02 Nov Columbia Sportswear’s Q3 Tops Estimates
Columbia Sportswear Company announced net sales of $747.4 million for the third quarter ended September 30, 2017, up 0.2 percent compared with net sales of $745.7 million for the third quarter of 2016.
Third quarter 2017 net income increased 5 percent to $87.7 million, or $1.25 per diluted share, including program expenses and discrete costs of approximately $2.1 million net of tax, or 3 cents per diluted share, related to the company’s “Project CONNECT” operating model assessment, compared to third quarter 2016 net income of $83.6 million, or $1.18 per diluted share.
Wall Street’s consensus estimates had been $1.15 on sales of $734.9 million.
Through the first nine months of 2017, net sales increased $30.5 million, or 2 percent, to a record $1,690.1 million, compared to $1,659.6 million in the comparable 2016 period. Year-to-date 2017 net income increased 5 percent, to $112.2 million, or $1.59 per diluted share, including program expenses and discrete costs of approximately $5.4 million net of tax, or 8 cents per diluted share, related to Project CONNECT, compared to net income of $107.2 million, or $1.52 per diluted share, in the comparable 2016 period.
President and Chief Executive Officer Tim Boyle commented, “We’re pleased to report better than expected third quarter results, including continued strong sales growth in our European wholesale and U.S. direct-to-consumer businesses, as well as growth in each of our international regions. While our U.S. business adapts to ongoing structural changes, our improved profitability outside the U.S. illustrates the strength of our global business model.
“We are also pleased to reiterate our full year 2017 financial outlook, which now incorporates the anticipated costs of Project CONNECT. In addition, based upon advance orders for Spring 2018 we are optimistic that we will continue to generate global growth, including a return to growth in our U.S. wholesale business in the first half of 2018.
“Our powerful balance sheet, with $430 million in cash and no long-term debt, provides the flexibility to adapt our business as our major markets evolve. It is from this position of strength and confidence that we are moving steadily forward on Project CONNECT, identifying strategic organizational and operational initiatives to accelerate execution of our strategic plan and to increase demand creation to drive further profitable growth in 2018 and beyond.”
Third Quarter Results
Third quarter consolidated net sales increased less than 1 percent (declined less than 1 percent constant-currency), including:
- 20 percent net sales growth in the EMEA region (15 percent constant-currency), to $87.5 million, including a net sales increase of more than 20 percent (high-teen percent constant-currency) in the company’s European wholesale and direct-to-consumer businesses, and a low-double-digit percentage increase in net sales to EMEA distributors;
- 9 percent net sales growth in the LAAP region (11 percent constant-currency), to $123 million, reflecting increased net sales to LAAP distributors and increased net sales in China and Korea, partially offset by a small net sales decline in Japan; and
- 8 percent net sales growth in Canada (4 percent constant-currency), to $80.9 million;
partially offset by:
- a 6 percent net sales decline in the U.S. to $456 million, consisting of a low-double-digit percentage decline in wholesale net sales, partially offset by low-double-digit percentage growth in direct-to-consumer net sales.
Global Columbia brand net sales increased 2 percent to $598.3 million. Global SOREL brand net sales decreased 7 percent (8 percent constant-currency) to $81.7 million. Global Prana brand net sales decreased 3 percent to $36.8 million. Global Mountain Hardwear brand net sales decreased 4 percent to $29.4 million.
Global Apparel, Accessories and Equipment net sales increased 1 percent to $580 million. Global Footwear net sales decreased 2 percent (3 percent constant-currency) to $167.4 million.
Third quarter income from operations totaled $122.9 million, or 16.4 percent of net sales, including program expenses and discrete costs of approximately $3.3 million related to Project CONNECT, compared to $123.6 million, or 16.6 percent of net sales, for the same period in 2016.
The effective income tax rate was 26.4 percent in the third quarter of 2017, reflecting a favorable shift in the geographic mix of taxable income compared to the 29.7 percent effective income tax rate for the same period in 2016.
Third quarter net income increased 5 percent to $87.7 million, or $1.25 per diluted share, including program expenses and discrete costs of approximately $2.1 million net of tax, or 3 cents per diluted share, related to Project CONNECT, compared with third quarter 2016 net income of $83.6 million, or $1.18 per diluted share.
The company ended the quarter with $430.3 million of cash and short-term investments, compared with $219.7 million at September 30, 2016.
Consolidated inventories of $558.6 million at September 30, 2017 were 5 percent lower than the $588 million balance at September 30, 2016.
Share Repurchases And Dividends
During the first nine months of 2017, the company repurchased 665,095 shares of common stock at an aggregate purchase price of $35.5 million. No repurchases were made during the third quarter. At September 30, 2017, approximately $137.9 million remained available under the current stock repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.
The board of directors authorized a 6 percent increase in the company’s regular quarterly cash dividend to 19 cents per share, payable on November 30, 2017 to shareholders of record on November 16, 2017.
Updated 2017 Financial Outlook
Compared with the company’s previous 2017 financial outlook provided on July 27, the following updated 2017 financial outlook now includes program expenses and discrete costs related to Project CONNECT of approximately $15 million ($9.5 million net of tax, or 14 cents per diluted share). Approximately $8.6 million ($5.4 million net of tax, or 8 cents per diluted share) has been incurred through the first nine months of 2017.
The company currently expects 2017 net sales growth of approximately 3 percent compared with 2016 net sales of $2.38 billion, including less than 1 percentage point positive effect from changes in foreign currency exchange rates.
The company expects fiscal year 2017 gross margins to improve by approximately 20 basis points compared with 2016 gross margins of 46.7 percent, and for selling, general and administrative (“SG&A”) expenses to increase approximately 5.4 percent compared with 2016 SG&A expenses, including program expenses and discrete costs of approximately $15 million related to Project CONNECT and a planned increase in global demand creation spend, resulting in approximately 80 basis points of SG&A expense deleverage compared with our SG&A expense ratio of 36.4 percent in 2016. The full year effective tax rate is expected to be approximately 23 percent.
Based on the above assumptions, the company expects 2017 operating income between approximately $243 million and $252 million, representing anticipated 2017 operating margin of up to approximately 10.3 percent. Net income attributable to Columbia Sportswear Company is expected to be between approximately $183 million and $190 million, or approximately $2.60 to $2.70 per diluted share.