Columbia(US:COLM)2024-08-01 20:18PART I — FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements, reflecting decreased net sales and a shift to a net loss in Q2 2024 Condensed Consolidated Balance Sheets Total assets decreased to $2.76 billion by June 30, 2024, driven by lower receivables and investments, while inventories significantly reduced Key Balance Sheet Items (in thousands) | Account | June 30, 2024 | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Total Current Assets | $1,847,810 | $2,014,685 | $1,901,140 | | Cash and cash equivalents | $341,822 | $350,319 | $231,571 | | Inventories | $823,557 | $746,288 | $1,162,519 | | Total Assets | $2,760,821 | $2,939,013 | $2,789,804 | | Total Current Liabilities | $544,441 | $596,627 | $557,268 | | Total Liabilities | $936,859 | $1,000,403 | $915,146 | | Total Shareholders' Equity | $1,823,962 | $1,938,610 | $1,874,658 | Condensed Consolidated Statements of Operations The company reported a net loss of $11.7 million in Q2 2024, a significant downturn from prior year's net income, driven by an 8% sales decrease and gross margin contraction Q2 Performance Summary (in thousands, except per share amounts) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net sales | $570,244 | $620,933 | -8.2% | | Gross profit | $273,419 | $314,045 | -12.9% | | Operating income (loss) | $(23,802) | $6,229 | N/A | | Net income (loss) | $(11,741) | $8,350 | N/A | | Diluted EPS | $(0.20) | $0.14 | N/A | Six-Month Performance Summary (in thousands, except per share amounts) | Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,340,226 | $1,441,526 | -7.0% | | Gross profit | $662,978 | $713,545 | -7.1% | | Operating income | $20,879 | $62,656 | -66.7% | | Net income | $30,559 | $54,552 | -44.0% | | Diluted EPS | $0.51 | $0.88 | -42.0% | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $108.9 million for H1 2024, driven by inventory and accounts payable management, while financing activities used $139.0 million Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $108,893 | $9,708 | | Net cash provided by (used in) investing activities | $29,951 | $(89,933) | | Net cash used in financing activities | $(138,960) | $(115,194) | | Net decrease in cash and cash equivalents | $(8,497) | $(198,670) | - The company repurchased $102.6 million of common stock and paid $35.6 million in cash dividends during the first six months of 202416 Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and revenue disaggregation, showing $1.08 billion in Apparel sales and $814.6 million from the U.S. segment for H1 2024 Net Sales by Product Category (Six Months Ended June 30, 2024, in thousands) | Product Category | Net Sales | | :--- | :--- | | Apparel, Accessories and Equipment | $1,082,994 | | Footwear | $257,232 | | Total | $1,340,226 | Net Sales by Channel (Six Months Ended June 30, 2024, in thousands) | Channel | Net Sales | | :--- | :--- | | Wholesale | $669,281 | | Direct-to-consumer | $670,945 | | Total | $1,340,226 | Net Sales by Geographic Segment (Six Months Ended June 30, 2024, in thousands) | Segment | Net Sales | | :--- | :--- | | U.S. | $814,634 | | LAAP | $238,130 | | EMEA | $208,442 | | Canada | $79,020 | | Total | $1,340,226 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a challenging Q2 2024 with 8% net sales decrease, driven by wholesale decline, and outlines a profit improvement program targeting $125-$150 million in annualized savings - The company is implementing a multi-year profit improvement program targeting $125 million to $150 million in annualized savings by 2026, with $75 million to $90 million expected in 202474 - Business trends include an increasingly competitive environment, cautious customer ordering, soft U.S. consumer demand, and a promotional environment, with temporary clearance stores used for inventory management757677 - Lower ocean freight rates benefited gross margin in 2023 and H1 2024, but recent Red Sea conflict is causing spot rates to increase83 Results of Operations — Consolidated Q2 2024 consolidated net sales fell 8% to $570.2 million, primarily due to a 15% drop in wholesale sales and a 270 basis point gross margin contraction Q2 2024 Net Sales by Brand (in millions) | Brand | Q2 2024 Sales | Q2 2023 Sales | % Change | | :--- | :--- | :--- | :--- | | Columbia | $508.6 | $537.0 | -5% | | SOREL | $21.0 | $37.8 | -44% | | prAna | $21.8 | $27.6 | -21% | | Mountain Hardwear | $18.8 | $18.5 | +2% | Q2 2024 Net Sales by Channel (in millions) | Channel | Q2 2024 Sales | Q2 2023 Sales | % Change | | :--- | :--- | :--- | :--- | | Wholesale | $278.4 | $328.3 | -15% | | Direct-to-consumer | $291.8 | $292.6 | 0% | - Q2 2024 gross margin contracted by 270 basis points to 47.9%, primarily due to lower channel profitability from actions to spur demand and reduce excess inventory, partially offset by lower inbound freight costs93 - Q2 2024 SG&A expenses decreased by $9.8 million (3%) but rose as a percentage of sales to 53.1% from 50.3%, driven by lower supply chain and demand creation expenses9497 Results of Operations — Segment The U.S. segment experienced a 15% net sales decline and reduced operating income in Q2 2024, while LAAP and EMEA segments showed sales growth Q2 2024 Net Sales by Segment (in millions) | Segment | Q2 2024 Sales | Q2 2023 Sales | % Change | | :--- | :--- | :--- | :--- | | U.S. | $340.2 | $399.1 | -15% | | LAAP | $99.5 | $93.3 | +7% | | EMEA | $103.9 | $100.8 | +3% | | Canada | $26.6 | $27.7 | -4% | Q2 2024 Operating Income by Segment (in millions) | Segment | Q2 2024 Op. Income | Q2 2023 Op. Income | | :--- | :--- | :--- | | U.S. | $23.5 | $55.1 | | LAAP | $6.1 | $4.1 | | EMEA | $14.4 | $15.0 | | Canada | $(0.1) | $0.1 | - The U.S. sales decline was driven by decreased wholesale business due to retailer cautiousness and a difficult competitive environment, with DTC sales modestly decreasing despite growth from brick-and-mortar and temporary clearance locations106 Liquidity and Capital Resources The company maintains strong liquidity with $341.8 million in cash and $369.3 million in short-term investments, while inventory significantly decreased to $823.6 million - Inventory balance decreased to $823.6 million as of June 30, 2024, compared to $1,162.5 million as of June 30, 2023, reflecting efforts to curtail purchases and liquidate excess merchandise131 - Planned capital expenditures for 2024 are approximately $60 to $80 million, targeting investments in DTC operations, new stores, and digital and supply chain capabilities132 - The company's capital allocation strategy includes investing in organic growth, returning at least 40% of free cash flow to shareholders, and considering opportunistic M&A133134 Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk disclosures from the 2023 Annual Report, with currency, interest rate, and equity market risks remaining key - There has been no material change in the market risk disclosure from the company's 2023 Annual Report on Form 10-K142 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures are effective at a reasonable assurance level144 - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2024147 PART II — OTHER INFORMATION Legal Proceedings The company is involved in routine legal matters, which management does not expect to materially affect its financial condition or operations - The company does not expect ongoing litigation to have a material adverse effect on its financial position or results150 Risk Factors This section details numerous risks, including volatile consumer demand, supply chain dependencies, global operational challenges, and significant shareholder influence - Key risks to consumer demand include volatile economic conditions, a highly competitive market, changing consumer preferences, weather conditions, and shifts in retail traffic patterns153154159 - The company faces significant supply chain risks, including reliance on contract manufacturers primarily in Asia, potential for quality control issues, volatility in raw material prices, and dependence on third-party logistics providers162166168 - Global operations are subject to risks from international regulations, political and economic conditions, currency exchange rate fluctuations, and trade policies like tariffs and duties198203 - Three related shareholders controlled just under 50% of the company's common stock as of June 30, 2024, allowing them to exercise significant influence over corporate matters227 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company repurchased 782,969 shares at an average price of $77.33, with $234.6 million remaining for future repurchases Common Stock Repurchases (Q2 2024) | Period | Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2024 | 478,470 | $76.07 | | May 2024 | 37,907 | $79.83 | | June 2024 | 266,592 | $79.24 | | Total | 782,969 | $77.33 | - As of June 30, 2024, $234.6 million remained available for repurchase under the company's stock repurchase program230231 Other Information No directors or officers entered into or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2024 - No directors or officers entered into or terminated Rule 10b5-1 trading arrangements during Q2 2024233 Exhibits This section indexes exhibits filed with the 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files - The Exhibit Index lists documents filed with the 10-Q, including CEO/CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and a new form of Nonstatutory Stock Option Agreement (Exhibit 10.1)235