Business Context and Reporting Period
Columbia Sportswear Company designs, markets and distributes outdoor, active and lifestyle apparel, footwear, accessories and equipment under the Columbia, SOREL, Mountain Hardwear and prAna brands. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, with comparisons to the same periods in 2020. Results are highly seasonal, with sales and operating income weighted toward the second half of the year.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $804.7 million | $701.1 million | $1,996.7 million | $1,585.9 million |
| Gross profit | $408.4 million | $342.9 million | $1,022.3 million | $760.9 million |
| Gross margin | 50.7% | 48.9% | 51.2% | 48.0% |
| Operating income | $133.5 million | $85.6 million | $238.9 million | $13.4 million |
| Operating margin | 16.6% | 12.2% | 12.0% | 0.8% |
| Net income | $100.6 million | $62.8 million | $197.1 million | $12.3 million |
| Diluted EPS | $1.52 | $0.94 | $2.96 | $0.18 |
For the nine months, net cash used in operating activities was $15.6 million versus $198.0 million used in the prior-year period. Investing cash use was $19.2 million, including $20.4 million of capital expenditures. Financing cash use was $151.4 million, primarily reflecting $118.6 million of share repurchases and $51.7 million of dividends.
At September 30, 2021, cash and cash equivalents were $599.5 million, short-term investments were $1.1 million, and total liabilities were $1.009 billion. No borrowings were outstanding under the company’s domestic revolving facility or international credit and overdraft facilities. The company reported $500.0 million of committed domestic revolving capacity and approximately $118.0 million of international committed and uncommitted capacity.
Inventory was $720.9 million, up from $556.5 million at December 31, 2020 and $771.7 million at September 30, 2020. Accounts receivable were $500.5 million. Inventory purchase obligations increased to $542.8 million from $305.7 million at year-end 2020.
Material Changes Versus the Prior Comparable Period
- Q3 net sales increased 15%; nine-month sales increased 26%. Constant-currency sales increased 14% and 24%, respectively.
- Q3 sales growth was led by apparel, accessories and equipment, up 22%, and direct-to-consumer sales, up 25%. Footwear declined 4% and SOREL sales declined 4% in the quarter.
- Nine-month sales increased across all brands, product categories and regions. Direct-to-consumer sales increased 34%, compared with 21% growth in wholesale sales.
- Gross margin improved primarily from lower promotional activity, stronger wholesale sell-through, lower customer accommodations and reduced inventory provisions, partly offset by higher inbound freight costs and channel mix.
- SG&A increased 7% in Q3 and 5% for the nine months, but declined as a percentage of sales. The nine-month improvement included lower bad-debt expense, non-recurrence of prior-year COVID-19 costs and lease settlement benefits.
- The effective tax rate declined to 24.9% from 26.1% in Q3 and to 17.7% from 24.8% for the nine months, primarily due to geographic income mix and, for the nine months, a non-recurring reduction in accrued foreign withholding taxes.
- The company repurchased $127.2 million of common stock during the nine months and had $355.0 million remaining under its repurchase authorization at September 30, 2021.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific full-year 2021 revenue or earnings guidance. Management expects profitability to remain weighted toward the second half of 2021 and expects to meet cash needs for the next twelve months through operating cash flow. Planned 2021 capital expenditures were approximately $45 million to $50 million.
Supply-chain disruptions, port congestion, freight capacity constraints, higher logistics costs and factory closures in Vietnam delayed Fall 2021 and Spring 2022 inventory receipts and shipments. Factories in Vietnam began reopening October 1, 2021 at less than full capacity. Management expects these pressures to continue through 2022 and stated that delayed inventory availability may affect future sales and gross margin.
Inflationary pressures are expected to build beyond 2021. Price increases began with Spring 2022 products and are expected to be greater for Fall 2022, but management does not expect them to fully offset gross-margin pressures.
Key risks include continuing COVID-19 effects, labor shortages, inventory forecasting and potential excess or insufficient inventory, wholesale order cancellations, consumer demand and weather volatility, dependence on contract manufacturers and third-party logistics providers, foreign-currency movements, rising freight and raw-material costs, e-commerce competition, cybersecurity and information-technology disruptions, and geopolitical or regulatory developments.
Legal matters arise in the ordinary course of business; management does not believe their resolution will have a material adverse effect. The filing also identifies a $17.5 million prAna trademark impairment charge recorded in the fourth quarter of 2020, but no comparable charge was reported in the current quarter.
Important Facts for Investors to Verify
- Whether supply-chain delays and Vietnam production constraints reduce fourth-quarter and 2022 product availability, revenue or gross margin.
- Whether higher freight, labor, raw-material and inflationary costs are offset by price increases without weakening demand.
- Whether elevated inventory and purchase commitments lead to markdowns, write-downs or additional working-capital needs.
- Whether operating cash flow turns positive during the seasonally important fourth quarter.
- The sustainability of Q3 gross-margin improvement, lower bad-debt expense and favorable tax-rate effects, including non-recurring items.
- Progress against the stated $45 million to $50 million 2021 capital-expenditure plan and the remaining $355.0 million share-repurchase authorization.