Columbia Sportswear Company (COLM Quick QuoteCOLM - Free Report) is navigating a tough operating landscape in the United States, witnessing sluggish demand. Additionally, the company is encountering high SG&A expenses. However, Columbia Sportswear is on track to enhance operational efficiency and protect profits through its multi-year profit improvement program. The company’s brand enhancement efforts and strategic priorities are also in place, all of which position it well for growth amid hurdles.

Near-Term Challenges

Columbia Sportswear witnessed soft consumer demand in the first quarter of 2024. North America continues to be the most challenging market. Consumers are still grappling with inflationary pressures that are affecting soft goods demand. Trends in the traditional outdoor category remain weak, particularly in footwear, and retailers are adopting a cautious approach in placing future season orders.

During the first quarter, sales declined across most channels, categories and brands.  The company saw reduced wholesale net sales (in the United States and Canada), which stemmed from retailer cautiousness, a tough competitive landscape and sluggish overall consumer demand. For 2024, Columbia Sportswear expects net sales to decline 4-2% to the $3.35-$3.42 billion band.  For the second quarter of 2024, COLM anticipates a net sales decline of 10-7% to the $557-$576 range.

Apart from this, SG&A costs, as a percentage of sales, have been increasing year over year for a while now. In the first quarter of 2024, SG&A expenses, as a percentage of sales, expanded 310 bps to 45.4% due to elevated direct-to-consumer (DTC) expenses. As a percentage of net sales, SG&A expenses are anticipated in the range of 43-43.4% in 2024, up from the 40.6% reported in 2023. For the second quarter, management envisions delivering a loss in the band of 46-26 cents per share compared to earnings of 14 cents reported in the year-ago period.

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Upsides Acting as Shield

Columbia Sportswear is on track to enhance operational efficiency and protect profits through its multi-year profit improvement program. The program targets annual savings in the band of $125-$150 million by 2026, including cost savings in the range of $75-$90 million expected in 2024. Anticipated to ramp up through 2024 and 2025, with full benefits realized by 2026, this profit improvement program marks an integral part of its goal to restore operating margins to a low teens percent rate. This initiative is structured around four key areas of focus, each designed to optimize resources and streamline operations.

Firstly, management aims at generating operational cost savings, with a sharp focus on eliminating expenses associated with excess inventory, as well as enhancing efficiency across the supply chain and distribution network. Secondly, the company targets organizational cost savings through a workforce reduction plan, primarily affecting U.S. corporate teams. With an aim to reduce personnel expenses, the company plans a 3-5% reduction in U.S. corporate personnel costs.

Thirdly, management is committed to operating model improvements, focusing on streamlining decision-making processes and enhancing operating efficiency to drive strategic priorities. By refining ways of working and empowering teams, Columbia Sportswear aims to optimize resource allocation and improve execution capabilities.

Finally, the cost-saving initiative encompasses efforts to cut indirect or non-inventory spending through strategic sourcing and vendor rationalization. While maintaining investments in demand creation, the company seeks to optimize marketing spend to maximize returns, amplifying its impact without compromising on growth objectives.

Moreover, Columbia Sportswear is on track with its strategic priorities. It intends to continue with its demand creation investments, which are aimed at driving brand awareness and aiding sales. Further, the company remains committed to enhancing consumers’ experience and its digital capacity in all networks and regions. It also explores growth opportunities in the direct-to-consumer (DTC) business and improving support processes. Finally, the company has been keen on investing in its people and optimizing its organization across its brand portfolio.

The Ending Note

Columbia Sportswear is working toward maximizing sales in a tough landscape while improving its products, marketing and marketplace strategies to fuel growth in 2025 and thereafter. These, together with the profit improvement program, keep COLM positive about achieving long-term growth. Shares of this Zacks Rank #3 (Hold) company have risen 1.9% in the past three months against the industry's decline of 7.9%.

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