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COLM > SEC Filings for COLM > Form 10-Q on 8-May-2014All Recent SEC Filings

Show all filings for COLUMBIA SPORTSWEAR CO

Form 10-Q for COLUMBIA SPORTSWEAR CO


8-May-2014

Quarterly Report


Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding anticipated sales, gross margins and operating margins across markets, distribution channels and product categories, profitability, licensing income, expenses, input costs and cost containment measures, effects of unseasonable weather on our results of operations, inventory levels, investments in our business, including funding and operation of our China joint venture, investments in and implementation of our information technology systems, our direct-to-consumer channels and other capital expenditures, access to raw materials and factory capacity, financing and working capital requirements and resources, tax rates and pre-tax income, and our exposure to market risk associated with interest rates and foreign currency exchange rates.
These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors may cause actual results to differ materially from those projected in forward-looking statements, including the risks described below in Part II, Item 1A, Risk Factors. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.
Our Business
As one of the largest outdoor apparel and footwear companies in the world, we design, source, market and distribute active outdoor apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel and Montrail brands. Our products are sold through a mix of wholesale distribution channels, independent distributors, and our own direct-to-consumer channels. In addition, we license some of our trademarks across a range of apparel, footwear, accessories and equipment.
The popularity of outdoor activities, weather, changing design trends, consumer adoption of innovative performance technologies and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by adjusting the mix and price points of available product offerings, developing new products with innovative performance features and designs, and creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention. Failure to anticipate or respond to consumer needs and preferences in a timely and adequate manner could have a material adverse effect on our sales and profitability. Business Outlook
Our business is affected by the general seasonal trends common to the outdoor industry and is heavily dependent upon weather and discretionary consumer spending patterns. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. The expansion of our direct-to-consumer operations has increased the proportion of sales and profits that we generate in the fourth calendar quarter. As a result, our sales and profits tend to be highest in the third and fourth calendar quarters. In 2013, approximately 63 percent of our net sales and nearly all of our profitability were realized in the second half of the year, illustrating our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.
We generally solicit orders from wholesale customers and independent distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance fall season orders to wholesale customers and independent distributors beginning in July and continuing through December. Similarly, the majority of our advance spring season orders ship to wholesale customers and independent distributors beginning in January and continuing through June. Generally, orders are subject to cancellation prior to the date of shipment.
Results of operations in any period should not be considered indicative of the results to be expected for any future period, particularly in light of persistent volatility in economic conditions. Sales of our products are subject to substantial cyclical fluctuation, the effects of unseasonable weather conditions, the relative popularity of competitors' brands, and the continued popularity of outdoor activities as part of an active lifestyle in key markets. Volatile economic environments in key markets, seasonal weather patterns and inflationary or volatile input costs reduce the predictability of our business. Factors that could significantly affect our full year 2014 outlook include:
Unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect on order cancellations, sales returns, customer accommodations, reorders, direct-to-consumer sales and suppressed demand in subsequent seasons;

Changes in mix and volume of full price sales in contrast with closeout product sales and promotional sales activity;


Availability of production capacity to meet demand;

Costs and business interruption risks related to our supply chain and information technology infrastructure investments and projects, including our multi-year global enterprise resource planning ("ERP") system implementation;

Our ability to effectively manage operating costs;

Continued political and economic uncertainty, which is creating headwinds in key global markets, particularly Europe as it relates to our EMEA direct business where we have ongoing efforts to revitalize the Columbia brand, and in South America with respect to import restrictions and currency constraints in key distributor markets;

The rate of new store expansion and performance of our existing stores and e-commerce sites in our global direct-to-consumer operations;

Changes in consumer spending activity; and

Fluctuating currency exchange rates.

These factors and others may have a material effect on our financial condition, results of operations, or cash flows, particularly with respect to quarterly comparisons.
We implemented our new ERP system in the United States on schedule in early April 2014 which, when combined with our Canadian operation, brings our North American wholesale business and the majority of our global supply chain operations onto our new platform. The timing of the implementation occurred after the majority of our spring season advance orders shipped and prior to our larger fall wholesale and direct-to-consumer shipping season.
On January 1, 2014 our previously announced joint venture in mainland China with Swire Resources Limited ("Swire") commenced operations. At commencement, the joint venture began operating, either directly or pursuant to Transition Services Agreements, a distribution network of, at January 1, 2014, approximately 70 retail locations and distribution relationships with 51 wholesale dealers that operate approximately 700 retail locations. As a 60% majority-owned entity, the joint venture's operations are included in our consolidated financial results.
We expect 2014 profitability to be affected by the following major factors:
incremental sales, operating costs and profits from our new China joint venture;

continued growth and increased investment in our global direct-to-consumer businesses;

renewed growth in our wholesale businesses;

increased demand creation costs;

incremental depreciation expense, training and post go-live support costs related to our United States ERP implementation; and

anticipated financial effects from our pending acquisition of prAna Living LLC ("prAna"), including one-time transaction costs and incorporation of prAna operating results and purchase accounting adjustments into our financial results following the anticipated second quarter completion of the transaction.

Consistent with the historical seasonality of the business, we anticipate 2014 profitability to be heavily concentrated in the second half of the year. We remain focused on driving sustainable, profitable sales growth by providing innovative products at accessible prices, transforming our global supply chain, including information technology, managing inventory, and nurturing stronger emotional connections with consumers through compelling marketing communications.
Results of Operations
The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying Notes that appear elsewhere in this quarterly report. All references to quarters relate to the quarter ended March 31 of the particular year.
Highlights of the First Quarter of 2014

Net sales for the first quarter of 2014 increased $75.8 million, or 22%, to $424.1 million from $348.3 million for the first quarter of 2013. Changes in foreign currency exchange rates compared with the first quarter of 2013 negatively affected the consolidated net sales comparison by one percentage point.


Net income attributable to Columbia Sportswear Company for the first quarter of 2014 increased 120% to $22.3 million, or $0.63 per diluted share, compared to net income of $10.1 million, or $0.29 per diluted share, which included restructuring charges of approximately $2.0 million, or $0.06 per diluted share, net of tax, for the first quarter of 2013.

The first quarter 2014 effective tax rate was 32.6%, compared with 17.4% in the first quarter of 2013, which benefited from the reinstatement of the research and development tax credit.

We paid a quarterly cash dividend of $0.28 per share, or $9.8 million, in the first quarter of 2014.

The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items in our Condensed Consolidated Statements of Operations:

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