Columbia Sportswear Company

Greetings. Welcome to the Columbia Sportswear Second Quarter 2026 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, Matt Tucker. You may begin.

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 and Chief Executive Officer Tim Boyle, Co-Presidents Joe Boyle and Peter Bragdon, Executive Vice President and Chief Financial Officer, Jim Swanson, and Executive Vice President, Chief Administrative Officer, and General Counsel, Richelle Luther. 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 reconciliation of gap to non-gap measures and explanation of management's rationale for referencing these non-gap 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 up 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. And now I'll turn the call over to Tim.

Thanks, Matt, and good afternoon. In the second quarter, we're pleased to have again delivered net sales growth exceeding our quarterly guidance, driven by strong growth in international markets, partly offset by continued headwinds in the U.S. Our reported earnings and profit margins include the impact of U.S. tariff refunds recognized during the quarter. Without this one-time item, our underlying performance was largely in line with our expectations, with sales beating the high end of our guidance and gross margins slightly below plan on higher promotional activity, while operating margins and loss per share landed roughly at the midpoints of our guidance range. International business, which represents over 40% of our sales, continues to lead our growth up 9% year over year. While our U.S. business remained challenged this quarter and declined 4%, we saw sequential improvement despite consumer discretionary spending coming in under mounting inflationary pressure. We saw this pressure translate into soft traffic in our USDTC brick and mortar business during the quarter, resulting in higher discounts and lower sales than planned. Despite these headwinds, we were pleased to see positive and better than expected growth in our USDTC e-com business, driven by our emerging brands. We're also encouraged by improving metrics in Columbia brand U.S. e-commerce, including new customer acquisition, which we view as indicators of progress on the Accelerate strategy. Additionally, we're seeing encouraging signs of the traction the Columbia brand is making with target consumers, including improvements in unaided awareness and purchase intent among professional elite and dynamic active consumers in North America. We're also realizing stronger growth rates with newer and more elevated products and collections aimed at these target consumer groups. That said, we know it will take more time and work to bring the newness, innovation, and elevated style to our product portfolio at the level we need in order to continue shifting consumers' perceptions of the brand in the U.S. and put us back on a path of sustainable long-term growth. As a reminder, Accelerate is a multi-year strategy that we launched into the marketplace nearly one year ago based on key shifts about consumer, brand, product, marketplace, and marketing. While the foundational shifts of Accelerate are starting to show tangible signs of paying off, we have continued to refine the strategy. The Columbia brand is now focused on five strategic pillars. One, own the trail with a focus on both hike and trail run. Two, dominate warmth, our on-mountain warmth and innovation story, including but not limited to ski and snowboard. Three, power PFG, expanding our leadership in both fishing performance and lifestyle. Four, Fuel Outdoor Lifestyle with product that has outdoor DNA but is designed for everyday wear with elevated style. And five, Accelerate Footwear, which is an opportunity embedded across each of the previous four pillars and a standalone growth priority in its own right. These five pillars are nested in the original shifts of the Accelerate strategy, providing a click down for more focused execution with our consumers. These pillars leverage our authenticity and heritage in the outdoors and a reputation for quality and durability that consumers have long known us for. They also incorporate many aspects of the playbooks that are already been driving the healthy and sustainable growth of our international businesses. but we also know that today's consumers are expecting even more in terms of credibility, style, and relevance. Performance credibility in their favorite outdoor activities, style in their everyday wear with an outdoor function and aesthetic, and relevance within the outdoor culture and communities to which they belong. In support of these five brand pillars, we're also sharpening our approach to segmenting our product construct with performance and innovation-led product designed for end-use activities, specifically hike, trail run, ski and snowboard, and fish and with style-led product designed for consumers looking to incorporate versatile outdoor function and elevated aesthetic into their everyday life. Executing across our five brand pillar means executing an offense that encompasses all seasons, climates, and geographies where Columbia is present and where people can enjoy the outdoors with footwear apparel that both fulfill their performance needs and make them look and feel great. I'm excited to see these strategies continue to come to life in the marketplace over the coming seasons as we execute against these strategic pillars and the broader Accelerate work. I can feel the energy and excitement from our teams to focus on these strategic priorities that are both clear and aligned across the Columbia brand organization, both here and around the world. I'm also excited to share that in addition to the positive consumer response to the engineered for whatever brand platform, our marketing team continues to gain recognition and accumulate awards for our Expedition Impossible campaign. Following the Gold Clio Award we highlighted last quarter, in late June, Expedition Impossible racked up an incredible 10 awards at the Con Lion Awards Festival, which is widely considered to be one of the most competitive and prestigious award events in the marketing and communications industry globally, with competition against some of the world's largest and most famous brands. Columbia's awards spanned across social media, public relations, brand strategy, and direct marketing, making us the single most awarded company at this year's event. Of particular note, Expedition Impossible won the Grand Prix Award in Brand Experience and Activation, and we also won the Dan Wyden Titanium Award. The culmination of the festival and its marquee award which has been compared to winning the best picture at the Oscars. I want to congratulate our team once again for this well-deserved recognition and for the continued impact this work is creating for our brand. Since launching late last year, Impossible has garnered an incredible amount of media coverage and thousands of creative submissions from consumers or flat earthers from around the globe. We're excited for the fun and adventure to continue through next week. On August the 4th, we will reveal who, if anyone, reached the edge of the earth. Another major marketing highlight for Columbia Brand in Q2 was our campaign that pitted Columbia Global Brand Ambassador Robin Irwin against 100 crocodiles. The Crocs proved to be no match for Robert thanks to the vastly superior traction, cushioning, and dryness provided by his footwear, the Columbia TellurX Titanium Outdry Terrain Shoe. The campaign was both authentic to the Columbia brand and resonated with Robert's large and loyal following, attracting more than 3.7 million views and over 300,000 likes across digital platforms. The TellurX One of our most technical and premium footwear offerings in the height category sold out during the quarter and is poised to scale in future seasons on strong consumer demand. We also saw strong sell-through of additional items featured on the Rob's Look page of Columbia.com during the quarter and look forward to more fun and creative moments from our partnership with Robert in the future. The success of TellurX was part of another key ingredient this quarter for the Columbia brand, which is the momentum we're seeing in footwear, including high single-digit percent growth globally in Q2. This growth was driven by several styles, with particular strength in more technical footwear, featuring our proprietary OmniMax technology, including the TellurX and Peak Freak franchises in Hike, The Conos in trail running and the Dry Tortuga in fish. The growing strength of our footwear business was also reflected in the media recognition that our products received this quarter. Among several product awards received by Columbia, some of the most notable including the TellurX being featured among the best lightweight hiking boots by Wired and among the best outdoor sneakers of 2026 by Women's Health Additionally, within PFG, the whip ray and castback TC shoes were included in best summer gear lists by Outdoor Life and Saltwater Sportsman, respectively. Columbia Footwear also recently took first place on a different type of podium. Earlier this month, Columbia's sponsored athlete, Gabriel Roada, took first place overall at the prestigious UTMB Val d'Aran Ultra Trail Race in Spain. besting an elite field of competitors over 163 kilometers and 10,000 meters of elevation gain. In a sport where elite runners often change shoes multiple times during an event, Gabriel not only started the race in a pair of Columbia Konos Speed Trail ATR, our highest performance trail running shoe, but he completed the entire race and crossed the finish line in exactly the same pair. Originally hailing from a small village in Argentina, Gabriel's path to becoming an elite trail runner is truly inspirational. And his success is equally inspiring to us as it validates Columbia as an emerging force on the trail running scene, including at the sport's highest levels. Big congrats to Gabriel and look forward to seeing him on many future podiums. Now I'll provide an update on our Spring 27 Wholesale Order Book, which provides encouraging indicators of the progress we're making under the Accelerate Strategy. Although we are still taking orders, the book is nearly complete, and current indications point to a low to mid-single-digit percent growth, with broad-based contributions to this growth across our brands, including the Columbia brand in the USA. Additionally, we're seeing growth across account types and tiers, including our higher priority brand enhancing partners. From a product perspective, we're pleased to see footwear growth outpacing apparel with solid growth in both categories. It's also particularly encouraging to see strong adoption of newer apparel and footwear styles including growth in key styles targeting younger dynamic active consumers consistent with our accelerate strategy. Turning back to the second quarter financial performance I'd like to remind everyone that the second quarter is our lowest volume sales quarter and small year-over-year changes in sales and expense timing can have a material impact on reported results. Net sales increased 2% versus the prior year to $614 million, driven by growth in international distributors and global e-commerce, partially offset by an expected decline in wholesale, primarily due to a lower U.S. 26 order book versus the prior year. During Q2, we began receiving refunds of the U.S. IEPA tariffs, with the majority of cash owed received in June. As such, during the quarter, we recognized approximately $78 million in refunds and interest in our financial statements based on IEPA tariffs previously paid. From an accounting perspective, we recognized $60 million in Q2 operating margin, primarily as a reduction to cost of sales and $2 million of interest income, with $15 million as a reduction to inventory. As a reminder, we absorbed the impact of IEPA tariffs on our gross margins last year. Including the impact of tariff refunds, second quarter gross margin expanded 920 basis points on a reported basis to 58.3%. Excluding tariff refunds, gross margin contracted by 50 basis points versus the prior year, driven by continued headwinds from incremental U.S. tariffs and increased discounting. SG&A expense increased 2% reflecting higher DTC expenses including some unplanned store impairment charges partly offset by lower personnel costs resulting from our prior year actions taken as a part of the profit improvement program. This overall performance resulted in EPS of 52 cents Excluding the impact of tariff refunds, our loss per share of 41 cents would have fallen roughly in line with the midpoint of our Q2 guidance range. Inventories remain healthy and are down 6% versus the prior year in dollar terms, with units down 7%. We continue to maintain our Fortress balance sheet, exiting the quarter with $625 million in cash and short-term investments and no debt. Looking at net sales by geography, U.S. net sales decreased 4%, declining slightly more than expected due to soft traffic within our DTC stores. Relative to the prior year, the lower sales were primarily driven by high single-digit percent decline in U.S. wholesale, resulting from a lower spring 26 wholesale order book. Olu's performance was slightly ahead of plan due to stronger-than-expected order conversions. USDPC net sales were down slightly in the quarter, primarily reflecting the impact of store closures as well as software traffic, which was largely offset by improved conversion. eCommerce grew low single digit percent and exceeded plan, driven by our emerging brands. While Columbia brand US eCommerce was down low single digit percent for the quarter, we're encouraged with improving underlying metrics as we reposition eCom as the pinnacle expression of the brand. For my review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency growth to illustrate underlying performance in each market. LAP net sales increased 13%. China net sales increased mid-single-digit percent, driven by solid growth in DTC e-commerce. This was partly offset by single-digit percent declines in wholesale due to shipment timing and in DTC stores reflecting soft traffic amid a more challenging macro environment. A key highlight of the quarter was our strong performance during China's 6-1-8 shopping event, with robust growth versus the prior year, coupled with an improved markdown rate. Our China team executed a successful spring brand campaign titled It's Nature's Fault, which encouraged consumers to embrace nature and its imperfect perfection, creating significantly higher social media engagement and impressions versus the prior year. We also continue to create energy through grassroots events with our Hike Society, including events that combine the increasingly popular activities of hiking and fishing. which we believe only Columbia can authentically do. Japan net sales increased low double digit percent rebounding nicely from a challenging first quarter. This reflected growth in both wholesale and DTC despite weak outlet store traffic amid a softening macro environment. In addition to adverse weather in the month of June due to heavy rains. Key growth drivers included our Thrive Revive Shandle on the footwear side, which sold out in a quarter, as well as cooling apparel, including our OmniFreeze Zero technology. Koreanet sales increased low double-digit percent, reflecting double-digit percent growth in both wholesale and DTC e-com. DTC brick-and-mortar grew low single-digit percent and beat Plan, with higher promotional activity due to lower traffic and increased consumer price sensitivity amid rising inflation. Product highlights included robust growth in cooling apparel, channel footwear styles, and our PFG Bahama shirt, which was supported by a well-executed re-flexivation celebrating the style's 30th anniversary. Our LAP distributor markets delivered mid-20% growth, driven by the fall 26 order book and earlier fall shipments, reflecting continued momentum in these diverse global markets, driven by robust growth in Columbia brand apparel. EMEA net sales increased high single-digit percent overall. Europe direct net sales increased low double-digit percent overall. showing continued momentum in both wholesale and DTC, albeit with a higher promotional activity in DTC mid-weeker traffic. Due to macro headwinds and unfavorable weather, the Europe team drove energy for the Columbia brand through a successful spring marketing campaign, leveraging the engineered-for-whatever platform across digital, social, and out-of-home media, delivering more than 650 million impressions annually on digital and social channels alone. We also continue to build strong connections with local outdoor communities through our Hike Society. In Q2, we hosted Hike Fest, events in France and the UK that sold out within minutes, creating considerable buzz and user-generated content for our brand among target consumers. Our EMEA distributor business increased mid-single digit percent versus the prior year, driven by increased spring and fall 26 orders, partially offset by later fall shipments. Candidate net sales decreased high single digit percent in the quarter, primarily reflecting declines in wholesale. due to unfavorable shipment timing and lower spring 26 orders. This was partly offset by growth in DTC with higher e-commerce sales partly offset by lower brick-and-mortar results due to worker traffic and softening consumer environment. Looking at second quarter performance by brand, Columbia net sales increased 1% with international growth more than offsetting declines in the U.S. Turning now to our emerging brands, all of which are expected to grow in 26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace. Sorrel net sales decreased 14%, driven largely by later wholesale shipment timing versus the prior year, which was partly offset by growth in DTC e-com. As a reminder, Q2 typically represents less than 10% of Sorrel's annual business. We continue to anticipate a stronger fall 26 season for Sorel with growth expected in both wholesale and DTC for the second half. As announced last month, we're also thrilled to welcome Joe Bernacchio back to Columbia Sportswear's family as a president of Sorel brand. We know Joe well from his prior tenure as president of Mountain Hardware. He brings extensive industry experience as a proven consumer-focused and collaborative leader. I'm confident that Joe is the right leader at the right time to drive the next phase of Sorrell's growth and further unlock the brand's tremendous potential. Prana net sales increased 14% reflecting double-digit percent growth in wholesale and high single-digit percent growth in DTC e-commerce. with flattish growth in DTC brick and mortar on lower traffic, which was offset by better conversion. We remain encouraged by the momentum building in Prana brand with healthy growth in both new and retained customers, particularly among its target younger consumer. A key highlight during the quarter was the opening of Prana's third full price store in La Jolla, California, which has gotten off to a great start enhanced by a steady stream of elevated in-store experiences. Mountain Hardware net sales grew 6% year over year, driven by double-digit percent growth in DTC channels. This was partly offset by low double-digit percent decline in wholesale due to substantially lower closeout sales versus the prior year, which more than offset low single-digit percent full-price growth. A major highlight in the quarter was Mountain Hardware's fourth collaboration with Stussy, which surpassed each of the prior collections in sales with remarkably strong sell-through. We were also excited to see the new Kazam Ultralight Trail Backpack launch in Q2 and immediately become a top 10 style in terms of sell-through. We'll now discuss our financial outlook for the third quarter of 2026 and the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures relating to those statements. While we remain focused on execution and what we can control, the operating environment remains highly dynamic, particularly around the major external factors affecting our business that we spoke about three months ago, involving tariffs in the U.S., and the conflict in the Middle East. The outlook for U.S. tariffs policy remains highly uncertain. While the administration continues to signal its intention to bring tariffs back to rates similar to the IEPA levels, if and when that will happen remains unclear. As such, our financial outlook now assumes that the current 10 to 12.5% tariff rates remain in place through the end of this year. Additionally, our second half outlook contemplates a $15 million benefit to our cost of sales from the IEPA tariff refunds previously received. However, we expect this tailwind of gross margin will be largely offset by accommodations to our factory partners that have navigated this period of uncertainty with us. That said, from a timing perspective, we expect to incur a net headwind to our gross margins related to these accommodations in Q3 and Annette Tailwind to our gross margin in Q4 related to the remaining refunds. Turning now to the ongoing conflict in the Middle East, while the direct measurable impacts to our business have remained relatively contained, including the order cancellations from our distributor in that region that we spoke about last quarter, the macroeconomic headwinds and supply chain disruptions related to the conflict are of greater concern and have begun to materialize. The prolonged period of elevated global gasoline prices stemming from the conflict is putting pressure on discretionary spending and consumer sentiment, particularly among lower and middle-income consumers, which could impact consumer demand in the second half. Additionally, we now anticipate meaningful shifts in the timing of Fall 26 shipments from the third quarter to the fourth due to longer logistics lead time resulting from supply chain disruptions. as well as discrete delays stemming from capacity constraints within a node of our global supply chain. These delays are expected to shift all of our anticipated second half growth to the fourth quarter, creating greater risk to our outlook given the macroeconomic headwinds impacting operating environment. For the third quarter, we anticipate sales in the range of down 1.5% to flat versus the prior year. This will result in slight SG&AD leverage and when combined with our anticipated decline in gross margin results in earnings per share of $1.15 to $1.35. Now turning to our full year outlook, we are increasing our full year margin and earnings guidance ranges to pass through the impact of second quarter tariff refunds. We continue to expect underlying results to land within the ranges we previously provided including some benefit from our revised tariff rate assumptions. That said, our underlying sales and margin outlook for the second half has incrementally moderated versus 90 days ago based on the macroeconomic and supply chain headwinds we have discussed. For full year net sales, we're maintaining our prior guidance of 1% to 3% growth versus the prior year. We now expect reported gross margins of 52.1 to 52.3%, or up 160 to 180 basis points versus the prior year. We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year over year, but at a slower rate than the net sales growth. Based on these assumptions, We're raising our reported operating margin guidance to 8.5% to 9.3% for the year. We're also raising our reported diluted earnings per share guidance to the range of $4.45 to $4.90. In addition to the factors already discussed, this reflects an incrementally higher full-year tax rate assumption of approximately 25%. In closing, we're pleased to have delivered first half results that were in line to slightly better than our planned overall. Despite navigating external headwinds and other impacts to our business that were unforeseen when we started the year. While the operating environment has become more challenging since our last call, I remain encouraged by the strength and resilience of our international business. the signs of progress we are seeing with our accelerate strategy and the stability provided by our fortress balance sheet. Thank you again to our global workforce who are instrumental in the execution of our strategies and our business success. That concludes my prepared remarks. Operator, could you help us facilitate the questions?