Columbia(COLM) - 2022 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section details the company's financial performance, condition, and related disclosures for the reporting period Item 1. Financial Statements and Supplementary Data This section presents the unaudited condensed consolidated financial statements, highlighting a 2% Q2 net sales increase, a significant drop in net income, and a sharp rise in inventories leading to negative operating cash flow Condensed Consolidated Balance Sheets The balance sheet shows total assets at $2.73 billion, a decrease driven by reduced cash, while inventories significantly increased to $962.9 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | Dec 31, 2021 | June 30, 2021 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $413,110 | $763,404 | $819,806 | | Inventories, net | $962,875 | $645,379 | $676,009 | | Total current assets | $1,795,133 | $2,114,037 | $1,878,719 | | Total assets | $2,726,788 | $3,067,128 | $2,863,299 | | Total current liabilities | $618,444 | $680,390 | $567,600 | | Total liabilities | $995,071 | $1,077,876 | $1,001,642 | | Total shareholders' equity | $1,731,717 | $1,989,252 | $1,861,657 | Condensed Consolidated Statements of Operations Q2 2022 net sales increased 2% to $578.1 million, but gross profit declined, leading to a sharp 75% drop in operating income and an 82% decrease in net income Q2 Statement of Operations (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Net sales | $578,063 | $566,370 | +2.1% | | Gross profit | $284,160 | $292,517 | -2.9% | | Operating income | $8,773 | $34,995 | -74.9% | | Net income | $7,163 | $40,684 | -82.4% | | Diluted EPS | $0.11 | $0.61 | -82.0% | Six Months Statement of Operations (in thousands, except per share amounts) | Metric | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Net sales | $1,339,573 | $1,191,976 | +12.4% | | Gross profit | $662,607 | $613,919 | +8.0% | | Operating income | $92,439 | $105,475 | -12.4% | | Net income | $74,000 | $96,584 | -23.4% | | Diluted EPS | $1.16 | $1.44 | -19.4% | Condensed Consolidated Statements of Cash Flows Operating cash flow turned negative at $112.7 million for H1 2022, primarily due to a significant inventory build-up, while financing activities used $325.3 million for repurchases and dividends Six Months Cash Flow Summary (in thousands) | Activity | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(112,668) | $117,162 | | Net cash provided by (used in) investing activities | $101,865 | $(11,203) | | Net cash used in financing activities | $(325,317) | $(73,988) | | Net decrease in cash and cash equivalents | $(350,294) | $29,081 | - The significant use of cash in operations was primarily due to a $332.2 million increase in inventories, compared to a $123.7 million increase in the prior year period[16] - The company used $287.4 million for common stock repurchases in H1 2022, a substantial increase from $54.5 million in H1 2021[16] Notes to Condensed Consolidated Financial Statements Detailed notes disclose disaggregated revenue by product, channel, and geography, highlight the expanded share repurchase program, and explain regional performance variations Q2 2022 Net Sales by Product Category & Channel (in thousands) | Category/Channel | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Product Category | | | | | Apparel, Accessories & Equipment | $468,318 | $453,050 | +3.4% | | Footwear | $109,745 | $113,320 | -3.2% | | Channel | | | | | Wholesale | $299,896 | $302,303 | -0.8% | | Direct-to-consumer | $278,167 | $264,067 | +5.3% | Q2 2022 Net Sales by Geographic Segment (in thousands) | Segment | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | U.S. | $412,485 | $379,065 | +8.8% | | LAAP | $72,825 | $77,975 | -6.6% | | EMEA | $57,542 | $88,574 | -35.0% | | Canada | $35,211 | $20,756 | +69.6% | - In April 2022, the Board of Directors authorized an additional $500 million for the stock repurchase plan[53][54] - As of June 30, 2022, $529.4 million remained available under the program[53][54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the challenging business environment, detailing Q2 sales growth, gross margin contraction, plummeting operating income, and the impact of increased inventory on cash flow Business Environment and Trends The company identifies inflationary pressures, a strengthening U.S. dollar, persistent supply chain disruptions, and excess marketplace inventory as key business challenges - Inflationary pressures, a strong U.S. dollar, and recession fears are weighing on consumer discretionary spending[101][102][103] - Supply chain disruptions have led to later-than-expected inventory receipts for Fall 2021, Spring 2022, and Fall 2022 seasons[107] - Excess inventory in the marketplace, caused by the arrival of delayed orders and slowing demand, has led to increased order cancellations and an expected increase in promotional activity[109] Results of Operations — Consolidated Consolidated Q2 net sales increased 2%, but gross margin contracted by 240 basis points due to freight costs, and SG&A expenses rose, leading to a 75% drop in operating income Q2 2022 Net Sales Change by Brand (Constant-Currency) | Brand | % Change (Constant-Currency) | | :--- | :--- | | Columbia | +3% | | SOREL | +26% | | prAna | +3% | | Mountain Hardwear | +19% | | Total | +4% | - Gross margin contracted by 240 bps in Q2, primarily due to an approximate 310 bps decrease related to elevated inbound freight costs[124] - SG&A expenses increased by 7% in Q2, driven by higher personnel expenses and increased demand creation spending[127] Results of Operations — Segment Segment performance varied, with U.S. and Canada sales growing, while EMEA sales declined sharply due to Russia, and LAAP sales were impacted by COVID-19 in China Q2 2022 Segment Performance (in millions) | Segment | Net Sales | Net Sales % Change | Operating Income (Loss) | Change in Op. Income | | :--- | :--- | :--- | :--- | :--- | | U.S. | $412.5 | +9% | $67.3 | $(14.8) | | LAAP | $72.8 | -7% | $(3.1) | $(2.1) | | EMEA | $57.6 | -35% | $(1.0) | $(12.5) | | Canada | $35.2 | +69% | $3.5 | $2.9 | - The EMEA net sales decrease was driven by the curtailment of shipments to the Russia-based distributor[146] - The LAAP net sales decrease was primarily in the China business, due to government efforts to control the spread of COVID-19[145] Liquidity and Capital Resources The company maintains strong liquidity despite a decrease in cash, primarily due to negative operating cash flow driven by inventory build-up and significant stock repurchases - Total liquidity as of June 30, 2022, was over $915 million, including cash, short-term investments, and available credit lines[157] - Inventory balance increased to $962.9 million as of June 30, 2022, compared to $676.0 million a year prior, reflecting anticipated sales growth and lower-than-expected sales[170] - Planned capital expenditures for 2022 are approximately $80 to $100 million, focusing on digital, supply chain, and DTC operations[171] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in market risk disclosures from the 2021 Annual Report on Form 10-K - There has not been any material change in the market risk disclosure from the company's 2021 Annual Report on Form 10-K[178] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of the end of the quarter[179] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2022[180] PART II — OTHER INFORMATION This section provides information on legal proceedings, key risk factors, equity security sales, and a list of filed exhibits Item 1. Legal Proceedings The company is involved in routine litigation but does not expect it to have a material adverse effect on its financial position or results - The company is involved in routine litigation but does not expect it to have a material adverse effect on its financial position or results[181] Item 1A. Risk Factors This section details significant risks including volatile economic conditions, intense competition, supply chain disruptions, inventory imbalances, cybersecurity threats, regulatory non-compliance, and public health impacts - Demand risks include volatile economic conditions, intense competition, changing consumer preferences, and unseasonable weather[183] - Supply chain risks stem from reliance on contract manufacturers in Asia, raw material price volatility, and dependence on third-party logistics providers, which are currently facing constraints[193][198][199] - The inability to accurately forecast demand can lead to excess inventory, write-downs, and discounted sales, or inventory shortages and lost sales[188][189] - The COVID-19 pandemic continues to pose risks by disrupting the supply chain, restricting retail operations, causing labor shortages, and impacting consumer demand[249][250] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 906,704 shares for $69.6 million, with $529.4 million remaining available under the repurchase program Q2 2022 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 94,423 | $88.85 | | May 2022 | 651,557 | $76.75 | | June 2022 | 160,724 | $69.98 | | Total Q2 | 906,704 | $76.81 | - As of June 30, 2022, approximately $529.4 million remained available for repurchase under the company's publicly announced plan[263][264] Item 6. Exhibits This section lists exhibits filed with the report, including certifications from the CEO and CFO and XBRL data files - Lists exhibits filed with the report, including certifications from the CEO and CFO (Exhibits 31.1, 31.2, 32.1, 32.2) and XBRL data files[266]