Columbia Reports Record Second Quarter & First Half 2018 Financial Results; Raises Full Year 2018 Financial Outlook

Columbia Sportswear Company today announced record net sales of $481.6 million for the quarter ended June 30, 2018, an increase of 21 percent (19 percent constant-currency), compared with net sales of $398.9 million for the second quarter of 2017. Non-GAAP net sales of $474.1 million increased 19 percent (17 percent constant-currency).

Second Quarter and First Half 2018 GAAP Highlights:

• Second quarter net sales increased 21 percent (19 percent constant-currency) to a record $481.6 million.
• Second quarter operating income increased to $9.7 million, representing 630 basis points of operating margin expansion to 2.0 percent of net sales.
• Second quarter net income increased to $9.7 million, or $0.14 per diluted share.
• First half net sales increased 16 percent (13 percent constant-currency) to a record $1,088.9 million.
• First half net income increased 124 percent to a record $54.8 million, or $0.77 per diluted share.
• Inventories increased 2 percent to $570.5 million.
• Cash and short-term investments totaled $774.7 million at June 30, 2018.
• The board of directors approved a regular quarterly dividend of $0.22 per share.

Second Quarter and First Half 2018 non-GAAP Highlights:

• Non-GAAP second quarter net sales increased 19 percent (17 percent constant-currency) to $474.1 million.
• Non-GAAP second quarter operating income increased to $11.6 million, representing 580 basis points of operating margin expansion to 2.5 percent of net sales.
• Non-GAAP second quarter net income increased to $11.3 million, or $0.16 per diluted share.
• Non-GAAP first half net sales increased 14 percent (11 percent constant-currency) to $1,073.2 million.
• Non-GAAP first half net income increased 136 percent to $65.8 million, or $0.93per diluted share.

Updated Full Year 2018 Financial Outlook Summary

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please refer to the "Supplemental Financial Information" tables provided in this press release.

Second quarter 2018 net income increased to $9.7 million, or $0.14 per diluted share, compared with second quarter 2017 net loss of $11.5 million, or $(0.17) per share. Non-GAAP second quarter 2018 net income increased to $11.3 million, or $0.16 per diluted share, compared with non-GAAP second quarter 2017 net loss of $9.0 million, or $(0.13) per share.

Through the first six months of 2018, net sales grew $146.2 million, or 16 percent (13 percent constant-currency), to $1,088.9 million, compared to $942.7 million in the first half of 2017. First half 2018 net income increased 124 percent to $54.8 million, or $0.77 per diluted share, compared to $24.5 million, or $0.35 per diluted share, in the first half of 2017. Non-GAAP net sales through the first six months of 2018 grew $130.5 million, or 14 percent (11 percent constant-currency), to $1,073.2 million, compared to $942.7 million in the first half of 2017. First half 2018 non-GAAP net income increased 136 percent to $65.8 million, or $0.93 per diluted share, compared to $27.9 million, or $0.40 per diluted share, in the first half of 2017.

President and Chief Executive Officer Tim Boyle commented, "Our better than expected second quarter and record first half results reflect continued momentum across our brand portfolio. Our first half revenue surpassed the one billion dollar mark for the first time in company history led by growth in the Columbia brand driven by solid performance in the United States across all channels as well as strong growth internationally led by our Europe-direct business. We are also pleased with strong first half performance for both prAna and SOREL, including a positive consumer response to SOREL's Spring 2018 assortment and progress in evolving to a year-round brand. With the strength in the first half performance we are pleased to increase our full year 2018 financial outlook."

"These results and updated outlook demonstrate the strength of our brands and our shift to become a more brand-led and consumer-focused organization. Our powerful balance sheet, with $775 million in cash and short-term investments, and no long-term debt, provides the flexibility to invest in our growth initiatives as our major markets continue to evolve. It is from this position of strength and confidence that we are investing in our four strategic priorities to:

• drive brand awareness and sales growth through increased, focused demand creation investments;
• enhance consumer experience and digital capabilities in all our channels and geographies;
• expand and improve global direct-to-consumer operations with supporting processes and systems; and
• invest in our people and optimize our organization across our portfolio of brands."

"We are excited about the second half of 2018, which we expect to include broad based revenue growth, increased demand creation spending, and continued investment in our strategic priorities."

Second Quarter 2018 Financial Results

(All comparisons are between second quarter of 2018 and second quarter of 2017, unless otherwise noted).

Net Sales

Second quarter 2018 consolidated net sales increased 21 percent (19 percent constant-currency) to a record $481.6 million. Non-GAAP net sales increased 19 percent (17 percent constant-currency) to $474.1 million.

Geographies (See "Geographical Net Sales" table below)

• U.S. net sales increased 18 percent, attributable to mid-teens percent growth in direct-to-consumer ("DTC") and high-teens percent growth in wholesale. The company operated 134 U.S. retail stores at June 30, 2018 compared with 122 at the same time last year.
• Latin America Asia Pacific ("LAAP") net sales increased 27 percent (22 percent constant-currency) including the effect of the new revenue accounting standard. LAAP non-GAAP net sales increased 17 percent (13 percent constant-currency) driven by growth from LAAP distributors, China and Japan, partially offset by a decline in Korea.
• Europe Middle East and Africa ("EMEA") net sales increased 26 percent (21 percent constant-currency) primarily driven by high-20 percent growth in EMEA distributors and low-20 percent growth in Europe-direct (high-single-digit percent constant-currency).
• Canada net sales increased 12 percent (7 percent constant-currency), primarily driven by DTC.

Brands (See "Brand Net Sales" table below)

• Columbia brand net sales increased 22 percent (20 percent constant-currency) to $414.8 million.
• SOREL brand net sales increased 90 percent (85 percent constant-currency) to $11.4 million.
• prAna brand net sales increased 9 percent to $38.1 million.
• Mountain Hardwear brand net sales decreased 1 percent to $16.0 million.

Product Categories (See "Product Category Net Sales" table below)

• Apparel, Accessories and Equipment net sales increased 20 percent (18 percent constant-currency) to $394.6 million.
• Footwear net sales increased 26 percent (22 percent constant-currency) to $87.0 million.

Channels (See "Channel Net Sales" table below)

• Wholesale net sales increased 23 percent (22 percent constant-currency) to $261.2 million.
• DTC net sales increased 18 percent (16 percent constant-currency) to $220.4 million.

Profitability

Second quarter 2018 operating income increased to $9.7 million, or 2.0 percent of net sales, compared to an operating loss of $17.3 million, or (4.3) percent of net sales, in the second quarter of 2017. Non-GAAP second quarter 2018 operating income increased to $11.6 million, or 2.5 percent of net sales, compared to a non-GAAP operating loss of $13.2 million, or (3.3) percent of net sales, in the second quarter of 2017.

Second quarter 2018 net income increased to $9.7 million, or $0.14 per diluted share compared to a net loss of $11.5 million, or $(0.17) per share, in the second quarter of 2017. Non-GAAP second quarter 2018 net income increased to $11.3 million, or $0.16 per diluted share, compared with a non-GAAP net loss of $9.0 million, or $(0.13) per share, in the second quarter of 2017.

Taxes

Second quarter 2018 income tax expense was $2.1 million, resulting in an effective income tax rate of 16.6 percent, compared to an income tax benefit of $4.5 million, and an effective tax rate of 28.6 percent, in the second quarter of 2017. Our effective tax rate decreased compared to the prior year due to the change in the U.S. tax rate for the current year and increased tax benefits from stock-based compensation in the current period compared to the same period in the prior year.

Balance Sheet

At June 30, 2018, cash and short-term investments totaled $774.7 million, compared to $622.2 million at June 30, 2017.

Consolidated inventories increased 2 percent to $570.5 million at June 30, 2018 compared to $559.5 million at June 30, 2017, including an $11.1 million decrease due to a balance sheet reclassification of the estimated cost of inventory associated with sales returns into prepaid and other current assets under the new revenue accounting standard. Excluding the impact of this classification change, consolidated inventories increased 4 percent compared to June 30, 2017.

Cash Flow, Share Repurchases and Dividends

Operating cash flow for the six months ended June 30, 2018 was $99.3 million, compared to $157.0 million in the six months ended June 30, 2017.

Capital expenditures totaled $29.6 million for the first six months ended June 30, 2018, compared to $24.3 million in the six months ended June 30, 2017.

Through the six months ended June 30, 2018, the company repurchased 500,290 shares of common stock for $40.1 million, or $80.17 per share and paid $30.9 million in dividends.

At June 30, 2018, approximately $97.8 million remained available under the current stock repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

The board of directors authorized a regular quarterly cash dividend of $0.22 per share, payable on August 30, 2018 to shareholders of record on August 16, 2018.

Updated Full Year 2018 Financial Outlook

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties which may cause actual results to differ, perhaps materially. Projections are predicated on normal seasonal weather globally. In addition, our updated full year 2018 financial outlook assumes that current macroeconomic and market conditions in key markets do not worsen.

The company's annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the year.

The company currently expects 2018 net sales growth of approximately 9.0 to 10.5 percent (prior 8.0 to 10.0 percent), compared with 2017 net sales of $2.47 billion. The company expects non-GAAP net sales growth of approximately 7.5 to 9.0 percent (prior 6.5 to 8.5 percent) which excludes approximately $40 million in net sales associated with the new revenue accounting standard.

The company expects full year 2018 gross margin to improve by up to 140 basis points and non-GAAP gross margin to improve by up to 60 basis points, excluding approximately $40 million of benefit to gross profit associated with the new revenue accounting standard.

The company expects SG&A expenses to increase at a rate faster than net sales, resulting in approximately 120 to 140 basis points of SG&A expense deleverage (prior 150 to 170 basis points), and non-GAAP SG&A expense deleverage of approximately 20 to 40 basis points (prior 30 to 50 basis points), excluding approximately $40 million in SG&A expenses associated with the new revenue accounting standard, and approximately $19 million (prior $23 million) in Project CONNECT program expenses and discrete costs.

Based on the above assumptions, the company expects 2018 operating income between approximately $286 million and $295 million (prior between $275 million and $285 million), and non-GAAP operating income between approximately $306 million and $315 million (prior between $299 million and $308 million), resulting in operating margin between approximately 10.6 and 10.8 percent (prior between 10.3 and 10.5 percent), and non-GAAP operating margin between approximately 11.5 and 11.7 percent (prior between 11.4 and 11.5 percent).

The changes in revenue and expense classification associated with the new revenue accounting standard are expected to have an approximately 15 basis point negative effect on reported operating margin rate for 2018, but no effect on reported operating income.

The company expects an estimated full-year effective income tax rate of approximately 22 percent, which reflects a lower U.S. federal statutory income tax rate as a result of the TCJA and may be affected by further refinement of the company's 2017 TCJA provisional estimates as well as changes in the company's geographic mix of pre-tax income and other discrete events that may occur during the year.

The company expects 2018 net income between approximately $223 million and $230 million(prior between $213 million and $220 million), and non-GAAP net income between approximately $239 million and $246 million (prior between $231 million and $238 million), or diluted earnings per share between approximately $3.15 and $3.25 (prior between $3.01 and $3.11), and non-GAAP diluted earnings per share between $3.37 and $3.47 (prior between $3.27 and $3.37).

With respect to our 2018 financial outlook, non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million associated with the new revenue accounting standard, as well as Project CONNECT program expenses and discrete costs of approximately $19 million, $15 million net of tax, or $0.21 per diluted share (prior $23 million, $18 million net of tax, or $0.25 per diluted share). In the first half of 2018, we incurred $1.2 million, or $0.02 per diluted share, in incremental provisional income tax expense related to the TCJA.