Columbia Sportswear Company Reports Record Second Quarter and First Half 2018 Financial Results; Raises Full Year 2018 Financial Outlook

PORTLAND, Ore.--(BUSINESS WIRE)-- Columbia Sportswear Company (NASDAQ: COLM):

Throughout this press release, references to non-GAAP financial measures in the second quarter of 2018 exclude $7.5 million in net sales, gross profit and selling, general and administrative ("SG&A") expenses associated with adoption of Accounting Standards Codification - ASC 606 (hereinafter referred to as the "new revenue accounting standard"), $1.9 million in Project CONNECT program expenses and discrete costs ($1.4 million net of tax), and $0.1 million in incremental provisional income tax expense related to the Tax Cuts and Jobs Act (the "TCJA"). References to non-GAAP financial measures in the second quarter of 2017 exclude $4.1 million in Project CONNECT program expenses and discrete costs ($2.6 million net of tax). References to non-GAAP financial measures in the first half of 2018 exclude $15.7 million in net sales, gross profit and SG&A expenses associated with adoption of the new revenue accounting standard, $12.9 million in Project CONNECT program expenses and discrete costs ($9.8 million net of tax), and $1.2 million in incremental provisional income tax expense related to the TCJA. References to non-GAAP financial measures in the first half of 2017 exclude $5.3 million in Project CONNECT program expenses and discrete costs ($3.4 million net of tax).

Second Quarter and First Half 2018 GAAP Highlights:

• Second quarter net sales increased 21 percent (19 percent constant-currency) to a record $481.6 million.
• Second quarter operating income increased to $9.7 million, representing 630 basis points of operating margin expansion to 2.0 percent of net sales.
• Second quarter net income increased to $9.7 million, or $0.14 per diluted share.
• First half net sales increased 16 percent (13 percent constant-currency) to a record $1,088.9 million.
• First half net income increased 124 percent to a record $54.8 million, or $0.77 per diluted share.
• Inventories increased 2 percent to $570.5 million.
• Cash and short-term investments totaled $774.7 million at June 30, 2018.
• The board of directors approved a regular quarterly dividend of $0.22 per share.

Second Quarter and First Half 2018 non-GAAP Highlights:

• Non-GAAP second quarter net sales increased 19 percent (17 percent constant-currency) to $474.1 million.
• Non-GAAP second quarter operating income increased to $11.6 million, representing 580 basis points of operating margin expansion to 2.5 percent of net sales.
• Non-GAAP second quarter net income increased to $11.3 million, or $0.16 per diluted share.
• Non-GAAP first half net sales increased 14 percent (11 percent constant-currency) to $1,073.2 million.
• Non-GAAP first half net income increased 136 percent to $65.8 million, or $0.93 per diluted share.

Updated Full Year 2018 Financial Outlook Summary

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please refer to the "Supplemental Financial Information" tables provided in this press release.

Columbia Sportswear Company (NASDAQ: COLM) today announced record net sales of $481.6 million for the quarter ended June 30, 2018, an increase of 21 percent (19 percent constant-currency), compared with net sales of $398.9 million for the second quarter of 2017. Non-GAAP net sales of $474.1 million increased 19 percent (17 percent constant-currency).

Second quarter 2018 net income increased to $9.7 million, or $0.14 per diluted share, compared with second quarter 2017 net loss of $11.5 million, or $(0.17) per share. Non-GAAP second quarter 2018 net income increased to $11.3 million, or $0.16 per diluted share, compared with non-GAAP second quarter 2017 net loss of $9.0 million, or $(0.13) per share.

Through the first six months of 2018, net sales grew $146.2 million, or 16 percent (13 percent constant-currency), to $1,088.9 million, compared to $942.7 million in the first half of 2017. First half 2018 net income increased 124 percent to $54.8 million, or $0.77 per diluted share, compared to $24.5 million, or $0.35 per diluted share, in the first half of 2017. Non-GAAP net sales through the first six months of 2018 grew $130.5 million, or 14 percent (11 percent constant-currency), to $1,073.2 million, compared to $942.7 million in the first half of 2017. First half 2018 non-GAAP net income increased 136 percent to $65.8 million, or $0.93 per diluted share, compared to $27.9 million, or $0.40 per diluted share, in the first half of 2017.

President and Chief Executive Officer Tim Boyle commented, "Our better than expected second quarter and record first half results reflect continued momentum across our brand portfolio. Our first half revenue surpassed the one billion dollar mark for the first time in company history led by growth in the Columbia brand driven by solid performance in the United States across all channels as well as strong growth internationally led by our Europe-direct business. We are also pleased with strong first half performance for both prAna and SOREL, including a positive consumer response to SOREL's Spring 2018 assortment and progress in evolving to a year-round brand. With the strength in the first half performance we are pleased to increase our full year 2018 financial outlook."

"These results and updated outlook demonstrate the strength of our brands and our shift to become a more brand-led and consumer-focused organization. Our powerful balance sheet, with $775 million in cash and short-term investments, and no long-term debt, provides the flexibility to invest in our growth initiatives as our major markets continue to evolve. It is from this position of strength and confidence that we are investing in our four 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 excited about the second half of 2018, which we expect to include broad based revenue growth, increased demand creation spending, and continued investment in our strategic priorities."

Second Quarter 2018 Financial Results

(All comparisons are between second quarter of 2018 and second quarter of 2017, unless otherwise noted).

Net Sales

Second quarter 2018 consolidated net sales increased 21 percent (19 percent constant-currency) to a record $481.6 million. Non-GAAP net sales increased 19 percent (17 percent constant-currency) to $474.1 million.

Geographies (See "Geographical Net Sales" table below)

• U.S. net sales increased 18 percent, attributable to mid-teens percent growth in direct-to-consumer ("DTC") and high-teens percent growth in wholesale. The company operated 134 U.S. retail stores at June 30, 2018 compared with 122 at the same time last year.
• Latin America Asia Pacific ("LAAP") net sales increased 27 percent (22 percent constant-currency) including the effect of the new revenue accounting standard. LAAP non-GAAP net sales increased 17 percent (13 percent constant-currency) driven by growth from LAAP distributors, China and Japan, partially offset by a decline in Korea.
• Europe Middle East and Africa ("EMEA") net sales increased 26 percent (21 percent constant-currency) primarily driven by high-20 percent growth in EMEA distributors and low-20 percent growth in Europe-direct (high-single-digit percent constant-currency).
• Canada net sales increased 12 percent (7 percent constant-currency), primarily driven by DTC.

Brands (See "Brand Net Sales" table below)

• Columbia brand net sales increased 22 percent (20 percent constant-currency) to $414.8 million.
• SOREL brand net sales increased 90 percent (85 percent constant-currency) to $11.4 million.
• prAna brand net sales increased 9 percent to $38.1 million.
• Mountain Hardwear brand net sales decreased 1 percent to $16.0 million.

Product Categories (See "Product Category Net Sales" table below)

• Apparel, Accessories and Equipment net sales increased 20 percent (18 percent constant-currency) to $394.6 million.
• Footwear net sales increased 26 percent (22 percent constant-currency) to $87.0 million.

Channels (See "Channel Net Sales" table below)

• Wholesale net sales increased 23 percent (22 percent constant-currency) to $261.2 million.
• DTC net sales increased 18 percent (16 percent constant-currency) to $220.4 million.

Profitability

Second quarter 2018 operating income increased to $9.7 million, or 2.0 percent of net sales, compared to an operating loss of $17.3 million, or (4.3) percent of net sales, in the second quarter of 2017. Non-GAAP second quarter 2018 operating income increased to $11.6 million, or 2.5 percent of net sales, compared to a non-GAAP operating loss of $13.2 million, or (3.3) percent of net sales, in the second quarter of 2017.

Second quarter 2018 net income increased to $9.7 million, or $0.14 per diluted share compared to a net loss of $11.5 million, or $(0.17) per share, in the second quarter of 2017. Non-GAAP second quarter 2018 net income increased to $11.3 million, or $0.16 per diluted share, compared with a non-GAAP net loss of $9.0 million, or $(0.13) per share, in the second quarter of 2017.

Taxes

Second quarter 2018 income tax expense was $2.1 million, resulting in an effective income tax rate of 16.6 percent, compared to an income tax benefit of $4.5 million, and an effective tax rate of 28.6 percent, in the second quarter of 2017. Our effective tax rate decreased compared to the prior year due to the change in the U.S. tax rate for the current year and increased tax benefits from stock-based compensation in the current period compared to the same period in the prior year.

Balance Sheet

At June 30, 2018, cash and short-term investments totaled $774.7 million, compared to $622.2 million at June 30, 2017.

Consolidated inventories increased 2 percent to $570.5 million at June 30, 2018 compared to $559.5 million at June 30, 2017, including an $11.1 million decrease due to a balance sheet reclassification of the estimated cost of inventory associated with sales returns into prepaid and other current assets under the new revenue accounting standard. Excluding the impact of this classification change, consolidated inventories increased 4 percent compared to June 30, 2017.

Cash Flow, Share Repurchases and Dividends

Operating cash flow for the six months ended June 30, 2018 was $99.3 million, compared to $157.0 million in the six months ended June 30, 2017.

Capital expenditures totaled $29.6 million for the first six months ended June 30, 2018, compared to $24.3 million in the six months ended June 30, 2017.

Through the six months ended June 30, 2018, the company repurchased 500,290 shares of common stock for $40.1 million, or $80.17 per share and paid $30.9 million in dividends.

At June 30, 2018, approximately $97.8 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 regular quarterly cash dividend of $0.22 per share, payable on August 30, 2018 to shareholders of record on August 16, 2018.

Updated Full Year 2018 Financial Outlook

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. Projections are predicated on normal seasonal weather globally. In addition, our updated full year 2018 financial outlook assumes that current macroeconomic and market conditions in key markets do not worsen.

The company's annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the year.

The company currently expects 2018 net sales growth of approximately 9.0 to 10.5 percent (prior 8.0 to 10.0 percent), compared with 2017 net sales of $2.47 billion. The company expects non-GAAP net sales growth of approximately 7.5 to 9.0 percent (prior 6.5 to 8.5 percent) which excludes approximately $40 million in net sales associated with the new revenue accounting standard.

The company expects full year 2018 gross margin to improve by up to 140 basis points and non-GAAP gross margin to improve by up to 60 basis points, excluding approximately $40 million of benefit to gross profit associated with the new revenue accounting standard.

The company expects SG&A expenses to increase at a rate faster than net sales, resulting in approximately 120 to 140 basis points of SG&A expense deleverage (prior 150 to 170 basis points), and non-GAAP SG&A expense deleverage of approximately 20 to 40 basis points (prior 30 to 50 basis points), excluding approximately $40 million in SG&A expenses associated with the new revenue accounting standard, and approximately $19 million (prior $23 million) in Project CONNECT program expenses and discrete costs.

Based on the above assumptions, the company expects 2018 operating income between approximately $286 million and $295 million (prior between $275 million and $285 million), and non-GAAP operating income between approximately $306 million and $315 million (prior between $299 million and $308 million), resulting in operating margin between approximately 10.6 and 10.8 percent (prior between 10.3 and 10.5 percent), and non-GAAP operating margin between approximately 11.5 and 11.7 percent (prior between 11.4 and 11.5 percent).

The changes in revenue and expense classification associated with the new revenue accounting standard are expected to have an approximately 15 basis point negative effect on reported operating margin rate for 2018, but no effect on reported operating income.

The company expects an estimated full-year effective income tax rate of approximately 22 percent, which reflects a lower U.S. federal statutory income tax rate as a result of the TCJA and may be affected by further refinement of the company's 2017 TCJA provisional estimates as well as changes in the company's geographic mix of pre-tax income and other discrete events that may occur during the year.

The company expects 2018 net income between approximately $223 million and $230 million (prior between $213 million and $220 million), and non-GAAP net income between approximately $239 million and $246 million (prior between $231 million and $238 million), or diluted earnings per share between approximately $3.15 and $3.25 (prior between $3.01 and $3.11), and non-GAAP diluted earnings per share between $3.37 and $3.47 (prior between $3.27 and $3.37).

With respect to our 2018 financial outlook, non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million associated with the new revenue accounting standard, as well as Project CONNECT program expenses and discrete costs of approximately $19 million, $15 million net of tax, or $0.21 per diluted share (prior $23 million, $18 million net of tax, or $0.25 per diluted share). In the first half of 2018, we incurred $1.2 million, or $0.02 per diluted share, in incremental provisional income tax expense related to the TCJA.

CFO's Commentary on Second Quarter 2018 Financial Results and Updated Full Year 2018 Financial Outlook Available Online

At approximately 4:15 p.m. ET today, a commentary by Jim Swanson, Senior Vice President and Chief Financial Officer, reviewing the company's second quarter and first half 2018 financial results and updated full year 2018 financial outlook will be furnished to the Securities and Exchange Commission (The "SEC") on Form 8-K and published on the company's website at http://investor.columbia.com/results.cfm. Analysts and investors are encouraged to review this commentary prior to participating in the conference call.

Conference Call

The company will host a conference call on Thursday, July 26, 2018 at 5:00 p.m. ET to review its second quarter and first half 2018 financial results and updated full year 2018 financial outlook. 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.

Third Quarter 2018 Reporting Schedule

Columbia Sportswear Company plans to report third quarter and year to date 2018 financial results on Thursday, October 25, 2018 at approximately 4:00 p.m. ET. Following issuance of the earnings release, a commentary reviewing the company's third quarter and year to date 2018 financial results will be furnished to 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. A public webcast of Columbia's earnings conference call will follow at 5:00 p.m. ET at www.columbia.com.

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 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 other non-GAAP financial measures that exclude increased net sales and gross profit, and offsetting increased SG&A expenses, associated with the new revenue accounting standard, as well as program expenses, discrete costs and associated tax effects related to Project CONNECT and TCJA-related income tax expense. The related tax effects of program expenses and discrete costs related to Project CONNECT 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 "Supplemental Financial Information" tables included below. 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 anticipated results, net sales and net sales growth, gross margin, operating expenses, licensing income, operating income, operating margins, net income, earnings per share, income tax rates and the effects of tax reform (including the TCJA), SG&A expenses, including deleverage and SG&A expenses associated with the new revenue accounting standard, and Project CONNECT program expenses and discrete costs, projected growth or decline in specific geographies, channels, products, and brands, the effect of changes associated with the new revenue accounting standard on our financial results, expected broad based revenue growth, increased demand creation spending and continued investment in strategic priorities, and our ability to adapt our business and realize the anticipated benefits of our investments in our strategic priorities. 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 implement IT infrastructure and business process initiatives and to maintain the strength and security of our IT systems; the effects of unseasonable weather, including global climate change; trends affecting consumer traffic and spending in DTC; our ability to implement our growth strategy; unfavorable economic conditions generally, the financial health of our customers and changes in the level of consumer spending, apparel 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, tariffs, international trade policy, or increasing wage rates; the effects of the TCJA, including related changes to our tax obligations and effective tax rate in future periods, as well as future changes to related provisional tax expense recorded in 2017; volatility in global production and transportation costs and capacity; risks inherent in doing business in foreign markets, including fluctuations in currency exchange rates; our ability to attract and retain key personnel; risks associated with our joint venture, including the planned buyout of the non-controlling 40 percent interest in the joint venture; higher than expected rates of order cancellations; increased consolidation of our wholesale customers; our ability to effectively source and deliver our products to customers in a timely manner; our dependence on independent manufacturers and suppliers and our ability to source finished products and components at competitive prices from them; the effectiveness of our sales and marketing efforts; intense competition in the industry; business disruptions and acts of terrorism, cyber-attacks or military activities around the globe; our ability to establish and protect our intellectual property; the seasonality of our business; 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180726005848/en/

Columbia Sportswear Company
Andrew Burns, 503-985-4112
Director of Investor Relations
aburns@columbia.com

Source: Columbia Sportswear Company

Released July 26, 2018