Oregon | 000-23939 | 93-0498284 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
99.1 | Press Release, dated October 26, 2017 (furnished pursuant to Items 2.02 and 7.01 hereof). | |
99.2 | Commentary by Jim A. Swanson, Senior Vice President and Chief Financial Officer of Columbia Sportswear Company, dated October 26, 2017 (furnished pursuant to Items 2.02 and 7.01 hereof). |
COLUMBIA SPORTSWEAR COMPANY | ||
Dated: October 26, 2017 | By: | /S/ JIM A. SWANSON |
Jim A. Swanson | ||
Senior Vice President and Chief Financial Officer |
Exhibit | Description | |
Press Release, dated October 26, 2017 (furnished pursuant to Items 2.02 and 7.01 hereof). | ||
Commentary by Jim A. Swanson, Senior Vice President and Chief Financial Officer of Columbia Sportswear Company, dated October 26, 2017 (furnished pursuant to Items 2.02 and 7.01 hereof). |
• | Third quarter net sales increased less than 1 percent to $747.4 million. |
• | Third quarter net income increased 5 percent to $87.7 million, or $1.25 per diluted share, including program expenses and discrete costs of approximately $2.1 million net of tax, or $0.03 per diluted share, related to the company's "Project CONNECT" operating model assessment. |
• | Year-to-date net sales increased 2 percent to a record $1,690.1 million. |
• | Year-to-date net income increased 5 percent to $112.2 million, or $1.59 per diluted share, including program expenses and discrete costs of approximately $5.4 million net of tax, or $0.08 per diluted share, related to Project CONNECT. |
• | Cash and short-term investments totaled $430.3 million at September 30, 2017. |
• | The board of directors approved a 6 percent increase in the company's regular quarterly dividend to $0.19 per share. |
• | Net sales growth of approximately 3 percent compared with 2016 net sales of $2.38 billion, including less than 1 percentage point positive effect from changes in currency exchange rates. |
• | Operating income between approximately $243 million and $252 million, representing operating margin of up to approximately 10.3 percent, including approximately $15.0 million of program expenses and discrete costs related to Project CONNECT. |
• | An effective income tax rate of approximately 23.0 percent. |
• | Net income between approximately $183 million and $190 million, or $2.60 to $2.70 per diluted share, including program expenses and discrete costs of approximately $9.5 million net of tax, or $0.14 per diluted share, related to Project CONNECT. |
• | 20 percent net sales growth in the EMEA region (15 percent constant-currency), to $87.5 million, including a net sales increase of more than 20 percent (high-teen percent constant-currency) in the company's European wholesale and direct-to-consumer businesses, and a low-double-digit percentage increase in net sales to EMEA distributors; |
• | 9 percent net sales growth in the LAAP region (11 percent constant-currency), to $123.0 million, reflecting increased net sales to LAAP distributors and increased net sales in China and Korea, partially offset by a small net sales decline in Japan; and |
• | 8 percent net sales growth in Canada (4 percent constant-currency), to $80.9 million; |
• | a 6 percent net sales decline in the U.S. to $456.0 million, consisting of a low-double-digit percentage decline in wholesale net sales, partially offset by low-double-digit percentage growth in direct-to-consumer net sales. (See "Geographical Net Sales" table below.) |
September 30, | ||||||||
2017 | 2016 | |||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 411,805 | $ | 219,189 | ||||
Short-term investments | 18,469 | 467 | ||||||
Accounts receivable, net | 466,852 | 486,236 | ||||||
Inventories | 558,558 | 588,021 | ||||||
Prepaid expenses and other current assets | 36,113 | 33,514 | ||||||
Total current assets | 1,491,797 | 1,327,427 | ||||||
Property, plant, and equipment, net | 285,582 | 285,514 | ||||||
Intangible assets, net | 130,300 | 134,724 | ||||||
Goodwill | 68,594 | 68,594 | ||||||
Deferred income taxes | 98,062 | 79,934 | ||||||
Other non-current assets | 26,479 | 25,622 | ||||||
Total assets | $ | 2,100,814 | $ | 1,921,815 | ||||
Current Liabilities: | ||||||||
Short-term borrowings | $ | — | $ | 20 | ||||
Accounts payable | 190,634 | 136,667 | ||||||
Accrued liabilities | 170,909 | 166,496 | ||||||
Income taxes payable | 22,921 | 29,332 | ||||||
Total current liabilities | 384,464 | 332,515 | ||||||
Note payable to related party | — | 14,629 | ||||||
Other long-term liabilities | 47,129 | 43,066 | ||||||
Income taxes payable | 10,647 | 10,724 | ||||||
Deferred income taxes | 154 | 229 | ||||||
Total liabilities | 442,394 | 401,163 | ||||||
Equity: | ||||||||
Columbia Sportswear Company shareholders' equity | 1,629,292 | 1,499,652 | ||||||
Non-controlling interest | 29,128 | 21,000 | ||||||
Total equity | 1,658,420 | 1,520,652 | ||||||
Total liabilities and equity | $ | 2,100,814 | $ | 1,921,815 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 747,367 | $ | 745,714 | $ | 1,690,064 | $ | 1,659,595 | ||||||||
Cost of sales | 398,177 | 400,002 | 901,545 | 886,922 | ||||||||||||
Gross profit | 349,190 | 345,712 | 788,519 | 772,673 | ||||||||||||
46.7 | % | 46.4 | % | 46.7 | % | 46.6 | % | |||||||||
Selling, general and administrative expenses | 230,446 | 224,497 | 643,859 | 622,843 | ||||||||||||
Net licensing income | 4,143 | 2,415 | 8,947 | 6,279 | ||||||||||||
Income from operations | 122,887 | 123,630 | 153,607 | 156,109 | ||||||||||||
Interest income, net | 1,035 | 393 | 3,240 | 1,576 | ||||||||||||
Interest expense on note payable to related party | — | (253 | ) | (429 | ) | (779 | ) | |||||||||
Other non-operating income (expense), net | (104 | ) | (620 | ) | 203 | (736 | ) | |||||||||
Income before income tax | 123,818 | 123,150 | 156,621 | 156,170 | ||||||||||||
Income tax expense | (32,716 | ) | (36,598 | ) | (37,950 | ) | (43,297 | ) | ||||||||
Net income | 91,102 | 86,552 | 118,671 | 112,873 | ||||||||||||
Net income attributable to non-controlling interest | 3,378 | 2,967 | 6,476 | 5,690 | ||||||||||||
Net income attributable to Columbia Sportswear Company | $ | 87,724 | $ | 83,585 | $ | 112,195 | $ | 107,183 | ||||||||
Earnings per share attributable to Columbia Sportswear Company: | ||||||||||||||||
Basic | $ | 1.26 | $ | 1.20 | $ | 1.61 | $ | 1.54 | ||||||||
Diluted | $ | 1.25 | $ | 1.18 | $ | 1.59 | $ | 1.52 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 69,815 | 69,761 | 69,698 | 69,632 | ||||||||||||
Diluted | 70,389 | 70,630 | 70,390 | 70,586 |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 118,671 | $ | 112,873 | ||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Depreciation and amortization | 44,660 | 44,478 | ||||||
Loss on disposal and impairment of property, plant, and equipment | 970 | 3,646 | ||||||
Deferred income taxes | 3,871 | 927 | ||||||
Stock-based compensation | 8,277 | 8,454 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (127,003 | ) | (106,906 | ) | ||||
Inventories | (56,576 | ) | (103,475 | ) | ||||
Prepaid expenses and other current assets | 2,959 | 429 | ||||||
Other assets | 1,567 | (2,552 | ) | |||||
Accounts payable | (30,716 | ) | (82,590 | ) | ||||
Accrued liabilities | 1,595 | 10,999 | ||||||
Income taxes payable | 15,063 | 26,045 | ||||||
Other liabilities | 4,231 | 2,505 | ||||||
Net cash used in operating activities | (12,431 | ) | (85,167 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of short-term investments | (50,697 | ) | (21,263 | ) | ||||
Sales of short-term investments | 32,878 | 21,263 | ||||||
Capital expenditures | (41,791 | ) | (35,588 | ) | ||||
Proceeds from sale of property, plant, and equipment | 239 | 52 | ||||||
Net cash used in investing activities | (59,371 | ) | (35,536 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from credit facilities | 3,374 | 59,277 | ||||||
Repayments on credit facilities | (3,374 | ) | (61,197 | ) | ||||
Proceeds from issuance of common stock under employee stock plans | 16,056 | 10,742 | ||||||
Tax payments related to restricted stock unit issuances | (3,585 | ) | (4,870 | ) | ||||
Repurchase of common stock | (35,542 | ) | (11 | ) | ||||
Cash dividends paid | (37,617 | ) | (35,548 | ) | ||||
Payment of related party note payable | (14,236 | ) | — | |||||
Net cash used in financing activities | (74,924 | ) | (31,607 | ) | ||||
Net effect of exchange rate changes on cash | 7,142 | 1,729 | ||||||
Net decrease in cash and cash equivalents | (139,584 | ) | (150,581 | ) | ||||
Cash and cash equivalents, beginning of period | 551,389 | 369,770 | ||||||
Cash and cash equivalents, end of period | $ | 411,805 | $ | 219,189 | ||||
Supplemental disclosures of non-cash investing and financing activities: | ||||||||
Capital expenditures incurred but not yet paid | $ | 3,682 | $ | 3,656 |
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 | ||||||||||||||
2017 | Translation | 2017(1) | 2016 | % Change | % Change(1) | ||||||||||||||
Geographical Net Sales: | |||||||||||||||||||
United States | $ | 456.0 | $ | — | $ | 456.0 | $ | 484.8 | (6)% | (6)% | |||||||||
LAAP | 123.0 | 2.6 | 125.6 | 112.7 | 9% | 11% | |||||||||||||
EMEA | 87.5 | (3.4 | ) | 84.1 | 73.0 | 20% | 15% | ||||||||||||
Canada | 80.9 | (2.6 | ) | 78.3 | 75.2 | 8% | 4% | ||||||||||||
Total | $ | 747.4 | $ | (3.4 | ) | $ | 744.0 | $ | 745.7 | —% | —% | ||||||||
Brand Net Sales: | |||||||||||||||||||
Columbia | $ | 598.3 | $ | (2.0 | ) | $ | 596.3 | $ | 587.3 | 2% | 2% | ||||||||
SOREL | 81.7 | (1.3 | ) | 80.4 | 87.6 | (7)% | (8)% | ||||||||||||
prAna | 36.8 | — | 36.8 | 38.1 | (3)% | (3)% | |||||||||||||
Mountain Hardwear | 29.4 | — | 29.4 | 30.5 | (4)% | (4)% | |||||||||||||
Other | 1.2 | (0.1 | ) | 1.1 | 2.2 | (45)% | (50)% | ||||||||||||
Total | $ | 747.4 | $ | (3.4 | ) | $ | 744.0 | $ | 745.7 | —% | —% | ||||||||
Categorical Net Sales: | |||||||||||||||||||
Apparel, Accessories and Equipment | $ | 580.0 | $ | (1.6 | ) | $ | 578.4 | $ | 574.1 | 1% | 1% | ||||||||
Footwear | 167.4 | (1.8 | ) | 165.6 | 171.6 | (2)% | (3)% | ||||||||||||
Total | $ | 747.4 | $ | (3.4 | ) | $ | 744.0 | $ | 745.7 | —% | —% |
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 | ||||||||||||||
2017 | Translation | 2017(1) | 2016 | % Change | % Change(1) | ||||||||||||||
Geographical Net Sales: | |||||||||||||||||||
United States | $ | 1,027.4 | $ | — | $ | 1,027.4 | $ | 1,049.8 | (2)% | (2)% | |||||||||
LAAP | 320.8 | 4.9 | 325.7 | 301.8 | 6% | 8% | |||||||||||||
EMEA | 210.2 | (1.4 | ) | 208.8 | 183.4 | 15% | 14% | ||||||||||||
Canada | 131.7 | (3.5 | ) | 128.2 | 124.6 | 6% | 3% | ||||||||||||
Total | $ | 1,690.1 | $ | — | $ | 1,690.1 | $ | 1,659.6 | 2% | 2% | |||||||||
Brand Net Sales: | |||||||||||||||||||
Columbia | $ | 1,387.9 | $ | 1.4 | $ | 1,389.3 | $ | 1,357.8 | 2% | 2% | |||||||||
SOREL | 114.9 | (1.3 | ) | 113.6 | 109.2 | 5% | 4% | ||||||||||||
prAna | 110.5 | — | 110.5 | 111.7 | (1)% | (1)% | |||||||||||||
Mountain Hardwear | 73.2 | (0.1 | ) | 73.1 | 72.7 | 1% | 1% | ||||||||||||
Other | 3.6 | — | 3.6 | 8.2 | (56)% | (56)% | |||||||||||||
Total | $ | 1,690.1 | $ | — | $ | 1,690.1 | $ | 1,659.6 | 2% | 2% | |||||||||
Categorical Net Sales: | |||||||||||||||||||
Apparel, Accessories and Equipment | $ | 1,349.7 | $ | 0.2 | $ | 1,349.9 | $ | 1,329.6 | 2% | 2% | |||||||||
Footwear | 340.4 | (0.2 | ) | 340.2 | 330.0 | 3% | 3% | ||||||||||||
Total | $ | 1,690.1 | $ | — | $ | 1,690.1 | $ | 1,659.6 | 2% | 2% |
• | Net sales growth of approximately 3 percent compared with 2016 net sales of $2.38 billion, including less than 1 percentage point positive effect from changes in currency exchange rates; |
• | Operating income of between approximately $243 million and $252 million, representing operating margin of approximately 10.3 percent, including program expenses and discrete costs of approximately $15.0 million related to Project CONNECT, of which $8.6 million has been incurred through the first nine months of 2017; |
• | An effective income tax rate of approximately 23.0 percent; and |
• | Net income between approximately $183 million and $190 million, or $2.60 to $2.70 per diluted share, including program expenses and discrete costs of approximately $9.5 million net of tax, or $0.14 per diluted share, related to Project CONNECT, of which $5.4 million net of tax, or $0.08 per diluted share, has been incurred through the first nine months of 2017. |
• | U.S. net sales decreased $28.8 million, or 6 percent, to $456.0 million. The decrease in U.S. net sales reflected a low-double-digit percentage decrease in wholesale net sales resulting primarily from the combined effects of a shift in the requested delivery dates of reduced Fall 2017 advance wholesale orders, and the effects of sales to U.S. wholesale customers that have undergone bankruptcies, liquidations and store closures. That decline was partially offset by a low-double-digit percentage increase in direct-to-consumer (DTC) net sales, consisting of growth in our brick & mortar and ecommerce platforms. During the third quarter of 2017, the company operated 127 U.S. retail stores and 4 branded ecommerce sites, compared with 115 stores and 5 branded ecommerce sites in the third quarter of 2016. |
• | Net sales in the Latin America/Asia Pacific (LAAP) region increased $10.3 million, or 9 percent (11 percent constant-currency), to $123.0 million, consisting of a low-30 percent increase in net sales to LAAP distributors due to a shift in the timing of shipments of increased Fall 2017 advance wholesale orders, a high-single-digit percentage net sales increase in China, and a mid-teen percentage net sales increase in Korea driven by the opening of additional wholesale accounts, partially offset by a continued decline in Korea's DTC net sales. These increases were partially offset by a low-single-digit percentage net sales decrease in Japan (mid-single-digit percentage increase constant-currency). |
• | Net sales in the Europe/Middle East/Africa (EMEA) region increased $14.5 million, or 20 percent (15 percent constant-currency), to $87.5 million, reflecting low-20 percent growth in our European wholesale and direct-to-consumer businesses (high-teen percentage constant-currency), and a low-double-digit percentage increase in net sales to EMEA distributors, primarily reflecting shipment of our Russian distributor's increased Fall 2017 advance wholesale orders. |
• | Net sales in Canada increased 8 percent (4 percent constant-currency) to $80.9 million, reflecting a shift in the timing of shipments of increased Fall 2017 advance wholesale orders. |
• | Columbia brand net sales increased $11.0 million, or 2 percent, to $598.3 million, including increased net sales in the U.S. DTC business and in the EMEA and LAAP regions, partially offset by lower U.S. wholesale net sales. |
• | SOREL brand net sales decreased $5.9 million, or 7 percent (8 percent constant-currency), to $81.7 million, due to a shift in the timing of shipments of slightly lower Fall 2017 advance wholesale orders in the U.S. |
• | prAna brand net sales of $36.8 million decreased $1.3 million, or 3 percent, primarily due to reduced U.S. wholesale net sales. |
• | Mountain Hardwear brand net sales decreased $1.1 million, or 4 percent, to $29.4 million, due primarily to lower net sales in the U.S. |
• | Global Apparel, Accessories and Equipment net sales increased 1 percent, to $580.0 million, primarily driven by increased Columbia brand net sales. |
• | Global Footwear net sales decreased 2 percent (3 percent constant-currency), to $167.4 million, due to lower SOREL brand net sales, partially offset by increased Columbia brand net sales. |
• | a favorable sourcing environment for Fall 2017 production; and |
• | favorable foreign currency hedge rates in Japan, Canada and Europe; |
• | a higher proportion of net sales to international distributors, which generally carry lower gross margins. |
• | increased costs to support the company's expanding global DTC businesses; and |
• | program expenses and discrete costs related to Project CONNECT; |
• | a shift in the timing of demand-creation spending from the third quarter into the fourth quarter of 2017. |
• | Net sales growth of approximately 3 percent compared to 2016, including less than 1 percentage point positive effect from changes in foreign currency exchange rates, with contributions from three of our four brands and all four of our geographic regions: |
• | low-single-digit percentage net sales growth from the Columbia brand, high-single-digit percentage net sales growth from the SOREL brand, and low-single-digit percentage net sales growth from the prAna brand, partially offset by a low-single-digit percentage decline in Mountain Hardwear brand net sales. |
• | low-single-digit percentage net sales growth in the U.S. business, consisting of low-double-digit percentage growth in DTC net sales and a mid-single-digit percentage decline in wholesale net sales. |
• | low-teen percentage net sales growth in the EMEA region (low-double-digit percentage constant-currency), with the European wholesale and direct-to-consumer business contributing high teen percentage growth (mid-teen percentage constant-currency) and the EMEA distributor business contributing mid-single-digit percentage growth. |
• | low-single-digit percentage net sales growth in the LAAP region, consisting of low-20 percent growth in net sales to LAAP distributors, low-single-digit percentage net sales growth in China (mid-single-digit percentage constant-currency), and net sales in Japan comparable to 2016 (low-single-digit percentage growth constant-currency), partially offset by a mid-single-digit percentage net sales decline in Korea (mid-single-digit percentage constant-currency). |
• | mid-single-digit percentage net sales growth in Canada (low-single-digit percentage constant-currency). |
• | Gross margin expansion of approximately 20 basis points compared with gross margin of 46.7 percent in 2016, reflecting: |
• | a favorable sourcing cost environment; |
• | favorable channel mix with a greater proportion of DTC net sales; and |
• | favorable foreign currency hedge rates in Japan, Canada and Europe. |
• | SG&A expense growth of approximately 5.4 percent compared with 2016, resulting in an SG&A expense ratio of 37.2 percent, representing approximately 80 basis points of deleverage compared with our SG&A expense ratio of 36.4 percent in 2016. The anticipated increase in SG&A expense includes: |
• | increased expenses to support continued expansion of the company's global DTC businesses; |
• | program expenses and discrete costs related to Project CONNECT; |
• | increased personnel expenses; and |
• | increased demand creation expenses; |
• | continued cost containment measures. |
• | Licensing income of approximately $13.0 million. |
• | Operating income of between approximately $243 million and $252 million, representing operating margin of approximately 10.3 percent, including program expenses and discrete costs of approximately $15.0 million related to Project CONNECT, of which approximately $8.6 million has been incurred through the first nine months of 2017. |
• | Non-operating income of approximately $4.0 million reflecting increased interest income on the company's cash balances and lower interest expense due to the repayment of the China joint venture's note payable during the second quarter of 2017. |
• | An estimated full-year effective income tax rate of approximately 23.0 percent. The actual rate could differ based on the geographic mix of pre-tax income and the impact of discrete events that may occur during the year. |
• | Net income between approximately $183 million and $190 million, or $2.60 to $2.70 per diluted share, including program expenses and discrete costs of approximately $9.5 million net of tax, or $0.14 per diluted share, related to Project CONNECT, of which approximately $5.4 million, or $0.08 per diluted share, has been incurred through the first nine months of 2017. |
• | The above full year financial outlook contemplates mid-single-digit percent net sales growth in the fourth quarter, and operating margin deleverage of approximately 100 basis points, reflecting program expenses and discrete costs associated with Project CONNECT of approximately $6.4 million and a shift in the timing of demand-creation spending from the third quarter into the fourth quarter. Project CONNECT anticipated costs for the fourth quarter are uncertain given the ongoing nature of the project, and pending decisions that could impact financial results. |
• | Capital expenditures of approximately $60 million, comprising investments in DTC business expansion, information technology and project-based and maintenance capital. |
• | Full year free cash flow totaling approximately $175 million to $200 million. |