Columbia sportswear company reports record third quarter and first nine months 2019 financial results; updates full year 2019 financial outlook
Portland, ore.--(business wire)--columbia sportswear company (nasdaq: colm), a leading innovator in active outdoor apparel, footwear, accessories and equipment, today announced third quarter 2019 financial results for the period ended september 30, 2019. president and chief executive officer tim boyle commented, "record third quarter results exceeded our expectations, with broad based growth across our geographic segments, channels and product categories. during the quarter, we were able to ship a greater portion of our fall 2019 order book compared to the fall 2018 season as retailers restocked depleted inventory positions after harsh winter weather and exceptional sell-through in north america last year. higher advance orders and earlier shipments contributed to 14 percent growth for the columbia brand and 27 percent growth for the sorel brand in the quarter. sorel's impressive growth was led by strong demand for fall fashion styles, further validating the brand's success as a year-round fashion footwear brand. our net sales growth momentum combined with project connect margin benefits drove earnings per share growth in excess of 20 percent with continued investment in our strategic priorities.” "as we enter our peak selling season, i’m confident that our powerful brand portfolio, globally diversified business model and the dedication and focus of our talented global team position us to deliver another year of record sales and profit.” “our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to: drive brand awareness and sales growth through increased, focused demand creation investments; enhance consumer experience and digital capabilities in all our channels and geographies; expand and improve global direct-to-consumer operations with supporting processes and systems; and invest in our people and optimize our organization across our portfolio of brands." "we are making these investments to build on our strengths as a brand-led, consumer-focused organization and to enable sustainable long-term profitable growth." cfo's commentary available online for a detailed review of the company's third quarter and first nine months 2019 financial results and full year 2019 financial outlook, please refer to the cfo commentary exhibit furnished to the securities and exchange commission (the "sec") on form 8‑k and published on the investor relations section of the company's website at http://investor.columbia.com/results.cfm at approximately 4:15 p.m. et today. analysts and investors are encouraged to review this commentary prior to participating in the conference call. non-gaap financial measures throughout this press release, non-gaap amounts in third quarter 2018 exclude a $4.3 million benefit in connection with an insurance claim ($3.3 million net of tax), $1.5 million in incremental income tax expense related to the tax cuts and jobs act (“tcja”) and $1.2 million in project connect expenses and discrete costs ($0.9 million net of tax). references to non-gaap financial measures in first nine months 2018 exclude $14.1 million in project connect program expenses and discrete costs ($10.7 million net of tax), a $4.3 million benefit in connection with an insurance claim ($3.3 million net of tax), and $2.7 million in incremental provisional income tax expense related to the tcja. these excluded items were not applicable to third quarter and first nine months 2019 results. third quarter 2019 financial results (all comparisons are between third quarter 2019 and third quarter 2018, unless otherwise noted.) net sales increased 14 percent (15 percent constant-currency) to $906.8 million, from $795.8 million for the comparable period in 2018. gross margin expanded 110 basis points to 49.3 percent of net sales from 48.2 percent for the comparable period in 2018. sg&a expenses increased 15 percent to $299.2 million, or 33.0 percent of net sales, from $259.3 million, or 32.6 percent of net sales, for the comparable period in 2018. sg&a expenses increased 14 percent from non-gaap sg&a expenses of $262.4 million, or 33.0 percent of net sales, for the comparable period in 2018. operating income increased 18 percent to $152.0 million, or 16.8 percent of net sales, from $129.1 million, or 16.2 percent of net sales, for the comparable period in 2018. operating income increased 21 percent from non-gaap operating income of $126.0 million, or 15.8 percent of sales, for the comparable period in 2018. net income increased 19 percent to $119.3 million, or $1.75 per diluted share, from $100.2 million, or $1.42 per diluted share, for the comparable period in 2018. net income increased 20 percent from non-gaap net income of $99.3 million, or $1.41 per diluted share for the comparable period in 2018. third quarter 2019 net income also includes the benefit of full ownership of our china business, which became a wholly-owned subsidiary effective january 2019. in third quarter 2018, the non-controlling interest share of net income was $2.2 million, or $0.03 per diluted share. first nine months 2019 financial results (all comparisons are between first nine months 2019 and first nine months 2018, unless otherwise noted). net sales increased 11 percent (12 percent constant-currency) to $2,087.6 million, compared to $1,884.7 million for the comparable period in 2018. gross margin expanded 130 basis points to 49.7 percent of net sales, from 48.4 percent for the comparable period in 2018. sg&a expenses increased 9 percent to $791.8 million, or 37.9 percent of net sales, from $724.8 million, or 38.5 percent of net sales, for the comparable period in 2018. sg&a expenses increased 11 percent from non-gaap sg&a expenses of $715.1 million, or 37.9 percent of net sales, for the comparable period in 2018. operating income increased 29 percent to $256.3 million, or 12.3 percent of net sales, compared to operating income of $198.2 million, or 10.5 percent of net sales, for the comparable period in 2018. operating income increased 23 percent from non-gaap operating income of $208.0 million, or 11.0 percent of net sales, for the comparable period in 2018. net income increased 40 percent to $216.5 million, or $3.15 per diluted share, compared to $155.0 million, or $2.19 per diluted share, for the comparable period in 2018. net income increased 31 percent from non-gaap net income of $165.1 million, or $2.34 per diluted share for the comparable period in 2018. first nine months 2019 net income includes the benefit of full ownership of our china business. in the first nine months of 2018, the non-controlling interest share of net income was $6.6 million, or $0.09 per diluted share. balance sheet as of september 30, 2019 cash, cash equivalents and short-term investments totaled $240.8 million, compared to $451.5 million at september 30, 2018. inventories increased 16 percent to $717.4 million, compared to $617.2 million at september 30, 2018. share repurchases for the nine months ended september 30, 2019 the company repurchased 1,191,684 shares of common stock for an aggregate of $116.2 million, or an average price per share of $97.50. regular quarterly cash dividend at its regular board meeting on october 25, 2019, the board of directors declared a regular quarterly cash dividend of $0.24 per share, payable on december 5, 2019 to shareholders of record on november 21, 2019. conference call the company will hold its third quarter 2019 conference call at 5:00 p.m. et today. dial (877) 407-9205 to participate. the call will also be webcast live on the investor relations section of the company's website at http://investor.columbia.com. fourth quarter 2019 reporting date columbia sportswear company plans to report fourth quarter and full year 2019 financial results on thursday, february 6, 2020 at approximately 4:00 p.m. supplemental financial information since columbia sportswear company is a global company, the comparability of its operating results reported in u.s. dollars is affected by foreign currency exchange rate fluctuations because the underlying currencies in which it transacts change in value over time compared to the u.s. dollar. to supplement financial information reported in accordance with gaap, the company discloses constant-currency net sales information, which is a non-gaap financial measure, to provide a framework to assess how the business performed excluding the effects of changes in the exchange rates used to translate net sales generated in foreign currencies into u.s. dollars. the company calculates constant-currency net sales by translating net sales in foreign currencies for the current period into u.s. dollars at the average exchange rates that were in effect during the comparable period of the prior year. management believes that this non-gaap financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our gaap results, provides a more comprehensive understanding of our business and operations. in particular, investors may find the non-gaap measures useful by reviewing our net sales results without the volatility in foreign currency exchange rates. this non-gaap financial measure also facilitates management's internal comparisons to our historical net sales results and comparisons to competitors' net sales results. additionally, this document includes references to various other non-gaap financial measures related to 2018 that may exclude program expenses, discrete costs and associated tax effects related to project connect, tcja-related income tax expense, and a recovery in connection with an insurance claim and related tax effects. the related tax effects of program expenses and discrete costs related to project connect and the insurance claim recovery benefit were calculated using the respective statutory tax rates for applicable jurisdictions. management believes that these non-gaap financial measures enable useful and meaningful comparisons of our operating performance from period to period because they exclude the effects of the aforementioned items above that may not be indicative of our core operating results. these non-gaap financial measures, including constant-currency net sales, should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with gaap. the company provides a reconciliation of non-gaap measures to the most directly comparable financial measure calculated in accordance with gaap. see the "reconciliation of gaap to non-gaap financial measures" table included herein. the non-gaap financial measures and constant-currency information presented may not be comparable to similarly titled measures reported by other companies. forward-looking statements this document contains forward-looking statements within the meaning of the federal securities laws, including statements regarding our strategic priorities, anticipated results, net sales and net sales growth, operating income, and diluted earnings per share. forward-looking statements often use words such as "will", "anticipate", "estimate", "expect", "should", "may" and other words and terms of similar meaning or reference future dates. the company's expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, each forward-looking statement involves a number of risks and uncertainties, including those set forth in this document, those described in the company's annual report on form 10-k and quarterly reports on form 10-q under the heading "risk factors," and those that have been or may be described in other reports filed by the company, including reports on form 8-k. potential risks and uncertainties that may affect our future revenues, earnings and performance and could cause the actual results of operations or financial condition of the company to differ materially from the anticipated results expressed or implied by forward-looking statements in this document include: loss of key customer accounts; our ability to effectively execute our business strategies, including initiatives to upgrade our business processes and information technology (“it”) systems and investments in our dtc businesses; our ability to maintain the strength and security of our it systems; the effects of unseasonable weather, including global climate change; the seasonality of our business and timing of orders; trends affecting consumer spending, including changes in the level of consumer spending, and retail traffic patterns; unfavorable economic conditions generally, the financial health of our customers and retailer consolidation; higher than expected rates of order cancellations; changes affecting consumer demand and preferences and fashion trends; changes in international, federal or state tax, labor and other laws and regulations that affect our business, including changes in corporate tax rates, unanticipated impacts resulting from additional guidance about and/or the application of the tcja, tariffs, international trade policy and geopolitical tensions, or increasing wage rates; our ability to attract and retain key personnel; risks inherent in doing business in foreign markets, including fluctuations in currency exchange rates, global credit market conditions and changes in global regulation and economic and political conditions; volatility in global production and transportation costs and capacity; our ability to effectively manage our inventory; our dependence on third-party manufacturers and suppliers and our ability to source at competitive prices from them or at all; the effectiveness of our sales and marketing efforts; business disruptions and acts of terrorism, cyber-attacks or military activities around the globe; intense competition in the industry; our ability to establish and protect our intellectual property; and our ability to develop innovative products. the company cautions that forward-looking statements are inherently less reliable than historical information. the company does not undertake any duty to update any of the forward-looking statements after the date of this document to conform them to actual results or to reflect changes in events, circumstances or its expectations. new factors emerge from time to time and it is not possible for the company to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. about columbia sportswear company columbia sportswear company has assembled a portfolio of brands for active lives, making it a leader in the global active lifestyle apparel, footwear, accessories, and equipment industry. founded in 1938 in portland, oregon, the company's brands are today sold in approximately 90 countries. in addition to the columbia® brand, columbia sportswear company also owns the mountain hardwear®, sorel® and prana® brands. to learn more, please visit the company's websites at www.columbia.com, www.mountainhardwear.com, www.sorel.com, and www.prana.com. columbia sportswear company condensed consolidated balance sheets (in thousands) (unaudited) september 30, 2019 2018 assets current assets: cash and cash equivalents $ 239,311 $ 182,175 restricted cash — 13,970 short-term investments 1,477 269,313 accounts receivable, net 646,414 552,442 inventories 717,396 617,194 prepaid expenses and other current assets 94,253 77,763 total current assets 1,698,851 1,712,857 property, plant, and equipment, net 349,302 284,744 operating lease right-of-use assets 389,558 — intangible assets, net 124,340 127,320 goodwill 68,594 68,594 deferred income taxes 80,193 68,913 other non-current assets 40,242 36,911 total assets $ 2,751,080 $ 2,299,339 liabilities and equity current liabilities: short-term borrowings $ — $ 8,311 accounts payable 201,806 237,344 accrued liabilities 279,932 255,682 operating lease liabilities 62,756 — income taxes payable 13,653 8,247 total current liabilities 558,147 509,584 non-current operating lease liabilities 366,515 — income taxes payable 48,619 62,090 deferred income taxes 7,711 13 other long-term liabilities 22,982 46,056 total liabilities 1,003,974 617,743 equity: columbia sportswear company shareholders' equity 1,747,106 1,665,365 non-controlling interest — 16,231 total equity 1,747,106 1,681,596 total liabilities and equity $ 2,751,080 $ 2,299,339 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, 2019 2018 2019 2018 net sales $ 906,793 $ 795,801 $ 2,087,611 $ 1,884,728 cost of sales 460,098 412,098 1,050,596 972,966 gross profit 446,695 383,703 1,037,015 911,762 49.3 % 48.2 % 49.7 % 48.4 % selling, general and administrative expenses 299,249 259,267 791,767 724,827 net licensing income 4,569 4,708 11,090 11,279 income from operations 152,015 129,144 256,338 198,214 interest income, net 1,399 2,524 7,370 7,748 other non-operating income (expense), net (563 ) 736 915 372 income before income tax 152,851 132,404 264,623 206,334 income tax expense (33,593 ) (30,029 ) (48,159 ) (44,735 ) net income 119,258 102,375 216,464 161,599 net income attributable to non-controlling interest — 2,223 — 6,603 net income attributable to columbia sportswear company $ 119,258 $ 100,152 $ 216,464 $ 154,996 earnings per share attributable to columbia sportswear company: basic $ 1.76 $ 1.44 $ 3.19 $ 2.22 diluted $ 1.75 $ 1.42 $ 3.15 $ 2.19 weighted average shares outstanding: basic 67,593 69,589 67,935 69,895 diluted 68,180 70,357 68,620 70,685 columbia sportswear company condensed consolidated statements of cash flows (in thousands) (unaudited) nine months ended september 30, 2019 2018 cash flows from operating activities: net income $ 216,464 $ 161,599 adjustments to reconcile net income to net cash used in operating activities: depreciation, amortization and non-cash lease expense 88,775 43,544 loss on disposal or impairment of property, plant, and equipment 4,866 1,979 deferred income taxes (3,157 ) 2,103 stock-based compensation 13,159 10,247 changes in operating assets and liabilities: accounts receivable (199,416 ) (125,433 ) inventories (198,999 ) (188,544 ) prepaid expenses and other current assets (12,596 ) (7,968 ) other assets (3,981 ) (9,782 ) accounts payable (65,191 ) (14,263 ) accrued liabilities 6,497 38,193 income taxes payable (11,286 ) (7,200 ) operating lease assets and liabilities (39,010 ) — other liabilities 5,716 (2,541 ) net cash used in operating activities (198,159 ) (98,066 ) cash flows from investing activities: purchases of short-term investments (181,257 ) (426,278 ) sales and maturities of short-term investments 445,501 252,727 capital expenditures (104,527 ) (45,189 ) proceeds from sale of property, plant, and equipment — 18 net cash provided by (used in) investing activities 159,717 (218,722 ) cash flows from financing activities: proceeds from credit facilities 74,053 36,051 repayments on credit facilities (74,053 ) (27,740 ) proceeds from issuance of common stock related to stock-based compensation 17,687 16,508 tax payments related to stock-based compensation (5,739 ) (4,221 ) repurchase of common stock (116,239 ) (107,222 ) purchase of non-controlling interest (17,880 ) — cash dividends paid (48,917 ) (46,160 ) cash dividends paid to non-controlling interest — (19,949 ) net cash used in financing activities (171,088 ) (152,733 ) net effect of exchange rate changes on cash (2,954 ) (7,500 ) net decrease in cash, cash equivalents and restricted cash (212,484 ) (477,021 ) cash, cash equivalents and restricted cash, beginning of period 451,795 673,166 cash, cash equivalents and restricted cash, end of period $ 239,311 $ 196,145 supplemental disclosures of non-cash investing and financing activities: property, plant and equipment acquired through increase in liabilities $ 11,638 $ 7,380 columbia sportswear company supplemental financial information reconciliation of gaap to non-gaap financial measures (in thousands, except per share amounts) (unaudited) three months ended september 30, 2018 gaap measures (as reported) adjust for project connect costs (1) adjust for effects of the tcja (2) adjust for effects of insurance recovery (3) non-gaap measures selling, general and administrative expenses $ 259,267 $ (1,190 ) $ — $ 4,317 $ 262,394 income from operations 129,144 1,190 — (4,317 ) 126,017 income before income tax 132,404 1,190 — (4,317 ) 129,277 income tax benefit (expense) (30,029 ) (283 ) 1,493 1,027 (27,792 ) net income 102,375 907 1,493 (3,290 ) 101,485 net income attributable to columbia sportswear company 100,152 907 1,493 (3,290 ) 99,262 earnings per share attributable to columbia sportswear company: basic $ 1.44 $ 1.43 diluted $ 1.42 $ 1.41 nine months ended september 30, 2018 gaap measures (as reported) adjust for project connect costs (1) adjust for effects of the tcja (2) adjust for effects of insurance recovery (3) non-gaap measures selling, general and administrative expenses $ 724,827 $ (14,068 ) $ — $ 4,317 $ 715,076 income from operations 198,214 14,068 — (4,317 ) 207,965 income before income tax 206,334 14,068 — (4,317 ) 216,085 income tax benefit (expense) (44,735 ) (3,348 ) 2,672 1,027 (44,384 ) net income 161,599 10,720 2,672 (3,290 ) 171,701 net income attributable to columbia sportswear company 154,996 10,720 2,672 (3,290 ) 165,098 earnings per share attributable to columbia sportswear company: basic $ 2.22 $ 2.36 diluted $ 2.19 $ 2.34 (1) amounts reflect professional fees, severance and other program expenses related to project connect in 2018 that the company believes are incremental to the company's ongoing operations. the related tax effects of these charges were calculated using the respective statutory tax rates for applicable jurisdictions. (2) amounts reflect an incremental provisional tcja-related tax expense, primarily driven by refinement in the calculation of withholding taxes on our deferred tax liabilities, which drove further refinement of the company's provisional estimates that were recorded in fourth quarter 2017. (3) amounts reflect a benefit from a recovery in connection with an insurance claim received in the third quarter of 2018 that the company believes is incremental to the company's ongoing operations. columbia sportswear company supplemental financial information net sales growth - constant-currency basis (in millions, except percentage changes) (unaudited) three months ended september 30, adjust for constant- constant- reported foreign currency reported reported currency net sales currency net sales net sales net sales net sales 2019 translation 2019(1) 2018 % change % change(1) geographical net sales: united states $ 581.3 $ — $ 581.3 $ 496.2 17 % 17 % laap 123.2 1.7 124.9 118.4 4 % 5 % emea 104.4 4.1 108.5 100.3 4 % 8 % canada 97.9 0.9 98.8 80.9 21 % 22 % total $ 906.8 $ 6.7 $ 913.5 $ 795.8 14 % 15 % brand net sales: columbia $ 729.5 $ 5.6 $ 735.1 $ 640.9 14 % 15 % sorel 116.1 1.1 117.2 91.2 27 % 29 % prana 38.5 0.1 38.6 39.9 (4 )% (3 )% mountain hardwear 22.7 (0.1 ) 22.6 23.0 (1 )% (2 )% other — — — 0.8 (100 )% (100 )% total $ 906.8 $ 6.7 $ 913.5 $ 795.8 14 % 15 % product category net sales: apparel, accessories and equipment $ 684.7 $ 4.5 $ 689.2 $ 617.6 11 % 12 % footwear 222.1 2.2 224.3 178.2 25 % 26 % total $ 906.8 $ 6.7 $ 913.5 $ 795.8 14 % 15 % channel net sales: wholesale $ 652.6 $ 5.3 $ 657.9 $ 549.8 19 % 20 % dtc 254.2 1.4 255.6 246.0 3 % 4 % total $ 906.8 $ 6.7 $ 913.5 $ 795.8 14 % 15 % (1) constant-currency net sales information is a non-gaap financial measure that excludes the effect of changes in foreign currency exchange rates against the u.s. dollar between comparable reporting periods. the company calculates constant-currency net sales by translating net sales in foreign currencies for the current period into u.s. dollars at the average exchange rates that were in effect during the comparable period of the prior year. columbia sportswear company supplemental financial information net sales growth - constant-currency basis (in millions, except percentage changes) (unaudited) nine months ended september 30, adjust for constant- constant- reported foreign currency reported reported currency net sales currency net sales net sales net sales net sales 2019 translation 2019(1) 2018 % change % change(1) geographical net sales: united states $ 1,309.0 $ — $ 1,309.0 $ 1,139.2 15 % 15 % laap 357.7 9.9 367.6 350.8 2 % 5 % emea 267.3 10.8 278.1 257.1 4 % 8 % canada 153.6 4.0 157.6 137.6 12 % 15 % total $ 2,087.6 $ 24.7 $ 2,112.3 $ 1,884.7 11 % 12 % brand net sales: columbia $ 1,736.6 $ 22.4 $ 1,759.0 $ 1,564.5 11 % 12 % sorel 170.7 1.7 172.4 133.4 28 % 29 % prana 118.4 0.1 118.5 120.3 (2 )% (1 )% mountain hardwear 61.9 0.5 62.4 63.4 (2 )% (2 )% other — — — 3.1 (100 )% (100 )% total $ 2,087.6 $ 24.7 $ 2,112.3 $ 1,884.7 11 % 12 % product category net sales: apparel, accessories and equipment $ 1,642.9 $ 17.4 $ 1,660.3 $ 1,502.2 9 % 11 % footwear 444.7 7.3 452.0 382.5 16 % 18 % total $ 2,087.6 $ 24.7 $ 2,112.3 $ 1,884.7 11 % 12 % channel net sales: wholesale $ 1,312.0 $ 16.4 $ 1,328.4 $ 1,161.4 13 % 14 % dtc 775.6 8.3 783.9 723.3 7 % 8 % total $ 2,087.6 $ 24.7 $ 2,112.3 $ 1,884.7 11 % 12 % (1) constant-currency net sales information is a non-gaap financial measure that excludes the effect of changes in foreign currency exchange rates against the u.s. dollar between comparable reporting periods. the company calculates constant-currency net sales by translating net sales in foreign currencies for the current period into u.s. dollars at the average exchange rates that were in effect during the comparable period of the prior year. columbia sportswear company supplemental financial information reconciliation of gaap to non-gaap updated full year 2019 financial outlook (unaudited) 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 materially. for more information on these risks and uncertainties please refer to the "forward looking statements" section. twelve months ended december 31, 2018 2019 financial outlook gaap measures (as reported) adjust for project connect costs(1) adjust for effects of the tcja (2) adjust for effects of insurance recovery (3) non-gaap measures commentary compared to: (in thousands, except per share amounts) 2019 financial outlook 2018 2018 non-gaap net sales $ 2,802,326 $ — $ — $ — $ — $3.01 to $3.04 billion 7.5% to 8.5% growth gross profit 1,386,348 — — — — gross margin of approximately 50.1% approximately 60 bps expansion selling, general and administrative expenses 1,051,152 (15,766 ) — 4,317 1,039,703 37.4% to 37.6% percent of net sales 10 bps leverage to 10 bps deleverage 30 bps to 50 bps deleverage income from operations 350,982 15,766 — (4,317 ) 362,431 $392 to $401 million operating margin 13.0% to 13.2% 50 bps to 70 bps expansion 10 bps to 30 bps expansion income tax expense (85,769 ) (3,752 ) 5,064 1,027 (83,430 ) approximately 20% net income attributable to non-controlling interest 6,692 — — — — $ 0 net income attributable to columbia sportswear company $ 268,256 $ 12,014 $ 5,064 $ (3,290 ) $ 282,044 $322 to $329 million earnings per share attributable to columbia sportswear company: diluted $ 3.81 $ 4.01 $4.70 to $4.80 (1) amounts reflect professional fees, severance and other program expenses related to project connect that the company believes are incremental to its ongoing operations. the related tax effects of these charges were calculated using the respective statutory tax rates for applicable jurisdictions. (2) in 2018, the company incurred $5.1 million in incremental income tax expense related to the tcja. (3) amounts reflect a benefit from a recovery in connection with an insurance claim received in third quarter 2018 that the company believes is incremental to the company's ongoing operations. ©2019 columbia sportswear company
