PUBLICATION DATE: 08 Feb 2021 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED Columbia Sportswear Company TABLE OF CONTENTS
TABLE OF CONTENTS
Company Overview ........................................................................................................3
COMPANY OVERVIEW Columbia Sportswear Company (Columbia Sportswear or 'the company') designs, develops, manufactures, sources, markets and distributes outdoor and active lifestyle apparel, footwear, accessories and equipment. The company offers its products under various brands, including Columbia, Sorel, Mountain Hardwear, Pacific Trail, and prAna, among others. It distributes its products through various channels including wholesale distribution, direct-to-consumer, independent international distributors and licensees. The company operates distribution centers in Portland, Oregon and Robards, Kentucky of the US; Japan; Cambrai, France; and London, Ontario. Columbia Sportswear also markets products online through e-commerce websites. Through subsidiaries, Columbia Sportswear operates across the Americas, Asia Pacific, Europe, and Middle East and Africa (EMEA). The company is headquartered in Portland, Oregon, the US.
The company reported revenues of (US Dollars) US$3,042.5 million for the fiscal year ended December 2019 (FY2019), an increase of 8.6% over FY2018. In FY2019, the company’s operating margin was 13%, compared to an operating margin of 12.5% in FY2018. In FY2019, the company recorded a net margin of 10.9%, compared to a net margin of 9.6% in FY2018.
The company reported revenues of US$701.1 million for the third quarter ended September 2020, compared to a revenue of US$316.6 million the previous quarter. Key Facts
KEY FACTS
Head Office Columbia Sportswear Company
14375 Northwest Science Park Drive Portland Oregon Portland Oregon USA Phone 1 503 9854000 Fax Web Address www.columbia.com Revenue / turnover (USD Mn) 3,042.5 Financial Year End December Employees 8,900 NASDAQ Ticker COLM
SWOT ANALYSIS Columbia Sportswear Company (Columbia Sportswear or 'the company') designs, sources, markets and distributes outdoor and active lifestyle apparel, footwear, accessories and equipment. Strong revenue performance, strong multi-channel distribution network, high liquidity position, and extensive product portfolio catering to a broad range of consumers are the company’s major strength, even as overdependence on US market remains a cause for concern. Global online retail market, positive outlook for footwear market, global apparel and non-apparel market, are likely to offer growth opportunities to the company. However, Risk of foreign exchange fluctuations, cyber security risks, and increase in labor costs in the US could affect its business operations.
Strength Weakness
Strong multi-channel distribution network caters to Overdependence on US market increases the
wide customer base business risk Extensive Product Portfolio Catering to a Broad Range of Consumers Strong revenue performance enables the company to provide higher returns to its shareholders High liquidity position reduces operational risks Opportunity Threat
Positive outlook for footwear market Increase in labor costs in the US
Global apparel and non-apparel market Risk of foreign exchange fluctuations Global online retail market Cyber security risks
Strength
Strong multi-channel distribution network caters to wide customer base
Columbia Sportswear operates through a combination of wholesale distribution channels, company's own direct-to-consumer channels, independent international distributors and licensees. This multi-channel distribution network enables Columbia Sportswear to distribute its products to customers in approximately 90 countries. The wholesale channel includes small, independently operated specialty outdoor and sporting goods stores, regional, national and international sporting goods chains, large regional, national and international department store chains, and internet retailers. In countries where the company does not have direct operations, it sells products through distributors. Furthermore, Columbia Sportswear offers its products directly to consumers through its own network of branded and outlet retail stores across its operating regions. In addition, the company has concession-based arrangements with third parties at branded, outlet and shop-in-shop retail locations in its LAAP region, where the company retains ownership of inventory and control over certain aspects of operations. Columbia Sportswear caters to customers who prefer shopping online through its e-commerce websites. As of December 2019, the
company operated sold products to about 2,920 wholesale customers and operated 143 retail stores. In EMEA region, the company had 3,810 wholesale customers .The strong distribution network helps the company to reach a wider customer base.
Extensive Product Portfolio Catering to a Broad Range of Consumers
Columbia Sportswear is one of the largest outdoor and active lifestyle apparel and footwear companies in the world. The company offers a broad range of outdoor and active lifestyle apparel, footwear, accessories and equipment for men, women and youth. Columbia Sportswear distributes its products primarily through four brands namely Columbia, Mountain Hardwear, Sorel and prAna, which complement each other to address the diverse performance needs of a wide variety of outdoor and active lifestyle consumer segments. The company's apparel, accessories and equipment are designed for use in a range of outdoor activities such as snowboarding, skiing, hiking, mountaineering, climbing, trail running, camping, hunting, fishing, water sports, yoga and adventure travel. In addition, the company sells footwear products specifically designed to meet the needs of outdoor consumers participating in activities in different weather and trail conditions. Columbia Sportswear’s footwear products include trail running shoes, lightweight hiking boots, rugged cold weather boots for activities on snow and ice, sandals for use in amphibious activities, and casual shoes for regular use. Moreover, most of the company's products are worn for casual or leisure purposes. An extensive product portfolio helps Columbia Sportswear to address various needs of its existing customers besides attracting new customers, thus expanding its customer base. The company also mitigates the risk associated with the fluctuations in demand for a particular product category.
Strong revenue performance enables the company to provide higher returns to its shareholders
Columbia Sportswear’s revenue performance strengthened in FY2019. The company’s revenue
increased from US$2,802.3 million in FY2018 to US$3,042.5 million in FY2019, indicating annual revenue growth of 8.6%. The growth in revenue was attributed to rise in sales of its Apparel, Accessories and Equipment, and Footwear categories by 6.8% and 14.7% respectively due to increase in sales of its Columbia, SOREL, and prAna brands . The sales was also driven by increase in sales of its all regions including the US with 12.4%, followed by EMEA with 4.7%, and Canada with 5.3%. In FY2019, the company’s operating margin was 13%, compared to an operating margin of 12.5% in FY2018. In FY2019, the company recorded a net margin of 10.9%, compared to a net margin of 9.6% in FY2018. Improving revenue enables the company to provide higher returns to its shareholders thereby attracting further investments. It also helps the company in allocating adequate funds for its operational contingencies.
High liquidity position reduces operational risks
Columbia Sportswear reported high liquidity position at the end of FY2019. Columbia Sportswear reported current ratio of 3 at the end of FY2019. The high current ratio was due to increase its total current assets from US$1,765.3 million in FY2018 to US$1,875.7 million in FY2019, indicating annual growth of 6%. Its current ratio was lower than its nearest competitors including Skechers USA Inc (2.2), VF Corporation (1.6), and American Eagle Outfitters Inc (1.4) during same fiscal year. Higher liquidity position might put the company at an advantage to gain any potential opportunities arising in the market.
Overdependence on US market increases the business risk
Although Columbia Sportswear’s operations are spread across the US, Latin America, Asia- Pacific, Europe, Middle East and Africa, the company derives majority of its revenue from the US market. This increases the risk of negative financial impact due to events that affect the US economy. In FY2019, the US accounted for 64% of the company’s total revenue. The concentration of operations increases its exposure to local factors. Although the company has been consolidating and diversifying its presence, it is still not likely to entirely mitigate the risk of carrying relatively weak international operations.
Opportunity
Positive outlook for footwear market
Columbia Sportswear stands to benefit from growth in global footwear market.The growing popularity of sports footwear is driving growth in the market. The company manufactures, develops, designs, distributes, and markets footwear products for women, men, and youth under the Columbia and Sorel brands. According to in-house research, the global footwear market is expected to reach a value of US$414 billion by 2022. Product category wise, women’s footwear accounted for 53.2% of the total value of global footwear market, followed by men’s footwear with 27.6%, and children’s footwear with 19.1%. Geographically, Asia-Pacific accounted for 33% of the total value of global footwear market, followed by Europe with 29.5%, the US with 25.5%, the Middle East with 1.4%, the Rest of the World with 10.6%.
Global apparel and non-apparel market
Columbia Sportswear stands to benefit from growth in global apparel and non-apparel market. Rising consumers’ disposable income coupled with changing fashion style augmented the growth of the market. The growing popularity of sports footwear is driving growth in the market. The company manufactures, develops, designs, distributes, and markets a wide range of apparel, accessories and equipment for women, men and youth under Columbia, Mountain Hardwear, Sorel and prAna, and Mountain Hardwear brands. According to in-house research, the global apparel and non-apparel market is expected to reach a value of US$1,056.2 billion by 2022. Product category wise, apparel accounted for 61% of the total value of global apparel and non-apparel market, followed by non-apparel products with 39%. Geographically, Asia-Pacific accounted for 62.1% of the total value of global apparel and non-apparel market, followed by Europe with 15%, the US with 11.7%, the Middle East with 2.2%, and the Rest of the World with 9%.
Global online retail market
Columbia Sportswear stands to benefit from growth in global online retailing that provides convenience of shopping from home to consumers. With the increase in limitless content and interactive methods, the retail e-commerce is growing at a faster rate. The company markets products online through several e- commerce websites. According to in-house research, the global online retail market is expected to reach a value of US$1,739.1 billion by 2022. Growing number of consumers’ engagement in internet coupled
with rising penetration of mobile internet are majorly driven the online retail market across the globe. Product category wise, electrical and electronics retail accounted for 32% of the total value of global online retail market, followed by apparel retail with 23.7%, food and grocery retail with 15.1%, home and garden products with 9.6%, furniture and floor coverings with 4.8%, footwear with 4.4%, and others with 10.3%. Geographically, Asia-Pacific accounted for 37.3% of the total value of global online retail market, followed by the US with 32%, Europe with 25.5%, the Middle East with 0.5%, and Rest of the World with 4.6%. The online retail sector’s growth will continue to be strong during the forecast period, largely driven by supply; the largest multi-channel retailers will focus on increasing their proportion of online sales, while Fossil, as the leading online retailer, will continue to heavily expand its operations.
Threat
Increase in labor costs in the US
The tight labor markets, government mandated increase in minimum wages and a higher proportion of full-time employees result in an increase in labor costs. In FY2019, the company employed 8,900 employees. Rise in minimum wages could increase its operating costs, which in turn affect its profit margins. The tight labor markets, government mandated increase in minimum wages and a higher proportion of full-time employees result in an increase in labor costs. The federal minimum Labor costs are rising significantly in the US. According to the US Bureau of Economic Analysis (BEA), in February 2020, the personal income (PI) in the US increased 0.6% or US$106.8 billion; disposable personal income (DPI) increased 0.5% or US$88.7 billion and personal consumption expenditure increased 0.2% over that in the previous month to reach US$27.7 billion. In January 2020, the personal income (PI) in the US increased 0.2% or US$40.7 billion; disposable personal income (DPI) increased 0.2% or US$30.6 billion and personal consumption expenditure increased 0.3% over that in the previous month to reach US$46.6 billion.
Risk of foreign exchange fluctuations
Columbia Sportswear operates in several parts of the world and is exposed to fluctuations in foreign exchange rates. The company reports financials in US dollar and therefore its revenue is exposed to volatility of US dollar against other functional currencies, as it conducts business operations around the world. Significant part of its revenue is also denominated in other currencies such as Canadian dollar, Euro, Argentine peso, Mexican peso, Chinese renminbi, Brazilian real, British pound. Major elements exposed to exchange rate risks include the company’s investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. In FY2019, the company reported a gain of US$2.1 million from foreign currency translation as compared to a loss of US$18.1 million in FY2018. To minimize risks from currency fluctuations, the company involves in foreign exchange hedging activities by entering into foreign exchange forward agreements. However, there may be no assurance that such hedging activities or measures could limit the impact of movements in exchange rates on the company’s results of operations.
Cyber security risks
The constantly evolving cyber threats could disrupt the security of the Columbia Sportswear’s systems
and business applications, impair ability to provide services to its customers and protect the privacy of their data. Hackers and organizations, including state-sponsored organizations continuously develop and deploy malicious software or exploit vulnerabilities in hardware, software, and other infrastructure to gain access to organizations’ networks and datacenters. Columbia Sportswear depends on technology systems and infrastructure, which increases the risk of potential vulnerabilities from breakdowns due to natural disasters, system failure and malfunction, unauthorized access, power loss, human error and other unforeseen events. Release of confidential information and failures of technology or related systems could affect the business and subject the company to unexpected liabilities.
