Columbia Sportswear Company — Q2 2021 Form 10-Q Summary
Business context and reporting period
Columbia Sportswear designs, develops, markets and distributes outdoor, active and everyday lifestyle apparel, footwear, accessories and equipment under the Columbia, SOREL, Mountain Hardwear and prAna brands. Sales are generated through wholesale, direct-to-consumer retail and e-commerce, and independent international distributors. The filing covers the quarter and six months ended June 30, 2021; results are unaudited and materially seasonal, with sales and operating income generally weighted toward the second half of the year.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Net sales | $566.4 million | $316.6 million | $1,192.0 million | $884.8 million |
| Gross profit | $292.5 million | $146.2 million | $613.9 million | $417.9 million |
| Gross margin | 51.6% | 46.2% | 51.5% | 47.2% |
| Operating income (loss) | $35.0 million | $(70.3) million | $105.5 million | $(72.3) million |
| Operating margin | 6.2% | (22.2)% | 8.8% | (8.2)% |
| Net income (loss) | $40.7 million | $(50.7) million | $96.6 million | $(50.5) million |
| Diluted EPS | $0.61 | $(0.77) | $1.44 | $(0.76) |
| Operating cash flow | Not separately provided for the quarter | Not separately provided for the quarter | $117.2 million | $(37.3) million |
- Second-quarter net sales increased 79%; six-month sales increased 35%. On a constant-currency basis, growth was 76% and 32%, respectively.
- Second-quarter DTC e-commerce sales increased 5% and represented 16% of global sales, compared with 28% in the prior-year quarter. For the six-month period, e-commerce sales increased 21% and represented 18% of sales, compared with 20% in 2020.
- At June 30, 2021, cash and cash equivalents were $819.8 million, inventories were $676.0 million and total assets were $2.86 billion.
- The company had no borrowings outstanding under its credit facilities and approximately $505.2 million of committed borrowing availability. Total liabilities were $1.00 billion and shareholders’ equity was $1.86 billion.
- Six-month capital expenditures were $12.4 million. Management planned full-year 2021 capital expenditures of approximately $45 million to $60 million.
- Six-month financing cash outflows included $54.5 million of share repurchases and $34.5 million of dividends. The quarterly dividend was $0.26 per share.
Material changes versus the prior comparable period
- Results benefited from higher consumer demand and economic recovery compared with the COVID-19-affected second quarter and first half of 2020, when stores were closed, wholesale orders were canceled and consumer demand was lower.
- Gross margin expanded primarily because of lower inventory reserve provisions, lower DTC promotional activity and favorable wholesale product margins. The quarter also experienced an unfavorable mix shift from higher-margin e-commerce sales toward other channels.
- SG&A increased 20% in the quarter and 4% for the six months, but declined substantially as a percentage of sales to 46.2% and 43.3%, respectively. Prior-year COVID-19-related costs and elevated bad-debt provisions did not recur to the same extent.
- Unallocated corporate expenses increased to $58.2 million in the quarter and $113.4 million for the six months, primarily due to higher personnel and incentive compensation costs.
- All geographic segments reported higher sales for the quarter and six months. Second-quarter U.S. sales increased 107%, EMEA 52%, LAAP 16% and Canada 170%; reported foreign-exchange effects reduced consolidated sales growth.
- Inventory increased to $676.0 million from $556.5 million at December 31, 2020, while inventory purchase obligations increased to $538.8 million from $305.7 million.
Guidance, outlook, commentary and risks
- The filing does not provide a specific full-year 2021 sales or earnings guidance range. Management stated that profitability is expected to remain weighted toward the second half of the year.
- COVID-19 continued to affect stores, distribution centers, manufacturers and logistics providers. Port congestion, freight capacity constraints, production closures and other supply-chain disruptions caused later inventory receipts and higher freight, distribution and related costs.
- Management expected supply-chain disruption and cost increases to continue through the balance of 2021 and into 2022, potentially delaying fall inventory deliveries and affecting future sales and gross margin.
- Inflationary pressures were expected to build beyond 2021. The company anticipated implementing price increases to help offset higher costs.
- Principal risks include changing consumer demand, store traffic below pre-pandemic levels, wholesale customer cancellations or credit deterioration, excess or insufficient inventory, contract-manufacturer capacity, logistics and port constraints, labor shortages, inflation, foreign-exchange volatility, adverse weather, competition, cybersecurity and information-technology disruptions, and impairment of long-lived assets or goodwill.
- The company expected to meet cash needs for the next twelve months through operating cash flow. Management reported compliance with financial covenants and stated that normal-course litigation was not expected to have a material adverse effect.
- The effective tax rate was unusually low at 8.7% for the six months and negative 15.3% for the quarter, primarily due to a non-recurring decrease in accrued foreign withholding taxes.
- Currency exposure was managed through forward contracts. At June 30, 2021, derivative notional amounts were $530.8 million for designated cash-flow hedges and $258.4 million for non-designated contracts; approximately $5.0 million of deferred net derivative losses were expected to be reclassified into earnings over the following twelve months.
Most important facts for investors to verify
- Whether the strong 2021 recovery and margin expansion persist after comparisons normalize from the COVID-19-impacted 2020 period.
- Timing and availability of fall inventory, including the effect of port congestion, freight costs, manufacturing capacity and labor constraints on sales and gross margin.
- Inventory levels, reserve adequacy and the $538.8 million of inventory purchase obligations relative to demand.
- Progress of planned price increases in offsetting inflation, freight and other supply-chain costs without reducing demand.
- Sustainability of wholesale customer credit quality, order commitments and accounts-receivable collections.
- Second-half operating leverage, corporate spending and the company’s ability to fund DTC, digital and supply-chain investments within the stated $45 million to $60 million capital-expenditure plan.
- Impact of the non-recurring tax benefit and foreign-exchange movements on future effective tax rates and earnings.
- Share repurchase activity: $1.07 billion repurchased cumulatively through June 30, 2021, with $427.4 million remaining under the authorization.