||||
| Other non-operating income (expense) | 417 | - | (686 | ) | - | |||||||||||
| Income before income tax | 77,372 | 87,801 | 79,347 | 82,846 | ||||||||||||
| Income tax expense | (22,822 | ) | (23,426 | ) | (22,025 | ) | (22,474 | ) | ||||||||
| Net income | 54,550 | 64,375 | 57,322 | 60,372 | ||||||||||||
| Net loss attributable to non-controlling interest | (36 | ) | - | (289 | ) | - | ||||||||||
| Net income attributable to | ||||||||||||||||
| Columbia Sportswear Company | $ | 54,586 | $ | 64,375 | $ | 57,611 | $ | 60,372 | ||||||||
| Earnings per share attributable to Columbia | ||||||||||||||||
| Sportswear Company: | ||||||||||||||||
| Basic | $ | 1.58 | $ | 1.90 | $ | 1.68 | $ | 1.79 | ||||||||
| Diluted | 1.57 | 1.88 | 1.66 | 1.77 | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 34,452 | 33,872 | 34,325 | 33,761 | ||||||||||||
| Diluted | 34,753 | 34,155 | 34,640 | 34,035 | ||||||||||||
| COLUMBIA SPORTSWEAR COMPANY | ||||||||||||||||||||
| (In millions, except percentage changes) | ||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| 2013 | 2012 | % Change | 2013 | 2012 | % Change | |||||||||||||||
| Geographical Net Sales: | ||||||||||||||||||||
| United States | $ | 323.1 | $ | 347.8 | (7 | )% | $ | 663.4 | $ | 672.9 | (1 | )% | ||||||||
| Latin America & Asia Pacific | 72.0 | 84.7 | (15 | )% | 236.3 | 245.6 | (4 | )% | ||||||||||||
| Europe, Middle East, & Africa | 78.1 | 60.5 | 29 | % | 172.1 | 168.6 | 2 | % | ||||||||||||
| Canada | 49.9 | 52.0 | (4 | )% | 80.1 | 81.4 | (2 | )% | ||||||||||||
| Total | $ | 523.1 | $ | 545.0 | (4 | )% | $ | 1,151.9 | $ | 1,168.5 | (1 | )% | ||||||||
| Categorical Net Sales: | ||||||||||||||||||||
| Apparel, Accessories and Equipment | $ | 428.6 | $ | 429.5 | - | $ | 958.6 | $ | 954.7 | - | ||||||||||
| Footwear | 94.5 | 115.5 | (18 | )% | 193.3 | 213.8 | (10 | )% | ||||||||||||
| Total | $ | 523.1 | $ | 545.0 | (4 | )% | $ | 1,151.9 | $ | 1,168.5 | (1 | )% | ||||||||
| Brand Net Sales: | ||||||||||||||||||||
| Columbia | $ | 431.5 | $ | 436.8 | (1 | )% | $ | 985.1 | $ | 990.6 | (1 | )% | ||||||||
| Mountain Hardwear | 40.6 | 44.4 | (9 | )% | 95.2 | 98.8 | (4 | )% | ||||||||||||
| Sorel | 47.4 | 61.2 | (23 | )% | 62.7 | 70.5 | (11 | )% | ||||||||||||
| Other | 3.6 | 2.6 | 38 | % | 8.9 | 8.6 | 3 | % | ||||||||||||
| Total | $ | 523.1 | $ | 545.0 | (4 | )% | $ | 1,151.9 | $ | 1,168.5 | (1 | )% | ||||||||
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