Columbia(COLM) - 2023 Q3 - Quarterly Report

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS The report contains forward-looking statements based on current expectations that involve inherent risks and uncertainties - This report contains forward-looking statements concerning various aspects of the business, including future performance, inventory levels, consumer spending, and strategic investments[7] - The company cautions that actual results may differ materially from those projected in forward-looking statements and clarifies it has no obligation to update these statements[8] PART I — FINANCIAL INFORMATION This part presents the company's unaudited financial statements and management's analysis for the period Financial Statements The unaudited financial statements show increased Q3 sales but lower net income and improved operating cash flow Condensed Consolidated Balance Sheets (Unaudited) The balance sheet reflects a decrease in total assets, cash, and inventories compared to year-end 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $213,282 | $430,241 | $159,221 | | Inventories | $885,163 | $1,028,545 | $1,056,905 | | Total current assets | $1,882,756 | $2,136,941 | $1,959,610 | | Total assets | $2,798,943 | $3,051,546 | $2,890,152 | | Total current liabilities | $525,960 | $738,718 | $696,656 | | Total liabilities | $903,632 | $1,115,757 | $1,075,349 | | Total shareholders' equity | $1,895,311 | $1,935,789 | $1,814,803 | Condensed Consolidated Statements of Operations (Unaudited) The statement of operations shows a slight increase in Q3 net sales but a decline in net income and EPS Consolidated Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $985,683 | $955,059 | $2,427,209 | $2,294,632 | | Gross profit | $480,197 | $458,495 | $1,193,742 | $1,121,102 | | Operating income | $134,554 | $145,261 | $197,210 | $237,700 | | Net income | $103,508 | $111,750 | $158,060 | $185,750 | | Diluted EPS | $1.70 | $1.80 | $2.56 | $2.94 | Condensed Consolidated Statements of Cash Flows (Unaudited) The cash flow statement highlights a significant year-over-year improvement in operating cash flow Consolidated Statement of Cash Flows Highlights (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $22,174 | $(328,089) | | Net cash provided by (used in) investing activities | $(38,485) | $88,462 | | Net cash used in financing activities | $(197,551) | $(339,656) | | Net decrease in cash and cash equivalents | $(216,959) | $(604,183) | Notes to Condensed Consolidated Financial Statements (Unaudited) This section details segment sales, capital return activities, and foreign exchange risk management Q3 2023 Net Sales by Segment and Channel (in thousands) | Segment/Channel | Net Sales | | :--- | :--- | | By Segment: | | | U.S. | $635,413 | | LAAP | $115,357 | | EMEA | $129,351 | | Canada | $105,562 | | By Channel: | | | Wholesale | $664,360 | | Direct-to-consumer | $321,323 | | Total | $985,683 | - During the nine months ended September 30, 2023, the company repurchased $144.6 million of common stock and paid $55.4 million in cash dividends[18][40] - The company uses currency forward contracts to manage foreign exchange risk, with a notional amount of $548.4 million in outstanding cash flow hedges as of September 30, 2023[56][60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses key business trends, Q3 performance, regional results, and the company's liquidity position - Key business environment trends include inflationary pressures impacting consumer demand, cautious inventory management by wholesale customers, and an elevated promotional environment[75][76][82] Q3 2023 vs. Q3 2022 Performance Summary (in millions) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $985.7 | $955.0 | 3% | | Gross Margin | 48.7% | 48.0% | +70 bps | | SG&A Expenses | $351.6 | $319.0 | 10% | | Operating Income | $134.6 | $145.3 | (7.4)% | | Net Income | $103.5 | $111.8 | (7.4)% | - For Q3 2023, U.S. net sales increased 5% and Canada grew 33%, while EMEA sales decreased 16% (21% constant-currency) and LAAP sales were flat[121] - As of September 30, 2023, the company had approximately $720 million in total liquidity, with operating cash flow improving to $22.2 million from a $328.1 million use of cash in the prior-year period[139][140] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its primary market risks since the last annual report - There have been no material changes in the company's market risk exposures, which primarily relate to currency exchange rates, interest rates, and equity market risk, since the 2022 Annual Report[160] Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes identified - Based on an evaluation by management, the company's disclosure controls and procedures were deemed effective as of September 30, 2023[164] - No material changes to the company's internal control over financial reporting were identified during the third quarter of 2023[165] PART II — OTHER INFORMATION This part covers legal proceedings, risk factors, stock repurchases, and other required disclosures Legal Proceedings The company is involved in routine legal matters not expected to have a material adverse effect - The company is engaged in routine litigation and legal matters but does not expect the outcomes to materially impact its financial position or results[168] Risk Factors The company faces significant risks related to consumer demand, supply chain, inventory, and IT systems - The company's financial results are sensitive to changes in consumer demand, which can be affected by volatile economic conditions, competition, weather, and shifts in retail traffic patterns[171] - A failure to accurately forecast demand could lead to excess inventory, resulting in write-downs and discounted sales, which could harm brand image and gross margin[175][176] - The business relies heavily on contract manufacturers, primarily in Asia, and third-party logistics providers, exposing it to risks of production delays and transportation disruptions[180][186] - The company is exposed to information technology risks, including system failures, cybersecurity breaches, and increased government regulation related to data privacy[200][202] Unregistered Sales of Equity Securities and Use of Proceeds The company details its Q3 common stock repurchases and remaining authorization under the program Common Stock Repurchases (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 46,900 | $77.24 | | August 2023 | 771,046 | $74.42 | | September 2023 | 70,630 | $69.97 | | Total | 888,576 | $74.21 | - As of September 30, 2023, the company had $384.7 million remaining available under its stock repurchase authorization[253] Other Information The company confirms no directors or officers adopted or terminated Rule 10b5-1 trading plans in Q3 - No directors or officers entered into or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the third quarter of 2023[256] Exhibits This section lists all exhibits filed with the report, including required CEO and CFO certifications - The report includes required certifications from the CEO and CFO under Rule 13a-14(a) and Section 1350, as well as XBRL data files[258]