Columbia Sportswear Company (COLM)

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Columbia Sportswear (COLM)

Q3 2012 Earnings Call

October 25, 2012 5:00 pm ET


Ron Parham

Gertrude Boyle - Chairman

Timothy P. Boyle - Chief Executive Officer, President, Interim Executive Vice President of Global Sales & Marketing and Director

Thomas B. Cusick - Chief Financial Officer and Senior Vice President of Finance


Joan Payson - Barclays Capital, Research Division

Kate McShane - Citigroup Inc, Research Division

Andrew Burns - D.A. Davidson & Co., Research Division

Darla Shay

Eric B. Tracy - Janney Montgomery Scott LLC, Research Division

Robert F. Ohmes - BofA Merrill Lynch, Research Division

Corbin N. Weyer - Robert W. Baird & Co. Incorporated, Research Division

Lizabeth Dunn - Macquarie Research



: Greetings, and welcome to the Columbia Sportswear Company Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ron Parham, Senior Director of Investor Relations and Corporate Communications. Thank you Mr. Parham, you may now begin.

Ron Parham


Thanks, Bob, and thanks to everyone for joining us on today's call. Earlier this afternoon, we issued third quarter financial results and raised our full year 2012 outlook. In addition to the press release, we also posted a detailed CFO commentary to our Investor Relations website, which we hope you've had a chance to review before the call here today.

With me on the call are President and CEO, Tim Boyle; Senior Vice President and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Bryan Timm; and Senior Vice President and General Counsel, Peter Bragdon.

I'm going to ask our Chairman, Gert Boyle, to cover the Safe Harbor language.

Gertrude Boyle


Good afternoon. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation. Please bear in mind that forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what's projected. Many of these risks and uncertainties are described in Columbia's annual report on Form 10-K for the year ending December 31, 2011, and subsequent filings with SEC.

Forward-looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or the change in our expectation.

Ron Parham


And with that, I'll turn things over to Tim.

Timothy P. Boyle


Thanks, Ron. Welcome, everyone, and thanks for joining us this afternoon. As our press release and CFO commentary explained in greater detail, third quarter results came in well ahead of the guidance we provided in July. I'm very pleased with how our team managed the business to achieve higher gross margins and expense leverage, which resulted in increased operating income and expanded operating margin to 16.1% compared to 15.3% in last year's third quarter. Earnings per share of $1.88 came close to matching the $1.98 we generated in the last year's third quarter with the difference primarily attributable to a higher effective tax rate in the current quarter.

As expected, we saw a 4% decline in net sales with half of that decline attributable to currency and the remainder due primarily to weakness in our Europe direct markets, along with timing differences and shipments to our distributors. The decline in our Europe direct markets came against an increase of more than 70% in last year's third quarter, which included a tripling of Sorel sales. Last year's warm winter and persistent macroeconomic weakness across the region have weighed on both the Sorel and the Columbia brands this year, creating headwinds against our ongoing efforts to revitalize the Columbia brand in those markets. Sorel Footwear was the hardest hit and accounted for a majority of the third quarter sales decline in our Europe direct markets while at the same time, we posted mid-teen growth in Sorel sales in the U.S.

In addition, as we discussed last quarter, it's important to note that approximately 45% of the decline in the EMEA region was attributable to timing differences in shipments of fall orders to our EMEA distributors, which were heavily concentrated in the Columbia brand. Adjusting for those timing differences, year-to-date fall 2012 shipments to EMEA distributors were actually up 7% compared with fall 2011 shipments in the comparable period.

Our stronger-than-expected third quarter performance allowed us to raise our earnings outlook for the full year. We remain cautious based on macroeconomic conditions in Europe, as well as recent deceleration in Asian markets that have been solid growth engines for us for the past several years. We feel our revised full year outlook strikes a prudent balance between our year-to-date performance and how economic and weather uncertainties may affect the remainder of the year.

I'll share initial thoughts about the first half of 2013 in a moment. But first, I want to look further ahead to 2014 to make sure analysts and investors understand and appreciate the strategic and financial significance of our recently announced China joint venture with Swire Resources. As we noted in our August announcement, Swire Resources is a subsidiary of Swire Pacific Limited, one of Hong Kong's leading listed companies, with over 140 years of history operating in the greater China region.

Swire Resources have serviced our exclusive distributor in China since 2004 and has done an excellent job establishing the Columbia brand. They currently sell directly to consumers through over 70 Columbia-branded storefronts in 7 cities and through a network of wholesale dealers, who own and operate more than 530 Columbia locations and 45 Mountain Hardwear locations in 135 cities. Through our combined efforts, Columbia currently ranks as the #1 outdoor brand in China. In 2011, Swire generated revenues of $123 million from Columbia brands in China and achieved a low double-digit EBITDA margin.

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