MARKET WATCH: No Surprises From Columbia’s Quarterly Report

Jeff Harbaugh

• November 14 2008
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Every time I look at somebody’s (pretty much anybody’s) September 30th quarterly report, I see the beginnings of the recession, and worry about what these things will look like when we see the ones for the December 31st quarter. I know everybody else is worrying about that as well. Worrying doesn’t really help. All you can do is run your business well and that seems to be what Columbia is doing.

Columbia’s net sales for the quarter fell 4% to $452 million compared to the same quarter last year. The decline totaled about $19 million. For the nine months, the decline totaled $16 million, so it looks like this all happened in the September 30 quarter.

Gross profit fell a little more than $1 million to $202 million, but the gross profit margin rose from 43.2% to 44.7%. That’s a great result. Columbia says that was due to “improved sportswear and footwear product margins, favorable foreign currency hedge rates and a lower volume of close-out product sales at better comparative margins.”

Net income fell 6.8% to $58.3 million, but I’d note that they increased selling, general and administrative expenses 7.7% to $120.8 million. Now, I’m hoping I can hold Columbia up as an example of a company using its strong balance sheet to take advantage of opportunities presented by the recession, but I guess I’d better check the small print and see if that’s what’s actually happening.

Okay, here we go. It’s due to, “planned investment in incremental marketing activities in 2008 to drive consumer demand for our brands, together with initial investment and incremental operating costs of our new retail stores.”

With regards to its retail strategy, its last annual report indicated it had 14 outlet stores in the U.S. In 2007, it “introduced a retail expansion strategy designed to improve inventory management and distribution of excess and end-of-season products in the U.S. with minimal disruption to our wholesale distribution channels. This strategy involves opening approximately 15 new outlet stores in key U.S. outlet centers during each of the next few years, building on our base of existing outlet stores. In addition, as part of our increased focus on consumer demand creation, we plan to open several new first-line retail stores for our brands in key metropolitan markets in order to provide a comprehensive environment to communicate key marketing initiatives, breadth of assortments and expert service levels expected from demanding consumers.”

They’ve got stores scheduled to open in Portland, Seattle, and Mall of America in Minnesota on 11/14, 12/5, and 11/21.

Here’s the sales breakdown by region and by product group for the quarter and the same quarter the previous year. EMEA is Europe, Middle East and Africa. LAAP is Latin America and Asia Pacific.

They note that the decrease in the US was “primarily the result of lower initial order volumes for fall 2008 season and the weak U.S. retail environment resulting from difficult macro-economic conditions.” They make a similar comment with regard to the EMEA region.

They further note that “Our backlog for the spring 2009 selling season as of September 30, 2008 decreased $43.5 million, or 10.5%, to $370.9 million from $414.4 million as of September 30, 2007….The decrease in our spring backlog was the result of a decline in orders in the United States, EMEA and Canada driven primarily by a decline in orders of Columbia brand sportswear.” They go on to note that the backlog decline should not be used to predict sales beyond spring 2009.

The first two items in the Risk Factors section are “We May be Adversely Affected by a Prolonged Economic Downturn or Economic Uncertainty,” and “We May be Adversely Affected by Uncertainty in the Global Credit Market.” No kidding. I’m guessing those two are towards the top of the list in everybody’s risk factors these days.

So, impacted by the economy? Sure. Trying to adjust? You bet. They announced the layoff of 4% of their US work force (75 out of 1,800 employees) on November 4th. Sticking with their strategy? Yup. That’s what you got to try and do in a recession.

Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.