Columbia Sportswear Company Reports Record Fourth Quarter and Full Year 2018 Financial Results; Provides 2019 Financial Outlook; Announces $200 Million Increase in Stock Repurchase Authorization

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

Throughout this press release, references to non-GAAP financial
measures in fourth quarter 2018 exclude $18.3 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” or
“ASC 606”), $2.4 million in incremental income tax expense related to
the Tax Cuts and Jobs Act (“TCJA”) and $1.7 million in Project CONNECT
expenses and discrete costs ($1.3 million net of tax). References to
non-GAAP financial measures in fourth quarter 2017 exclude $95.6 million
in incremental income tax expense related to the TCJA and $6.3 million
in Project CONNECT expenses and discrete costs ($3.9 million net of tax).

References to non-GAAP financial measures for full year 2018 exclude
$41.0 million in net sales, gross profit and SG&A expenses associated
with adoption of the new revenue accounting standard, $15.8 million in
Project CONNECT program expenses and discrete costs ($12.0 million net
of tax), $5.1 million in incremental income tax expense related to the
TCJA and a $4.3 million benefit from a recovery in connection with an
insurance claim ($3.3 million net of tax). References to non-GAAP
financial measures for full year 2017 exclude $95.6 million in
incremental income tax expense related to the TCJA and $14.9 million in
Project CONNECT program expenses and discrete costs ($9.4 million net of
tax).

Fourth Quarter and Full Year 2018 Highlights:

  • Fourth quarter net sales increased 18 percent (19 percent
    constant-currency) to a record $917.6 million.
  • Fourth quarter operating income increased 40 percent to a record
    $152.8 million, representing 16.6 percent of net sales.
  • Fourth quarter net income increased to a record $113.3 million, or a
    record $1.63 per diluted share, compared to a net loss of $7.1
    million, or $(0.10) per share in fourth quarter 2017.
  • Full year net sales increased 14 percent (13 percent
    constant-currency) to a record $2,802.3 million.
  • Full year operating income increased 33 percent to a record $351.0
    million, representing 12.5 percent of net sales.
  • Full year net income increased 155 percent to a record $268.3 million,
    or a record $3.81 per diluted share.
  • Inventories increased 14 percent to $521.8 million.
  • Cash, cash equivalents and short-term investments totaled $700.6
    million at December 31, 2018.
  • The board of directors approved an additional $200 million share
    repurchase authorization and approved a regular quarterly dividend
    of $0.24 per share.

Fourth Quarter and Full Year 2018 Non-GAAP
Highlights
:

  • Non-GAAP fourth quarter net sales increased 16 percent (17 percent
    constant-currency) to $899.3 million.
  • Non-GAAP fourth quarter operating income increased 34 percent to
    $154.5 million, representing 17.2 percent of net sales.
  • Non-GAAP fourth quarter net income increased 27 percent to $116.9
    million, or $1.68 per diluted share.
  • Non-GAAP full year net sales increased 12 percent (11 percent
    constant-currency) to $2,761.4 million.
  • Non-GAAP full year operating income increased 30 percent to $362.4
    million, representing 13.1 percent of net sales.
  • Non-GAAP full year net income increased 34 percent to $282.0 million,
    or $4.01 per diluted share.

Full Year 2019 Financial Outlook Summary

   
Full Year 2019 Guidance (U.S. Dollar)
    Commentary compared to:
2019 Guidance 2018     2018 non-GAAP*
Net sales $2.97 to $3.03 billion 6.0% to 8.0% growth    
Gross margin up to 50.2% approximately 70 bps expansion
SG&A percent of net sales 38.0% to 38.2% 50 bps to 70 bps deleverage 90 bps to 110 bps deleverage
Operating margin 12.4% to 12.6% 10 bps contraction to 10 bps expansion 30 bps to 50 bps contraction
Operating income $369 to $382 million
Effective income tax rate approximately 22%
Net income $297 to $307 million
Diluted earnings per share $4.30 to $4.45
 

*Please note we have removed the impact of ASC 606 from 2018
non-GAAP measures to create a meaningful baseline to evaluate
operating performance outlined in our 2019 guidance. Given ASC 606
was implemented in January 2018 and incorporated into results
thereafter, this adjustment is not necessary for 2018 results to
be comparable to 2019 guidance and future results. For more
information, please refer to the “Reconciliation of GAAP to
non-GAAP Updated Full Year 2019 Financial Outlook” table found in
the “Supplemental Financial Information” section below.

 

Columbia Sportswear Company (NASDAQ: COLM) today announced net sales of
$917.6 million for the fourth quarter 2018, an increase of 18 percent
(19 percent constant-currency), compared with net sales of $776.0
million for fourth quarter 2017. Non-GAAP fourth quarter 2018 net sales
of $899.3 million increased 16 percent (17 percent constant-currency).
Fourth quarter 2018 net income increased to $113.3 million, or $1.63 per
diluted share, compared to fourth quarter 2017 net loss of $7.1 million,
or $(0.10) per share. Non-GAAP fourth quarter 2018 net income increased
27 percent to $116.9 million, or $1.68 per diluted share, compared with
non-GAAP fourth quarter 2017 net income of $92.4 million, or $1.31 per
diluted share.

Full year 2018 net sales increased $336.2 million, or 14 percent (13
percent constant-currency), to $2,802.3 million, compared to $2,466.1
million in the prior year. Full year 2018 non-GAAP net sales increased
$295.2 million, or 12 percent (11 percent constant-currency), to
$2,761.4 million. Full year 2018 net income increased 155 percent to
$268.3 million, or $3.81 per diluted share, compared to $105.1 million,
or $1.49 per diluted share, in the prior year. Full year 2018 non-GAAP
net income increased 34 percent to $282.0 million, or $4.01 per diluted
share, compared to $210.1 million, or $2.98 per diluted share, in the
prior year.

President and Chief Executive Officer Tim Boyle commented, “I’m
extremely proud of the tremendous quarter and year that our teams have
produced. We were able to deliver record fourth quarter and full year
results that significantly exceeded our outlook, while at the same time
making substantial investments in our strategic priorities including
demand creation. I’d like to thank our over 7,800 global employees whose
dedication and focus drove these spectacular results.”

“We have kicked off 2019 with a continued focus on connecting active
people with their passions. Our business momentum is broad-based across
our brand portfolio and geographic regions including growth in both
wholesale and DTC distribution channels. We continue to project
profitable growth for 2019, even though record 2018 financial
performance creates challenging comparisons and we face increasing
global economic uncertainty and unresolved trade issues. We believe our
business momentum, financial benefits from Project CONNECT, as well as
our strong balance sheet, with cash balances of over $700 million, will
enable us to 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 expect these investments will make us a more efficient and more
profitable company and accelerate market share capture across our brand
portfolio and geographic regions in order to sustain our long-term
profitable growth strategy.”

Fourth Quarter 2018 Financial Results

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

Net Sales

For more information regarding net sales by geographies, brands,
product categories and channels, please refer to the “Net Sales Growth”
tables found in the “Supplemental Financial Information” section below.

Fourth quarter 2018 net sales increased 18 percent (19 percent
constant-currency) to $917.6 million. Non-GAAP net sales increased 16
percent (17 percent constant-currency) to $899.3 million.

Geographies

  • United States (“U.S.”) net sales increased 20 percent, attributable to
    low-20 percent growth in direct-to-consumer (“DTC”) and high-teens
    percent growth in wholesale. The company operated 136 U.S. retail
    stores at December 31, 2018 compared with 129 at the same time last
    year.
  • Latin America Asia Pacific (“LAAP”) net sales increased 16 percent (18
    percent constant-currency) driven by the new revenue accounting
    standard as well as growth across Korea, Japan and China, partially
    offset by a decline in LAAP distributor net sales. LAAP non-GAAP net
    sales increased 4 percent (6 percent constant-currency).
  • Europe Middle East and Africa (“EMEA”) net sales increased 12 percent
    (14 percent constant-currency), led by mid-teens percent Europe-direct
    growth and high-single-digit percent EMEA distributor net sales growth.
  • Canada net sales increased 21 percent (26 percent constant-currency),
    reflecting strong wholesale and DTC performance.

Brands

  • Columbia brand net sales increased 21 percent (22 percent
    constant-currency) to $727.8 million.
  • SOREL brand net sales increased 11 percent (12 percent
    constant-currency) to $126.9 million.
  • prAna brand net sales increased 21 percent to $36.7 million.
  • Mountain Hardwear brand net sales decreased 8 percent (7 percent
    decrease constant-currency) to $26.1 million.

Product Categories

  • Apparel, Accessories and Equipment net sales increased 19 percent (20
    percent constant-currency) to $688.8 million.
  • Footwear net sales increased 16 percent (17 percent constant-currency)
    to $228.8 million.

Channels

  • DTC net sales increased 23 percent (24 percent constant-currency) to
    $467.0 million.
  • Wholesale net sales increased 14 percent (15 percent
    constant-currency) to $450.6 million.

Profitability

Fourth quarter 2018 operating income of $152.8 million, or 16.6 percent
of net sales, increased 40 percent compared to operating income of
$109.4 million, or 14.1 percent of net sales, in fourth quarter 2017.
Non-GAAP fourth quarter 2018 operating income of $154.5 million, or 17.2
percent of net sales, increased 34 percent compared to non-GAAP
operating income of $115.6 million, or 14.9 percent of net sales, in
fourth quarter 2017.

Fourth quarter 2018 net income increased to $113.3 million, or $1.63 per
diluted share, compared to a net loss of $7.1 million, or $(0.10) per
share, in fourth quarter 2017. Non-GAAP fourth quarter 2018 net income
of $116.9 million, or $1.68 per diluted share, increased 27 percent
compared to non-GAAP net income of $92.4 million, or $1.31 per diluted
share, in fourth quarter 2017.

Taxes

Fourth quarter 2018 income tax expense was $41.0 million, resulting in
an effective income tax rate of 26.6 percent, compared to income tax
expense of $116.5 million, or an effective income tax rate of 105.8
percent, in fourth quarter 2017. Our fourth quarter effective tax rate
decreased compared to the prior year period primarily due to $95.6
million in incremental income tax expense related to the TCJA occurring
in fourth quarter 2017 and a lower U.S. federal tax rate in 2018 due to
the enactment of the TCJA.

Non-GAAP fourth quarter 2018 income tax expense was $39.0 million,
resulting in an effective income tax rate of 25.0 percent, compared to
non-GAAP income tax expense of $23.2 million, or an effective income tax
rate of 20.0 percent, for the same period last year. Our non-GAAP fourth
quarter effective tax rate increased primarily due to a discrete tax
benefit recognized in fourth quarter 2017 that was partially offset by
the reduction in the 2018 federal income tax rate.

Balance Sheet

At December 31, 2018, cash, cash equivalents and short-term investments
totaled $700.6 million, compared to $768.1 million at December 31, 2017.
In addition to cash, cash equivalents and short-term investments, the
company had $14.0 million in restricted cash as of December 31, 2018,
related to consideration placed in escrow as a portion of the funds
needed to purchase the 40 percent non-controlling interest in the
company’s China joint venture. The company closed the buyout transaction
on January 2, 2019.

Inventories increased 14 percent to $521.8 million at December 31,
2018 compared to $457.9 million at December 31, 2017, including a $27.2
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, inventories
increased 20 percent compared to December 31, 2017, largely due to the
earlier timing of Spring 2019 inventory receipts.

Full Year Cash Flow, Share Repurchases and Dividends

During full year 2018, the company generated $289.6 million in operating
cash flow, compared to $341.1 million in the prior year.

Capital expenditures totaled $65.6 million in 2018, compared to $53.4
million in the prior year.

During full year 2018, the company repurchased 2,349,036 shares of
common stock for $201.6 million, or $85.82 per share, and paid dividends
of $62.7 million to shareholders and $20.0 million in dividends to the
non-controlling interest in our China joint venture.

In February 2019, the board of directors approved an additional $200
million share repurchase authorization. This is in addition to the
approximately $130 million currently remaining available under the prior
stock repurchase authorization. The share repurchase authorization does
not obligate the company to acquire any specific number of shares or to
acquire shares over any specified period of time.

At its regular board meeting on January 25, 2019, the board of directors
authorized a regular quarterly cash dividend of $0.24 per share, payable
on March 18, 2019 to shareholders of record on March 7, 2019.

Full Year 2019 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 full year 2019 financial outlook assumes that current
macroeconomic and market conditions in key markets do not worsen and
that geopolitical tensions, including ongoing trade negotiations between
the U.S. and China, do not deteriorate.

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.

Spring and Fall season advance wholesale orders typically drive a
significant portion of our annual net sales and are two of several
significant factors we use to formulate our full year outlook. However,
among the many risks inherent in our global business, our projected full
year net sales and profitability may be materially affected by
unfavorable weather patterns and other factors that affect consumer
demand and store traffic and lead to higher-than-anticipated order
cancellations and lower reorders by our wholesale customers or
lower-than-projected net sales through our DTC businesses, particularly
during the fourth quarter.

We also face macroeconomic, competitive and geopolitical uncertainties
as well as foreign currency exchange rate volatility in several major
markets, making it more difficult for us to forecast our net sales and
profitability.

Our full year 2019 outlook assumes that global regulatory, customs and
tax policies remain largely unaltered for the balance of the year.

The company currently expects full year 2019 net sales of approximately
$2.97 to $3.03 billion, representing 6.0 to 8.0 percent net sales
growth, compared with full year 2018 net sales of $2.80 billion.

The company expects full year 2019 gross margin to improve by
approximately 70 basis points (gross margin of approximately 50.2
percent) compared to full year 2018 gross margin of 49.5 percent.

The company expects SG&A expenses to increase at a rate faster than net
sales, resulting in approximately 90 to 110 basis points of SG&A expense
deleverage compared to non-GAAP full year 2018 SG&A expense. SG&A
expense as a percent of net sales for full year 2019 is expected to be
approximately 38.0 to 38.2 percent, compared to non-GAAP full year 2018
SG&A expense as a percent of net sales of 37.1 percent.

Based on the above assumptions, the company expects full year 2019
operating income between approximately $369 million and $382 million,
resulting in operating margin between approximately 12.4 and 12.6
percent, compared to non-GAAP full year 2018 operating margin of 12.9
percent. Please note non-GAAP full year 2018 operating margin of 12.9
percent excludes the impact of the new revenue accounting standard which
the company implemented in January 2018 and incorporated into results
thereafter. This adjustment is not necessary for full year 2018 results
to be comparable to full year 2019 guidance and future results. We
remain confident in our ability to drive profitable sales growth while
continuing to meaningfully invest in our strategic plan.

The company expects an estimated full-year effective income tax rate of
approximately 22 percent. The tax rate may be affected by unanticipated
impacts resulting from additional guidance about and application of the
TCJA as well as changes in the company’s geographic mix of pre-tax
income and other discrete events that may occur during 2019.

The company expects full year 2019 net income between approximately $297
million and $307 million, or diluted earnings per share between
approximately $4.30 and $4.45. This guidance includes the benefit of no
longer recording a non-controlling interest share of net income related
to the China joint venture, which is now a wholly owned subsidiary. For
reference, this non-controlling interest share of net income was $6.7
million in full year 2018. Guidance assumes an average diluted share
count of 69 million shares for the full year. This share count guidance
includes the planned benefit of our systematic share repurchase plan,
which is designed to offset dilution from employee stock grants but
excludes the benefit from any additional opportunistic share repurchases
we may execute throughout the year.

CFO’s Commentary on Fourth Quarter, Full Year
2018 Financial Results and 2019 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
fourth quarter, full year 2018 financial results and 2019 financial
outlook, will be 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.
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 at 5:00 p.m. ET today to review
its fourth quarter, full year 2018 financial results and 2019 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.

First Quarter 2019 Reporting Schedule

Columbia Sportswear Company plans to report first quarter 2019 financial
results on Thursday, April 25, 2019 at approximately 4:00 p.m. ET.
Following issuance of the earnings release, a commentary reviewing the
company’s first quarter 2019 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.investor.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 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 certain other
non-GAAP financial measures related to 2018 and 2017 that may exclude
increased net sales and gross profit, and offsetting increased SG&A
expenses, associated with the new revenue accounting standard, 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 “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) as well as changes in the company’s
geographic mix of pre-tax income and other discrete events that may
occur during the year, share count, SG&A expenses, including deleverage,
projected growth or decline in specific geographies, channels and
brands, continued investment in our strategic priorities, and our
ability to adapt our business and realize the anticipated benefits of
our investments in our strategic priorities, including Project CONNECT.

Contacts

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

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