Columbia(COLM) - 2024 Q1 - Quarterly Report

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements Disclosure The report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ - Forward-looking statements are identified by words such as "will" and "anticipate" and cover future performance and market conditions[7] - Actual results may differ materially due to risks detailed in Part II, Item 1A of the report[8] - The company does not undertake any duty to update forward-looking statements unless legally required[8] PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements and accompanying detailed notes Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheets (Unaudited) - Key Figures (in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | ASSETS | | | | | Cash and cash equivalents | $418,462 | $350,319 | $361,049 | | Short-term investments | $369,270 | $414,185 | $99,511 | | Inventories | $607,373 | $746,288 | $959,234 | | Total current assets | $1,846,218 | $2,014,685 | $1,987,364 | | Total assets | $2,762,231 | $2,939,013 | $2,888,974 | | LIABILITIES AND EQUITY | | | | | Total current liabilities | $447,306 | $596,627 | $568,685 | | Total liabilities | $852,788 | $1,000,403 | $941,189 | | Total shareholders' equity | $1,909,443 | $1,938,610 | $1,947,785 | - Total assets decreased from $2,939,013 thousand at December 31, 2023, to $2,762,231 thousand at March 31, 2024[10] - Inventories significantly decreased from $959,234 thousand at March 31, 2023, to $607,373 thousand at March 31, 2024[10] Condensed Consolidated Statements of Operations (Unaudited) Condensed Consolidated Statements of Operations (Unaudited) - Key Figures (in thousands, except per share amounts) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net sales | $769,982 | $820,593 | | Cost of sales | $380,423 | $421,093 | | Gross profit | $389,559 | $399,500 | | Operating income | $44,681 | $56,427 | | Net income | $42,300 | $46,202 | | Basic EPS | $0.71 | $0.74 | | Diluted EPS | $0.71 | $0.74 | - Net sales decreased by 6.2% from $820,593 thousand in Q1 2023 to $769,982 thousand in Q1 2024[12] - Net income decreased by 8.4% from $46,202 thousand in Q1 2023 to $42,300 thousand in Q1 2024[12] Condensed Consolidated Statements of Comprehensive Income (Unaudited) Condensed Consolidated Statements of Comprehensive Income (Unaudited) - Key Figures (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net income | $42,300 | $46,202 | | Other comprehensive income (loss) | $(5,355) | $(3,941) | | Comprehensive income | $36,945 | $42,261 | - Comprehensive income decreased from $42,261 thousand in Q1 2023 to $36,945 thousand in Q1 2024, primarily due to a larger 'Other comprehensive loss'[14] - Foreign currency translation adjustments contributed a loss of $(14,987) thousand in Q1 2024, compared to a gain of $1,480 thousand in Q1 2023[14] Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows (Unaudited) - Key Figures (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $106,773 | $78,002 | | Net cash provided by (used in) investing activities | $37,109 | $(111,680) | | Net cash used in financing activities | $(71,343) | $(35,561) | | Net increase (decrease) in cash and cash equivalents | $68,143 | $(69,192) | | Cash and cash equivalents, end of period | $418,462 | $361,049 | - Net cash provided by operating activities increased by $28,771 thousand, from $78,002 thousand in Q1 2023 to $106,773 thousand in Q1 2024[16] - Investing activities shifted from a net cash outflow of $111,680 thousand in Q1 2023 to a net cash inflow of $37,109 thousand in Q1 2024[16] Condensed Consolidated Statements of Equity (Unaudited) Condensed Consolidated Statements of Equity (Unaudited) - Key Figures (in thousands) | Metric | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Total Shareholders' Equity | $1,909,443 | $1,938,610 | $1,947,785 | | Retained Earnings | $1,960,634 | $1,984,446 | $1,981,287 | | Accumulated Other Comprehensive Income (Loss) | $(51,191) | $(45,836) | $(34,578) | | Common Stock Shares Outstanding | 59,473 | 59,996 | 62,076 | - Total shareholders' equity decreased from $1,938,610 thousand at December 31, 2023, to $1,909,443 thousand at March 31, 2024[18] - The company repurchased 631 thousand shares of common stock for $50,168 thousand during Q1 2024[18] Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 Basis of Presentation and Organization This note outlines the basis for preparing the unaudited financial statements, which are not indicative of full-year results - The financial statements are unaudited and include all normal recurring material adjustments, prepared in accordance with GAAP[21] - The business is seasonal, meaning Q1 results are not indicative of other quarters or the full year[21] - The company is evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures) for future impact[26][27][28] Note 2 Revenues This note disaggregates net sales by geographic segment, product category, and channel for Q1 2024 and 2023 Disaggregated Net Sales by Product Category (in thousands) | Product Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Apparel, Accessories and Equipment | $619,054 | $632,602 | | Footwear | $150,928 | $187,991 | | Total | $769,982 | $820,593 | Disaggregated Net Sales by Channel (in thousands) | Channel | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Wholesale | $390,897 | $452,488 | | Direct-to-consumer | $379,085 | $368,105 | | Total | $769,982 | $820,593 | - Wholesale net sales decreased by $61,591 thousand (13.6%) from Q1 2023 to Q1 2024, while Direct-to-consumer net sales increased by $10,980 thousand (3.0%)[31] Note 3 Intangible Assets, Net and Goodwill This note provides a breakdown of intangible assets and confirms no changes to goodwill since year-end 2023 Intangible Assets, Net (in thousands) | Category | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Net carrying amount (definite lives) | $275 | $687 | $1,925 | | Intangible assets with indefinite lives | $79,221 | $79,221 | $79,221 | | Total Intangible assets, net | $79,496 | $79,908 | $81,146 | - Amortization expense for intangible assets with definite lives was $0.4 million for both Q1 2024 and Q1 2023[35] - There have been no changes to the Company's goodwill since December 31, 2023[36] Note 4 Commitments and Contingencies This note addresses legal matters, which management believes will not materially affect the company's financial position - The company is involved in litigation and legal matters related to employment, retail, and intellectual property[37] - Management does not believe the ultimate resolution of these proceedings will materially adversely affect the company's financials[37] Note 5 Shareholders' Equity This note details the company's stock repurchase program, including total authorization and shares repurchased - Since 2004, the Board of Directors has authorized $2.0 billion for common stock repurchases[38] - As of March 31, 2024, the company had repurchased 34.7 million shares for $1,704.8 million, with $295.2 million remaining available[39] - During Q1 2024, the company repurchased $50.2 million of common stock, compared to $15.8 million in Q1 2023[39] Note 6 Stock-Based Compensation This note outlines stock-based compensation expenses and unrecognized costs for stock options and restricted stock units Stock-Based Compensation Expense (in thousands) | Category | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Stock options | $1,647 | $2,038 | | Restricted stock units | $3,997 | $3,770 | | Total | $5,644 | $5,808 | - Total stock-based compensation expense decreased slightly from $5,808 thousand in Q1 2023 to $5,644 thousand in Q1 2024[42] - As of March 31, 2024, unrecognized costs for stock options totaled $13.4 million and for restricted stock units totaled $45.6 million[43][44] Note 7 Earnings Per Share This note provides a reconciliation of common shares used to compute basic and diluted earnings per share (EPS) Earnings Per Share (EPS) Reconciliation (in thousands, except per share amounts) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Weighted average common shares outstanding, basic | 59,823 | 62,133 | | Effect of dilutive stock options and restricted stock units | 175 | 284 | | Weighted average common shares outstanding, diluted | 59,998 | 62,417 | | Basic EPS | $0.71 | $0.74 | | Diluted EPS | $0.71 | $0.74 | - Both basic and diluted EPS decreased from $0.74 in Q1 2023 to $0.71 in Q1 2024[47] - Anti-dilutive common shares excluded from diluted EPS computation were 1,996 thousand in Q1 2024, up from 1,574 thousand in Q1 2023[47] Note 8 Accumulated Other Comprehensive Income (Loss) This note details the components and changes in accumulated other comprehensive income (loss) Changes in Accumulated Other Comprehensive Income (Loss) (in thousands) | Component | Balance as of Dec 31, 2023 | Net OCI (Loss) during Q1 2024 | Balance as of Mar 31, 2024 | | :--- | :--- | :--- | :--- | | Available-for-sale securities | $145 | $(145) | $0 | | Derivative transactions | $3,689 | $9,777 | $13,466 | | Foreign currency translation adjustments | $(49,670) | $(14,987) | $(64,657) | | Total | $(45,836) | $(5,355) | $(51,191) | - Accumulated other comprehensive loss increased from $(45,836) thousand at December 31, 2023, to $(51,191) thousand at March 31, 2024[49] - Foreign currency translation adjustments were the primary driver of the net other comprehensive loss in Q1 2024, with a $(14,987) thousand impact[49] Note 9 Segment Information This note provides financial information for the company's four reportable geographic segments Net Sales to Unrelated Entities by Segment (in thousands) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | U.S. | $474,406 | $517,475 | | LAAP | $138,646 | $136,413 | | EMEA | $104,520 | $108,289 | | Canada | $52,410 | $58,416 | | Total | $769,982 | $820,593 | Segment Operating Income (in thousands) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | U.S. | $72,993 | $81,600 | | LAAP | $21,822 | $18,326 | | EMEA | $19,146 | $20,354 | | Canada | $11,168 | $10,801 | | Total segment operating income | $125,129 | $131,081 | | Unallocated corporate expenses | $(80,448) | $(74,654) | | Income before income tax | $54,149 | $60,560 | - LAAP segment net sales increased by 2% (7% constant-currency) in Q1 2024, while U.S., EMEA, and Canada segments experienced declines[51] Note 10 Financial Instruments and Risk Management This note describes the company's financial risk management strategies, primarily focusing on currency exchange rate risk - The company uses currency forward contracts designated as cash flow hedges to manage currency risks from foreign purchases and sales[54][56] - Currency forward contracts not designated as hedges are used to manage remeasurement risk of foreign currency assets and liabilities[57] Gross Notional Amount of Outstanding Derivative Instruments (in thousands) | Category | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :--- | :--- | :--- | :--- | | Designated as cash flow hedges | $597,355 | $634,676 | $525,781 | | Not designated as hedges | $231,449 | $342,532 | $393,450 | Note 11 Fair Value Measures This note provides information on assets and liabilities measured at fair value on a recurring basis, categorized into a three-tier hierarchy - Fair value is defined as an exit price in an orderly transaction, categorized into Level 1, Level 2, and Level 3 inputs[62][68] Assets Measured at Fair Value (in thousands) - March 31, 2024 | Category | Level 1 | Level 2 | Total | | :--- | :--- | :--- | :--- | | Cash equivalents | $57,144 | $115,527 | $172,671 | | Short-term investments | $2,288 | $366,982 | $369,270 | | Derivative financial instruments (assets) | $0 | $20,265 | $20,265 | | Total assets measured at fair value | $86,413 | $502,774 | $589,187 | - The majority of assets measured at fair value are categorized as Level 2, primarily U.S. Government treasury bills and derivatives[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides its perspective on financial performance, business trends, and liquidity for Q1 2024 Overview - Columbia Sportswear Company is a global leader in outdoor, active, and lifestyle products across four key brands[73] - Strategic priorities include accelerating growth, creating iconic products, and enhancing consumer experiences[74][79] - Investments aim to capture market share, expand gross margin, and improve SG&A efficiency long-term[74] Profit Improvement Program - The company is implementing a multi-year profit improvement program focused on operational and organizational cost savings[75][80] - The program aims to achieve $125 million to $150 million in annualized savings by 2026, with $75 million to $90 million anticipated in 2024[75] Business Environment and Trends - The market is increasingly competitive due to a shift towards casual and lifestyle trends[76] - Economic uncertainty is impacting consumer demand, leading to cautious inventory management and advance orders[77] - The company is using temporary clearance locations and outlet stores to liquidate excess inventory[78] - Lower inbound freight costs are expected to continue benefiting gross margin throughout 2024[84] - New regulations, such as those related to PFAS chemicals, are impacting expenses and product input costs[87] Results of Operations Non-GAAP Financial Measure This section introduces constant-currency net sales as a non-GAAP measure to assess performance excluding currency effects - Constant-currency net sales is a non-GAAP measure calculated by translating current period foreign currency net sales using prior year exchange rates[89] - This measure helps assess performance without foreign currency volatility and facilitates comparisons[89] Results of Operations — Consolidated This section provides a consolidated overview of financial performance for Q1 2024 compared to Q1 2023 Consolidated Results of Operations (in millions, except per share amounts) | Metric | Q1 2024 | % of Net Sales (2024) | Q1 2023 | % of Net Sales (2023) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $770.0 | 100.0% | $820.6 | 100.0% | | Gross profit | $389.6 | 50.6% | $399.5 | 48.7% | | Operating income | $44.7 | 5.8% | $56.4 | 6.9% | | Net income | $42.3 | 5.5% | $46.2 | 5.6% | | Diluted earnings per share | $0.71 | | $0.74 | | - Net sales decreased by 6% to $770.0 million in Q1 2024, driven by declines in U.S. and Canada wholesale businesses[92][93] - Gross margin expanded by 190 basis points to 50.6% in Q1 2024, primarily due to lower inbound freight costs[92][96][100] - SG&A expenses increased by $1.9 million (1%) to $349.3 million, representing 45.4% of net sales[92][99][101] - Operating income decreased by 20.8% to $44.7 million, and net income decreased by 8.4% to $42.3 million[92] Results of Operations — Segment This section analyzes the financial performance of each of the company's four geographic segments Net Sales by Geographic Segment (in millions) | Segment | Q1 2024 | Q1 2023 | Reported % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | U.S. | $474.4 | $517.5 | (8)% | (8)% | | LAAP | $138.7 | $136.4 | 2% | 7% | | EMEA | $104.5 | $108.3 | (4)% | (6)% | | Canada | $52.4 | $58.4 | (10)% | (11)% | | Total | $770.0 | $820.6 | (6)% | (6)% | Operating Income by Geographic Segment (in millions) | Segment | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | U.S. | $73.0 | $81.6 | $(8.6) | | LAAP | $21.8 | $18.3 | $3.5 | | EMEA | $19.1 | $20.4 | $(1.3) | | Canada | $11.2 | $10.8 | $0.4 | | Unallocated corporate expenses | $(80.4) | $(74.7) | $(5.7) | - U.S. operating income decreased by $8.6 million due to lower net sales and gross margin, despite lower SG&A expenses[104] - LAAP operating income increased by $3.5 million, driven by increased net sales (especially in China) and gross margin[105][107] - Unallocated corporate expenses increased by $5.7 million, primarily due to higher personnel expenses[110] Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow activities, and capital allocation strategy - As of March 31, 2024, the company had approximately $1.5 billion in total liquidity[111] Cash Flow Activities (in millions) | Activity | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Operating activities | $106.8 | $78.0 | $28.8 | | Investing activities | $37.1 | $(111.7) | $148.8 | | Financing activities | $(71.4) | $(35.6) | $(35.8) | | Net increase/(decrease) in cash | $68.1 | $(69.2) | $137.3 | - Net cash provided by operating activities increased by $28.8 million, primarily due to a $60.2 million increase in cash from inventories[112][113][114] - Net cash provided by investing activities was $37.1 million in Q1 2024, a significant improvement from $111.7 million used in Q1 2023[115] - Planned 2024 capital expenditures are approximately $60 to $80 million, focusing on DTC operations and digital capabilities[125] - The long-term capital allocation goal includes returning at least 40% of free cash flow to shareholders[126] Critical Accounting Estimates This section identifies critical accounting estimates that require significant management judgment and assumptions - Critical accounting estimates include sales reserves, allowance for uncollectible accounts, inventory valuation, and impairment[128] - These estimates involve significant judgment and assumptions, and actual results may differ[128] Recent Accounting Pronouncements This section refers to Note 1 for details on recently issued accounting pronouncements not yet adopted - Refer to Note 1 for information on recently issued accounting pronouncements not yet adopted[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to market risk disclosures from the 2023 Annual Report on Form 10-K - No material change in market risk disclosure from the Annual Report on Form 10-K for the year ended December 31, 2023[132] Item 4. Controls and Procedures This section details the evaluation of disclosure controls and procedures, concluding they are effective - Management concluded that disclosure controls and procedures were effective as of March 31, 2024[134][135] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2024[136] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal matters which are not expected to have a material adverse effect - The company is involved in litigation and legal matters related to employment, retail, and intellectual property[139] - Management believes the ultimate resolution of these proceedings will not have a material adverse effect on the company's financials[139] Item 1A. Risk Factors The company faces risks related to product demand, supply chain, strategic execution, IT, and global operations Changes in Product Demand Can Adversely Affect Our Financial Results - Risks to product demand include volatile economic conditions, competition, and shifts in consumer preferences[142][143][144] - Wholesale order cancellations can lead to sales declines, inventory write-downs, and increased discounts[145] - Inaccurate demand forecasting can result in excess inventory or lost sales[146][147][149] We Are Subject to Various Risks in Our Supply Chain - Reliance on contract manufacturers poses risks such as supply disruptions, quality control issues, and non-compliance with labor standards[151][152][153][154] - Volatility in raw material availability and prices can adversely affect revenues, costs, and profitability[155] - Dependence on a limited number of suppliers for technical materials may cause increased costs or production delays[156] - Success depends on third-party logistics, with risks including operational disruptions, capacity constraints, and geopolitical conflicts[157][158][159][160][161][162][163] Our Investment in Strategic Priorities Exposes Us to Certain Risks - Inability to effectively execute strategic priorities could limit business growth and cause profitability to decline[164][165][166] - Upgrading business processes and IT systems involves risks such as business interruptions, higher costs, and data loss[167][168] - Investments in DTC operations may not yield expected returns if sales are insufficient to cover fixed costs[169] We Are Subject to Certain Information Technology Risks - Reliance on IT systems exposes the company to risks of disruptions, outages, and data loss due to cyberattacks or human error[170][171] - Security breaches could lead to substantial costs, litigation, reputational damage, and operational disruptions[172][173][174][175] - Dependence on legacy IT systems, particularly in Japanese and Korean businesses, may inhibit operational efficiency[176] We Are Subject to Legal and Regulatory Risks - Success depends on protecting intellectual property rights; risks include infringement, litigation costs, and counterfeit products[177][178][179][180] - Products are subject to stringent regulations (e.g., PFAS), which can increase compliance expenses and lead to delays or penalties[182] - Product recalls or liability claims could harm brand reputation and incur additional expenses[183] - Additional tax liabilities may arise from changes in tax laws or unfavorable audit findings[184][185][186] We Operate Globally and Are Subject to Significant Risks in Many Jurisdictions - Global operations expose the company to risks from geopolitical disputes, currency fluctuations, and natural disasters[187][188][189] - Imported products are subject to duties, tariffs, and import limitations, which affect costs and quantities[190][191] - Fluctuations in inflation and currency exchange rates can lead to lower revenues, higher costs, and decreased margins[192][193][194][195] We Are Subject to Numerous Operational Risks - The seasonal nature of the business can impact profits if fixed costs are not managed effectively during lower sales seasons[197] - Labor matters and changes in labor laws can disrupt sourcing, distribution, and sales[198][199] - Downturns in global markets can lead to increased expenses and challenges in meeting financial covenants[200][201][202] - Acquisitions are subject to risks including integration difficulties, substantial costs, and potential impairment charges[202][203][205][206] - Extreme weather, climate change, and disease outbreaks can negatively impact operations and supply chains[207][208] - Dependence on key personnel and the ability to attract and retain talent is crucial[210] - Licensing proprietary rights to third-parties carries risks of reputational damage if licensees misuse brands[211][212][213] Risks Related to Our Securities - The common stock price may be volatile due to general market conditions and financial results fluctuations[215] - Three related shareholders collectively control just under 50% of outstanding common stock, enabling significant influence[216] - The sale of a substantial number of shares by these controlling shareholders could cause the stock price to decline[217] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides details on the company's common stock repurchase program and activity during Q1 2024 - The Board of Directors has authorized $2.0 billion for common stock repurchases since 2004[219] - As of March 31, 2024, $1,704.8 million had been used to repurchase 34.7 million shares, with $295.2 million remaining available[219] Common Stock Repurchases (Q1 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased (in millions) | | :--- | :--- | :--- | :--- | | January 1, 2024 - January 31, 2024 | 2,153 | $74.53 | $345.2 | | February 1, 2024 - February 29, 2024 | 253,900 | $79.02 | $325.1 | | March 1, 2024 - March 31, 2024 | 375,415 | $79.76 | $295.2 | | Total | 631,468 | $79.45 | $295.2 | Item 5. Other Information No Rule 10b5-1 trading arrangements were entered into or terminated by directors or officers during Q1 2024 - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were entered into or terminated by directors or officers during Q1 2024[222] Item 6. Exhibits This section lists all documents filed as exhibits to the Quarterly Report on Form 10-Q - The exhibit index includes corporate governance documents, various incentive plan agreements, and required certifications[223][224] Signatures This section contains the required signatures for the Quarterly Report on Form 10-Q - The report is signed by Jim A. Swanson, Executive Vice President and Chief Financial Officer, dated May 2, 2024[225][226]