Columbia Sportswear Company Q2 FY2025 earnings call

• International markets: EMEA and LAAP regions grew double-digit percent in the first half, with China, Japan, Europe direct and international distributor markets performing well. - U.S. strategy: Focused on reenergizing the Columbia brand through the ACCELERATE growth strategy, including rolling out a new global marketing platform, redesigning columbia.com, enhancing product assortments, and supporting launches with elevated in-store investments. - Tariff management: Taking action to mitigate tariff risks, estimating the financial impact of current tariffs and related expenses to be approximately $35 million to $40 million in 2025, and planning to absorb much of the incremental tariff costs. - Cost savings: Executing cost savings actions, with over $70 million in annual cost savings year-to-date on top of $90 million in 2024. - Organizational change: Realigned the Columbia North America regional organization to bring together wholesale and direct-to-consumer businesses, with Peter Rauch stepping into the role of General Manager for the Columbia brand in North America.

Second quarter net sales increased 6% year-over-year to $605 million. International markets showed strong demand; EMEA and LAAP regions grew double-digit percent in the first half. Columbia brand net sales increased 8% in the second quarter. SOREL net sales decreased 10%, prAna net sales decreased 6%, and Mountain Hardwear net sales decreased 7%. In international geographies, LAAP net sales increased 12%, China net sales increased high teens percent with broad-based growth, Japan net sales increased mid-single-digit percent led by e-commerce, Korea net sales increased low single-digit percent. U.S. net sales decreased 2%, with wholesale net sales increasing 14% and DTC down 1%. Brick-and-mortar DTC was down low single-digit percent with some new stores, while e-commerce was down low double-digit percent.

• Full year 2025 net sales outlook: $3.3 billion to $3.4 billion, down 1% to up 1% year-over-year, below initial February guidance due to lower assumptions for U.S. wholesale and DTC businesses but higher forecasts in most international markets. - Third quarter: Expect net sales to decline 1% to 3% year-over-year and diluted earnings per share to be in the range of $1 to $1.20. - Spring 2026 wholesale: Almost 90% of projected spring '26 orders received, with flat to low single-digit percent wholesale growth expected in the first half of 2026 for all brands, but Colombia's U.S. wholesale business expected to remain down in the first half of 2026 due to tariff uncertainty and soft business trends.

• U.S. trade policy uncertainty: Imported apparel and footwear already heavily taxed, with lack of clarity on trade policy impacting consumer sentiment and business decisions. - Tariff impact: Estimated financial impact of current tariffs and related expenses to be approximately $35 million to $40 million in 2025, with uncertainty over final tariff structure and duration. - Consumer demand: Higher prices for many consumer goods expected to negatively impact consumer demand, and retailers likely to be cautious with inventory intakes.

Q: I wanted to ask about 1H results relative to what you provided in terms of guidance for -- in February for -- in February for 1H. It looks like you beat by about $20 million. Jim, Tim, was that driven by that shift in wholesale from 3Q to 2Q? And then relative to February guide, I think you're cutting the full year top line by about $60 million at the midpoint. Is that cut relative to the February guide driven by wholesale -- the U.S. wholesale weakness and the U.S. DTC weakness?

A: Yes, Laurent, as you look at the first half results, by and large, as you're pointing out, our first half results are largely in line with the outlook that we provided in February. Now certainly, once you get down into the underlying composition of that, we've seen stronger business internationally. We've seen some softness in the domestic business. And then for sure, there are some wholesale timing shifts in our deliveries that are benefiting the first half, maybe just to characterize that a little bit, the benefit that we saw in the second quarter was about a $30 million timing shift, half of which was later spring shipments that shifted out of Q1 and into Q2 and the other half was earlier fall production as we accelerated production in advance of and to mitigate any potential further tariff increases. And then as it relates to the full year guidance, yes, we're down about $70 million, I think you put it relative to the guidance we provided in February. And by and large, that's reflective of the same factors, softness in the U.S. business, partially offset by the strength of what we're seeing internationally.

Q: Very helpful, Jim. And when I look at the PowerPoint presentation relative to talking about the performance by region, everything is pretty much up, even U.S. wholesale is up partly due to that shift, those shifts. But -- the one point of pressure, obviously, is the U.S. DTC brick-and-mortar, obviously, you're lapping some of the temporary stores. But dot-com is under real pressure. It seems to be like a theme happening across a lot of vendors. Just curious to know what your take is there. What's happening with the consumer in terms of their online purchases? And on that point -- or question rather, how should we think about DTC versus wholesale for the third quarter?

A: Yes. I think clearly, there's some pressure on dot-com. The way we're approaching it is we're going to have a complete refresh of our site that will become apparent to consumers within the next 10 to 20 days, where we've got new photography and that, coupled with our marketing efforts, which are breaking, I think, on the 4th of August, our expectation is that we'll see some nice lift. We had strong digital performance through some of our wholesale customers. So it's not totally a problem across the entire marketplace. But certainly, our products can look better and perform better with an improved performance with our dot-com business.

Q: Gross margins, it looks like for 3Q gross margin down maybe. Is it fair to assume 150 bps? And then within that, how much is the tariff impact embedded in that?

A: Yes. I think more or less the way I would think about gross margin in the third quarter. We haven't provided detailed guidance on it, Laurent, but we did indicate in the CFO commentary that we anticipate tariffs being approximately $15 million to $20 million. So your 150 basis points of gross margin contraction in the quarter largely aligns with that tariff impact. Having said that, we're in a much better place in terms of the -- how healthy our inventories are. So there will be a partial offset to that, just given the lower level of closeouts and liquidation activity that we do in the marketplace.

Q: Just back to the tariff point. Jim, you gave us pretty specific guidance about the second half COGS impact on the Q1 call, $40 million to $45 million incremental hit. Just curious how you see that developing mitigation potential. And now with the new rates that are getting announced, how you think these costs are going to trend into fiscal '26?

A: Well, I wish we knew specifically what the tariffs are going to be. We still don't know, and I'm not convinced that after the 1st of August that we will know because it's a very material approach to complicated negotiations. So the mitigating activities include, obviously, we could increase prices. We have been diligently discussing the topic with our vendors in Asia. We've been adjusting some prices, as I said. And we're looking throughout the supply chain for areas where we can save and increase the profitability.

Q: Got it. But it's safe to assume the biggest impact will be coming probably in fiscal '26. Is that correct?

A: Yes. I think by and large, the $35 million to $40 million of tariff impact that we anticipate this year, we really don't -- aside from obviously continuing to be disciplined in our spend management in the form of price increases and other actions, we're absorbing the lion's share of all of the tariff impact in FY '25.

Q: I was curious on cost savings. So you've already exceeded the high end of the original $125 million to $150 million range. As you assess other areas of cost savings, I'm curious if any of those savings are embedded in your outlook? Or would that be incremental to what you laid out today?

A: To the degree that the outlook for the balance of our year is only inclusive of what we've achieved in cost takeout thus far. And we are continuing to evaluate any and all options with the pressure that we're seeing in the business and the impact of the tariffs, and we'll provide further updates on that over time. But I think we've provided the best estimate we can in the outlook that we provided.

Q: Just back to the Columbia brand structure in North America. Can you talk about the opportunities for improvement under the new organizational structure, how that might manifest in performance and any time line for -- to recognize improvements?

A: Certainly. Well, we've been running the business here, which is partially a direct-to-consumer business and partially a wholesale business. Those have been distinctly managed, and we expect that as the team coalesces that we'll begin to see almost immediate results in terms of improving the way we come to market to consumers. So we're excited about the opportunities that it's going to provide for us.

Q: I want to ask about one of the kind of bright spots in the quarter and specifically the last couple of quarters, I think your Europe business has been quite strong. I just wanted to dig in a little bit deeper there and like how are you kind of able to resonate so strongly with the European consumer. And obviously, there's a lot of macro noise everywhere, but it seems like你're really fighting through it pretty strongly overseas. So we would just love to get a little more color there.

A: So thanks. It's been a continued focused effort by our team in Europe. And remember, it's -- we're for all intents and purposes, a small player in Europe. So significant improvements are maybe outsized. But the team in Europe has done a great job of focusing on certain markets, including Germany, the U.K. and France to be the center point of our European expansion and growth. There's also been a key move in adding DTC locations as well as a focus on opening partner stores to help us improve the total business overall in Europe. It's just been a very disciplined approach, and there's kudos to those team members for making it happen.

Q: I want to ask about one of the kind of bright spots in the quarter and specifically the last couple of quarters, I think your Europe business has been quite strong. I just wanted to dig in a little bit deeper there and like how are you kind of able to resonate so strongly with the European consumer. And obviously, there's a lot of macro noise everywhere, but it seems like你're really fighting through it pretty strongly overseas. So we would just love to get a little more color there.

A: So thanks. It's been a continued focused effort by our team in Europe. And remember, it's -- we're for all intents and purposes, a small player in Europe. So significant improvements are maybe outsized. But the team in Europe has done a great job of focusing on certain markets, including Germany, the U.K. and France to be the center point of our European expansion and growth. There's also been a key move in adding DTC locations as well as a focus on opening partner stores to help us improve the total business overall in Europe. It's just been a very disciplined approach, and there's kudos to those team members for making it happen.

Q: I want to ask about one of the kind of bright spots in the quarter and specifically the last couple of quarters, I think your Europe business has been quite strong. I just wanted to dig in a little bit deeper there and like how are you kind of able to resonate so strongly with the European consumer. And obviously, there's a lot of macro noise everywhere, but it seems like你're really fighting through it pretty strongly overseas. So we would just love to get a little more color there.

A: So thanks. It's been a continued focused effort by our team in Europe. And remember, it's -- we're for all intents and purposes, a small player in Europe. So significant improvements are maybe outsized. But the team in Europe has done a great job of focusing on certain markets, including Germany, the U.K. and France to be the center point of our European expansion and growth. There's also been a key move in adding DTC locations as well as a focus on opening partner stores to help us improve the total business overall in Europe. It's just been a very disciplined approach, and there's kudos to those team members for making it happen.

Q: I want to ask about one of the kind of bright spots in the quarter and specifically the last couple of quarters, I think your Europe business has been quite strong. I just wanted to dig in a little bit deeper there and like how are you kind of able to resonate so strongly with the European consumer. And obviously, there's a lot of macro noise everywhere, but it seems like你're really fighting through it pretty strongly overseas. So we would just love to get a little more color there.

A: So thanks. It's been a continued focused effort by our team in Europe. And remember, it's -- we're for all intents and purposes, a small player in Europe. So significant improvements are maybe outsized. But the team in Europe has done a great job of focusing on certain markets, including Germany, the U.K. and France to be the center point of our European expansion and growth. There's also been a key move in adding DTC locations as well as a focus on opening partner stores to help us improve the total business overall in Europe. It's just been a very disciplined approach, and there's kudos to those team members for making it happen.

Q: I want to ask about one of the kind of bright spots in the quarter and specifically the last couple of quarters,我想你的欧洲业务一直很强劲。我只是想更深入地了解一下，你是如何能够如此强烈地引起欧洲消费者共鸣的。显然，到处都有很多宏观噪音，但你似乎在海外非常强劲地应对。所以我们只是想要更多的细节。 A: 谢谢。我们在欧洲的团队一直在持续专注努力。记住，从所有意图和目的来看，我们在欧洲是一个小玩家。所以显著的改进可能是巨大的。但欧洲的团队在聚焦特定市场方面做得很好，包括德国、英国和法国，作为我们欧洲扩张和增长的中心。还有一个关键举措是增加直接面向消费者的门店，以及专注于开设合作伙伴门店，以帮助我们全面改善欧洲的整体业务。这只是非常有纪律的方法，那些团队成员值得称赞。 Q: 我想再问一个关于下半年订单书增长以及美国DTC减速原因的问题。 A: 是的。如果你回顾公司的历史，天气的影响比经济的影响大得多。所以我们预期是一个平均的冬季年份，但如果我们有一个很好的冬季年份，我们将有一个非常强劲的下半年。此外，一些竞争对手由于被征收的关税而在进口产品方面遇到困难。所以我们有机会获得市场份额，因为社区中无法进口的小型供应商。关于DTC，重要的是要知道我们一直在大量清理PFAS库存，通过我们自己的门店和我们拥有的临时清仓门店。所以我的预期是，你很快会在我们的dot-com展示以及ACCELERATE产品周围的新营销努力中看到巨大的改善，我们将看到DTC业务的强劲改善。 Q: 关于全年指引的sequential deceleration，原因是什么？ A: 是的。我的意思是，我们预期关税成本的影响将在第三季度后期和第四季度开始显现。所以显然很难有任何确定性地预测会发生什么。但消费者很可能会谨慎，我们将在那个时期限制他们的购买。