Columbia Sportswear Company

Greetings. Welcome to the Columbia Sportswear third quarter 2025 financial results conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Andrew Burns. You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's third 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 Bragdon. 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 the 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 and the appendix of our CFO commentary and financial review. Following our 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 turn the call over to Tim.

Thanks, Andrew, and good afternoon. Overall, third quarter results reflect sustained momentum in international markets, led by double-digit percent sales growth in our Europe direct business. Our strong financial performance in these markets demonstrates our ability to effectively reach younger and more active consumers and highlights the growth potential of the Columbia brand. In the U.S., we're working to restore growth and revitalize the Columbia brand through our Accelerate Growth Strategy. The third quarter was an important milestone in this journey. In August, we launched our new global brand platform, Engineered for Whatever, which celebrates the extremes of outdoor adventures and harkens back to the brand's irreverent spirit of the 80s and 90s. It revives the humor and gritty gear testing that made Columbia a beloved brand around the world. The early response to this campaign has been overwhelmingly positive, with millions of consumers already engaged since launch. We intend to build upon this momentum with an always-on marketing strategy, including a robust pipeline of differentiated activities planned for the months ahead. Revitalizing the brand in the U.S. will take time, but I'm encouraged by the brand energy that we're just beginning to create. Turning to the topic of tariffs. we estimate the 2025 direct impact of the incremental tariff rates will be approximately 35 to 40 million prior to any mitigation actions. Please note that we did not make meaningful price changes to our fall 25 product line and still expect to absorb much of the incremental tariff costs this year. Applying the new tariff rates on an annualized basis, we estimate the unmitigated impact would be approximately 160 million. For 2026, we continue to take actions to mitigate the financial impact through a combination of price increases, vendor negotiations, resourcing production, and other mitigation tactics. We will balance these actions with our growth strategy, seeking to minimize the impact to consumer demand. For spring 26, we increased U.S. pricing by a high single-digit percent, and we are maintaining similar price increases for the fall. When combined with our other mitigation tactics, our goal in 2026 is to offset the dollar impact of higher tariffs. Longer term, our goal is to restore our product margin percentages to historic levels. I will now quickly review third quarter financial performance. Net sales increased 1% year over year to $943 million. This was ahead of our outlook driven by earlier than planned shipments of fall 25 wholesale orders. Overall, Wholesale net sales increased 5%, while direct-to-consumer was down 5%. Gross margin declined 20 basis points to 50% as higher tariff expenses and foreign exchange headwinds were partially offset by lower clearance and promotional activity. SG&A expense increased 5%, including investments in demand creation to launch Columbia's new brand platform, Engineered for Whatever. During the third quarter, we incurred $29 million in non-cash impairment charges related to Prana and Mountain Hardware. The impairment was largely attributable to the impact of tariffs, and I remain confident in both brands' growth strategies. We are committed to unlocking their full potential. Including the impairments, which impacted earnings by $0.46, third quarter diluted earnings per share were $0.95. Looking at net sales by geography, U.S. net sales decreased 4%. The U.S. wholesale business was flat as earlier timing of fall wholesale shipments offset the impact of lower fall wholesale orders. U.S. DTC net sales declined high single-digit percent in the quarter. Brick and mortar was down high single-digit percent, reflecting the closure of temporary clearance locations and lower sales productivity, partially offset by contributions from new stores, We exited the quarter with eight temporary clearance locations compared to 42 exiting third quarter last year. E-commerce was down low double-digit percent, primarily reflecting soft traffic and demand trends. Results were partially impacted by ongoing efforts to refine and evolve our online promotions and marketing investments. Overall, U.S. Columbia brand Fall 25 sell-through has started slowly as we await the arrival of cold weather. The sell-through challenges we are facing reinforce our focus on re-energizing the Columbia brand through the Accelerate Growth Strategy. While overall trends are tough, we are encouraged by initial sell-through of new product lines, such as the Amaze Puff Jacket and Rock Pants. For my review of third-quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in future markets. LAP net sales increased 6%. China net sales increased mid-single-digit percent. Sales in the quarter were impacted by a warm September, which reduced demand for fall season products. Our team in China continues to do an exceptional job bringing young, active consumers into the brand by celebrating iconic styles like the interchange jacket and premium localized product offerings like the transit and hike 365 collections. During the quarter, Columbia hosted Hike Party 2.0, a well-attended hiking and music event. In addition to thousands of participants, over 100 Columbia brand influencers were in attendance. Their online content generated millions of impressions. I'm pleased to announce that Columbia, China received an award from the prestigious ROI Festival as one of the most creative and influential businesses in in the Asia region. The ROI Festival is known as the Oscars of the marketing and creativity industries in China. Great job, China team. Japan net sales decreased low single-digit percent as DTC growth was offset by later shipments of Fall 25 wholesale orders, which shifted into the fourth quarter. Our team in Japan continues to deliver a compelling mix of localized product offerings and global franchises like Omnimax, which was the top-selling footwear style in the quarter. Korea net sales were flat year over year. Our team in Korea is making progress, stabilizing the business and revitalizing the marketplace. The team's focus on accelerating digital sales, elevating the brand presentation in DTC, and re-energizing marketing is building a healthy foundation for growth. During the quarter, The Korea team launched the Engineered for Whatever campaign with localized creative content that resonated with the Korean consumer. LAP distributor markets delivered mid-teens percent growth. Healthy growth across both our distributor regions underscores the enduring strength of the Columbia brand in these markets. Our distributor teams are successfully engaging young, active consumers through localized marketing activities and elevated brand retail experiences that showcase our best products and innovations. EME net sales increased 10%. Europe direct net sales increased low double-digit percent with strength across both DTC and wholesale. We're thrilled that our European team continues to deliver above-market performance driven by the expansion of our DTC business and growing wholesale through strategic retail partners and brand authenticators. We have immense market share opportunities in Europe, and our team has been unlocking this potential each and every season. Our EMEA distributor business was down slightly as healthy order book growth was offset by earlier shipments of fall 25 orders, which shifted into the second quarter. CAD and net sales increased 7% in the quarter, driven by earlier shipment of fall 25 wholesale orders, partially offset by a decline in DTC sales, reflecting a soft consumer environment. Looking at third quarter performance by brand, Columbia net sales increased 1% as international growth offset ongoing challenges in the U.S. As we've discussed in prior calls, elevating the style of Columbia's product is an important aspect of the Accelerate Growth Strategy. This fall, we took a major step forward with the introduction of the new Amaze Puff women's insulated jacket and men's and women's rock band. We supported these launches with elevated in-store presentations, enhanced photo and video assets, and breakthrough influencer campaigns. I'm encouraged by early sell-through, and I believe we are well-positioned to continue growing these franchises in the seasons ahead. Columbia is also celebrating iconic styles with the re-release of its first ever footwear product, the Bugaboo 1. The original Bugaboo was the result of landmark collaboration between Columbia founder Gert Boyle, myself, and legendary footwear designer Peter Moore, who created the original Nike Dunk and Jordan 1 silhouettes. The re-released Bugaboo 1 honors the original 1993 design with its iconic retro style and and pairs it with our latest innovations, such as OmniGrip traction and Techlite cushioning. This limited edition boot was only available to select specialty retailers and online at Columbia.com, selling out in hours on the website. During the quarter, we launched our newly redesigned Columbia.com website. This freshly enhanced site mirrors our evolving brand, allowing us to tell compelling stories about our products, while offering unique and personalized experiences for our consumers. We've significantly enhanced product discovery with search and merchandising features, upgraded product photography, and our irreverent voice. The feedback from our consumers has been very positive, and we are already witnessing early signs of increased engagement. On the ambassador front, Columbia announced a new partnership with rising global icon Robert Irwin. son of legendary wildlife conservationist Steve Irwin. Robert continues the legacy of his dad as a passionate wildlife warrior. He also has a deep connection with the Columbia brand. Robert's mother is from Oregon, and he still remembers meeting Gert Boyle when he visited our headquarters as a young child. Through his work as a TV presenter, producer, author, and photographer, Robert aims to act as a global advocate for the natural world. We are also cheering him as he takes the stage in the current season of Dancing with the Stars. We are absolutely thrilled to be officially joining forces with Robert and look forward to sharing his adventures in the outdoors with Columbia Gear. As part of our Engineered for Whatever launch, we have executed several unique brand activations this fall that are getting people talking about Columbia again in the U.S., Advertising takeovers across digital, social, and Thursday night football on Amazon remind consumers of Columbia's irreverent roots and superior product quality. This new advertising spotlights outlandish outdoor product tests and celebrity cameos in situations featuring crocodiles, human snowballs, and even the Grim Reaper. These stories are being shared online, in-store, and out of home, and we're seeing increases in organic brand search since the launch. We recently activated a breakthrough guerrilla marketing stunt in New York City. We launched a scavenger hunt, inviting New Yorkers to find our extreme mannequins hidden in hundreds of locations across the city. Picture a mannequin wrestling a bear in Bryant Park or an angler catching a shark in the Hudson River. Each mannequin had a QR code, that consumers could scan to enter to win an outdoor adventure for two. Over 3,000 New Yorkers participated in our scavenger hunt, and we created buzz in the city, reaching over 3 million New Yorkers across earned media and social. In this crowded and competitive environment, Engineered for Whatever stands out. We're showing people that our products are made to handle the extreme and unpredictable with a healthy dose of humor and joy. Turning to our emerging brands, Sorrel net sales increased 10% aided by earlier timing of fall 25 wholesale shipments. This fall, the Sorrel team is building product and brand momentum through new collections and refreshed marketing. The new call sign horizon and day storm horizon collections infuse the iconic caribou boot design language into new categories and silhouettes. The team is also creating brand heat through highly successful collabs with London-based streetwear brand Aries and Japanese streetwear brand Neighborhood. Prana net sales increased 6% in the quarter, reflecting growth across DTC and wholesale. The Prana team's brand refresh is well underway, and we're seeing positive momentum. New customer acquisition trends are improving, and consumers are responding to the new marketing and product collections. Mountain Hardware net sales decreased 5%, driven by lower clearance activity compared to elevated levels in the prior year. Healthy full-price sales growth during the quarter reflects underlying business momentum. The brand is seeing a notable sell-through lift with specialty retailers, where we've invested in brand in-store environments. On the product front, Mountain Hardware introduced its most capable snow sport kit to date, The new Mythogen kit is the pinnacle of the brand's snowsport line, built for max durability, mobility, and style in demanding alpine environments. I'll now discuss our fourth quarter and full-year financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements. For the fourth quarter, we expect net sales to decline 5% to 8% year-over-year and diluted earnings per share to be in the range of $1.04 to $1.34. This brings our full-year net sales outlook to $3.3 to $3.4 billion or flat to down 1% year-over-year. Full-year diluted earnings per share is expected to be $2.55 to $2.85, including the $0.46 impact from impairments in this quarter. Looking to 2026, we have concluded our spring season order taking. Our forecast is for flat to low single-digit wholesale growth in the first half of 26, and it's unchanged from our last call. This forecast contemplates sustained international growth across our direct and distributor markets, partially offset by a decline in the U.S. We are planning to share more on our 2026 outlook when we report our fourth quarter results in February. Overall, I'm excited to see our Accelerate Growth Strategy come to life. Consumers are responding to new product collections with more on the way. Engineered for Whatever has re-energized our unique brand voice, helping to set us apart in a competitive environment. I know that elevating consumers' perception of the Columbia brand will take time, but I'm confident we have the right strategy in place to unlock the 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 our consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that's 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?