Columbia Sportswear Company

Good day, everyone, and welcome to the Columbia Sportswear Company's second quarter 2025 financial results. At this time, all participants are on a listen-only mode, and we'll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Andrew Burns. Sir, the floor is yours.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's second quarter results. In addition to the earnings release, we furnished an 8K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our investor relations website, investor.columbia.com. With me today on the call are Chairman, President, and Chief Executive Officer Tim Boyle, Executive Vice President and Chief Financial Officer Jim Swanson, and Executive Vice President and Chief Administrative Officer and General Counsel Peter Bracken. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations, or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release in the appendix of our CFO commentary and financial review. Following your prepared remarks, we will host a Q&A period during which we will limit each caller to two questions so we can get to everyone by the end of the hour. Now I'll call the call over to Tim.

Thanks, Andrew, and good afternoon. Overall, second quarter and first half financial results reflect strong demand for our products in international markets. Our EMEA and LAAP regions both grew double-digit percent in the first half, led by China, Japan, Europe Direct, and international distributor markets. In these markets, our teams are driving omni-channel growth through compelling product assortments and marketing activations that appeal to younger consumers. Our results also reflect ongoing challenges in the U.S. We're focused on re-energizing the Columbia brand through the Accelerate Growth Strategy. In the coming days, we will begin to roll out our new global marketing platform that will be the Columbia brand character and voice for years to come. This new campaign will bring Columbia back to the roots of what made us an iconic global brand by leveraging our signature irreverence and humor in inevitable advertising. At a time when much of the outdoor industry looks the same, I'm confident that our campaigns will be highly differentiated and drive deeper affinity for the brand. Consumers will see and hear much more about Columbia in the coming weeks and months. Not only are we investing more in demand creation, but we're also investing more efficiently, leveraging modern digital and social first strategies. We're launching a new site redesign on Columbia.com with enhanced mobile capabilities and up-leveled photography that highlights the beauty and craftsmanship of our iconic products. I believe this brand refresh is going to be one of the most impactful components of our accelerated growth strategy, and I'm anxiously awaiting everybody to see it. We are also enhancing our product assortment to emphasize innovation and style. This fall, we're launching collections like the new Amaze Puff insulated jacket and redesigned rock band. We are supporting these launches with elevated in-store investments in many wholesale and DTC locations. Taken together, I believe the combination of product enhancements, elevated in-store experiences, and differentiated marketing will energize Columbia's brand perception in the U.S. and bring new customers to this brand. On our last conference call three months ago, I referenced the unprecedented level of public policy uncertainty that our industry is facing in the United States. Imported apparel and footwear is already heavily taxed under legacy trade laws. The 10% universal tariff and most of the additional tariffs being contemplated are on top of already high existing duties. Unfortunately, clarity with respect to U.S. trade policy has not materialized. This uncertainty overhangs consumer sentiment and every decision that we make for our U.S. business. We continue to take action to mitigate the risks and financial impact of higher tariffs, which represents the largest tax increase the company has faced in its history. Our fortress balance sheet, differentiated brand portfolio, and disciplined approach to managing the business give me confidence in our ability to emerge from this period as a stronger company. As we begin the second half of the year, we're planning our U.S. business cautiously. We expect higher prices for many consumer goods will negatively impact consumer demand. We also expect retailers will be cautious with their inventory intakes in this uncertain environment. In Fall 25, we're working with our retail partners to deliver value to consumers and keep inventory and dealer margins healthy. As a result, we're not making any significant price changes to our Fall 25 product line and expect to absorb much of the incremental tariff costs this year. We estimate the financial impact of the current 10% universal tariff rate combined with tariff-related supply chain expenses, and inclusive of our mitigation efforts, will be approximately $35 to $40 million in 2025. By August 1st, we will have received approximately 70% of our U.S. Fall 25 product. The remaining yet-to-come Fall 25 product would be exposed to higher tariff rates beyond the 10% universal rate. We don't know what the final tariff structure will be or how long it will last. Lacking tariff rate certainty, we will continue to work all options for offsetting the impact of higher U.S. tariffs on our business. Our goal is to offset higher tariffs over time through a combination of actions including price increases, vendor negotiations, SG&A expense efficiencies, and other mitigation tactics. We will balance these actions with our overall growth strategy, seeking to minimize the impact to consumer demand and maximize our market share potential. I'll provide more details on how we're planning the balance of the year, as well as our spring 26 wholesale business later in the call. We continue to identify and execute cost savings actions as part of the profit improvement plan. During the quarter, actions included a reduction in force that primarily impacted our U.S. corporate headcount. Year-to-date, we have actioned over $70 million in annual cost savings on top of the $90 million we actioned in 2024. Given the timing of these actions, severance, and other one-time expenses, the full impact of cost savings will be radically realized over the next 12 months. This effort is ongoing. as we continue to seek additional profit improvement opportunities. I will now quickly review second quarter financial performance. I'd like to remind everyone that the second quarter is our lowest volume sales quarter. Small year-over-year changes in sales and expense timing can have a material impact on reported results. Net sales increased 6% year-over-year to $605 million. This was slightly ahead of our outlook, primarily driven by earlier fall wholesale shipments. Where possible, we accelerated receipt and shipment of fall 25 U.S. inventory to mitigate the impact of potential additional tariff increases. Wholesale net sales increased 14%, while direct-to-consumer was down 1%. Wholesale growth reflects spring and fall shipment timing, which benefited sales in the quarter, as well as higher spring 25 orders. Gross margin expanded 120 basis points to 49.1%, and SG&A expenses increased 8%. This performance resulted in a loss per share of 19 cents compared to a loss per share of 20 cents in the prior year. Looking at net sales by geography, U.S. net sales decreased 2%. Overall, U.S. Columbia brand Spring 25 sell-through has been soft. These outdoor categories and consumer headwinds reinforce our focus on re-energizing the Columbia brand through the accelerate growth strategy. The U.S. wholesale business increased low single-digit percent, reflecting timing of spring and fall wholesale shipments, which benefited sales in the quarter. U.S. DTC net sales declined mid-single-digit percent in the quarter. Brick and mortar was down low single-digit percent, reflecting the closure of temporary clearance locations partially offset by contributions from new stores. We exited the quarter with seven temporary clearance locations compared to 46 exiting second quarter last year. E-commerce was down low double-digit percent, reflecting soft spring season sell-through, which was partially impacted by ongoing efforts to refine and evolve our online promotions and marketing investments. For my review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 12%. China net sales increased high teens percent with broad-based growth across wholesale and DTC. Our team in China continues to do an amazing job bringing young, active consumers into the brand with premium localized product offerings and unique marketplace activations. Our e-commerce business across Tmall, JD, and TikTok remains a vital component of our growth strategy in China. In the second quarter, we had record e-commerce sales during the 6-18 event. On TikTok, we were driving exceptional results through our live stream programming. Our PFG influencer campaign drove millions of impressions, raising awareness of our highly differentiated PFG product line, including the iconic PFG Bahama shirt. Japan net sales increased mid-single-digit percent, led by strong e-commerce growth. For the spring season, the team did a great job of promoting our proprietary technologies like OmniMax Footwear and OmniFreeze Zero Apparel, with relevant localized marketing activities. The grand opening of our new Columbia Tokyo flagship store in the center of Harajuku was a success. The beautiful store represents one of the most premium expressions of the Columbia brand in the global marketplace. Columbia net sales increased low single-digit percent. During the quarter, we partnered with a new Columbia brand ambassador in Korea, actor Choo Young-woo. He was the face of our spring cooling campaign, helping to increase brand visibility as well as drive sell-through. Our team in Korea continues to make progress, laying the foundation for future growth with a focus on accelerating digital, revitalizing our DTC store fleet, and optimizing marketing investments. LAP distributor markets were up mid-teens percent, driven by a healthy order book growth. PME net sales increased 24%. Europe direct net sales increased 18% with growth across all channels led by DTC stores. Europe is sustaining its brand momentum through grassroots brand activations in the important hype category, as well as elevating online and in-store marketing across wholesale and DTC. We have immense market share opportunities in Europe, and our team has been unlocking this potential each and every season. Our EMEA distributor business increased high 20% driven by a healthy order book and early ship at a full 25 orders. Across our EMEA and LAP distributor markets, the Columbia brand is performing exceptionally well. I believe this reflects the distributor confidence in the Columbia brand and the success of several product initiatives including OmniMax Footwear, our premium titanium collections, and PFG. Our merchandising team has partnered with distributors to enhance assortments and retail displays to create hundreds of elevated brand store environments around the world. Success with footwear in these markets validates the tremendous long-term growth potential we have for Columbia Footwear. Canada net sales increased 5% in the quarter with wholesale growth more than offsetting a decline in DTC. Looking at second quarter performance by brand, Columbia net sales increased 8%. This spring, Columbia's product collection emphasized differentiated sun protection and cooling technologies and re-energized PFG styles. Our product teams continue to focus on creating products and driving growth with our targeted consumers, who value innovation and style. To activate our product strategy, we also invested in elevated in-store presentations and brand storytelling across the marketplace. For Columbia's iconic PFG product line, this meant new active fit styles and bold prints and colorways. We celebrated PFG's classics like the Tamiami shirt with marketing activations and connected with PFG fans through creative, new social content. This spring, we introduced a new product collection with Insect Shield technology. This invisible apparel protection utilizes an active ingredient bonded to the fabric for effective, long-lasting insect repellency. We successfully launched Insect Shield with premium retail partners in the U.S. and in select international markets. In footwear, Our new OmniMax Konos Featherweight is performing well in the marketplace and receiving positive accolades. Women's Health selected the new Konos Featherweight as the best new lightweight shoe in their 2025 sneaker awards. This past weekend, it was exciting to see Columbia brand ambassador Bubba Wallace win the Brickyard 400 NASCAR race at the Indianapolis Motor Speedway. Congratulations, Bubba. Before reviewing emerging brands' performance, I'd like to discuss an organizational change. During the second quarter, we realigned our Columbia North America regional organization to bring together a wholesale and direct-to-consumer businesses. This new structure will sharpen our focus and improve our ability to seize growth opportunities in our largest region. Peter Rausch will step into the role of general manager for the Columbia brand in North America. Peter most recently oversaw our Asian direct business and has held several international finance leadership roles over the years. He was a key leader in our transformational Project Connect initiative, and in his new role, Peter will lead an integrated growth strategy and operating model tailored to the unique needs of our North American consumers and partners. Now turning to our emerging brands, Sorrel net sales decreased 10%, primarily driven by lower spring 25 orders and lower DTC clearance activity compared to elevated PFAS product clearance in the prior year. Sell-through for Sorel's spring product line, including sneakers and sandals, has been healthy and suggests the brand is stabilizing. I believe Momentum will continue to build for Sorel in the seasons ahead. This fall, new products and brand imagery will further energize Sorel and retailers are responding positively to the Spring 26 collection. I'm confident Sorrel is moving in the right direction. Prana net sales decreased 6% in the quarter, primarily reflecting soft e-commerce performance, in part due to lower clearance activity compared to prior year levels. Prana's brand refresh will build momentum this fall with new product collections and refreshed brand imagery. The Prana team is developing a clear voice and omni-channel growth strategy. I am excited to see it come to life in the seasons ahead. Hardware net sales decreased 7% with full price growth more than offset by lower clearance activity compared to PFAS product clearance in the prior year, resulting in a much higher margin. As we move into fall, Not Hardware will be activating new snow sports and cold weather trail marketing campaigns that embody their distinctive voice and imagery. During this period of tariff disruption, I believe Mountain Hardware has the opportunity to further strengthen its position in the outdoor specialty channel. Spring 26 orders indicate healthy wholesale growth in the first half of next year. I'll now discuss our 2025 financial outlook. This outlook and commentary include forward-looking statements please see our CFO commentary and financial review presentation for additional details and disclosures related to these statements. Looking across the global marketplace, there are many external risks and uncertainties that have the potential to impact consumer demand, our operations, and profitability. At the top of this list is limited visibility as to what products will cost us in our largest market, the U.S. Given these uncertainties, we're giving limited second half guidance. Our full year 2025 net sales outlook calls for sales of 3.3 to 3.4 billion, or down 1% to up 1% year over year. This is below our initial guidance provided in February, reflecting lower assumptions for our U.S. wholesale and DTC businesses, partially offset by higher forecasts in most international markets. For the third quarter, we expect net sales to decline 1% to 3% year-over-year and diluted earnings per share to be in the range of $1 to $1.20. This financial outlook assumes tariffs on U.S. imports remain at the additional 10% universal rate for all countries, except for China, which remains at 30% for the remainder of the year. Any additional tariffs beyond these rates would further increase cost of sales and reduce operating profit. As a reminder, we are importing minimal production from China into the U.S. this year and do not plan to import any finished products from China into the U.S. in 2026. While it's too early to discuss a 2026 financial forecast, I'd like to provide some color on our Spring 26 Wholesale Order Book. To date, we've received almost 90% of our projected Spring 26 orders. Globally, our initial spring order book, taken together with our in-season forecast, supports flat to low single-digit percent wholesale growth in the first half of 26. This forecast contemplates growth for all of our emerging brands, led by Mountain Hardware and Sorrel. For Columbia, international orders reflect sustained growth momentum across our direct and distributor markets. In the U.S., tariff uncertainty and soft business trends are weighing on initial order. While retailers are excited to see Columbia's new marketing campaign come to life this fall, they're taking a conservative approach to placing orders for future seasons. As a result, we expect Columbia's U.S. wholesale business to remain down in the first half of 26. I believe we are making the necessary adjustments and investments to re-energize the U.S. marketplace. Elevating consumers' perception of the Columbia brand and ultimately restoring healthy U.S. growth will take time. Our new product collections, new brand voice, and marketplace investments are just starting to take hold this fall and will build momentum into 2026. Before my closing remarks, I'd like to note that we recently released our 2024 impact report highlighting our efforts across environment, social, and governance matters. I'd encourage you to review the report which is available on our website, to learn more about the progress and accomplishments we've made, empowering people, sustaining places, and promoting responsible practices. In closing, I'm confident we can navigate near-term uncertainty and unlock significant long-term growth opportunities ahead. We remain committed to investing in our strategic priorities to accelerate profitable growth create iconic products that are differentiated, functional, and innovative, drive brand engagement with increased focused demand creation investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that is digitally led, omnichannel, and global, and empower talent that is driven by our core values. That concludes my prepared remarks. We welcome your questions for the remainder of the hour. Operator, can you help us with that?