Columbia Sportswear Company (COLM) Earnings

Management highlights

- **Overall Financial Results** - Q2 2026 net sales increased 2% YoY to $614 million, beating the high end of guidance. - $78 million in U.S. IEPA tariff refunds and interest was recognized in the quarter: $60 million increased operating margin (as a reduction to cost of sales), $2 million was recorded as interest income, and $15 million reduced inventory. - Including tariff refunds, gross margin expanded 920 basis points to 58.3%; excluding refunds, gross margin contracted 50 basis points YoY due to higher U.S. tariffs and increased discounting. - SG&A expense increased 2% YoY. Reported EPS was 52 cents; excluding refunds, loss per share of 41 cents was in line with the midpoint of guidance. - Inventories declined 6% YoY in dollar terms and 7% in units. The company ended the quarter with $625 million in cash and short-term investments and no debt, maintaining a fortress balance sheet. - **Accelerate Strategy Update** - The multi-year Accelerate strategy, launched one year prior, is refined to focus on five core Columbia brand pillars: 1) Own the trail (hike/trail run), 2) Dominate warmth (on-mountain/ski/snowboard), 3) Grow PFG (fishing performance and lifestyle), 4) Fuel Outdoor Lifestyle (elevated everyday outdoor wear), 5) Accelerate Footwear (standalone growth priority across all pillars). - Product segmentation is sharpened to separate performance/innovation-led products for specific activities from style-led products for everyday use, aligned with consumer demand for credibility, style, and relevance. - **Marketing & Product Milestones** - Columbia's *Expedition Impossible* marketing campaign won 10 awards at the Cannes Lions Festival, including the Grand Prix Award for Brand Experience and Activation and the Dan Wieden Titanium Award, driving strong consumer engagement globally. - The Robert Irwin vs 100 crocodiles TellurX footwear campaign generated over 3.7 million digital views; the TellurX shoe sold out in Q2 and is poised for future scaling. Columbia footwear grew high single-digit percent globally in Q2, driven by technical styles with proprietary OmniMax technology. - Elite sponsored trail runner Gabriel Roada won the 163km UTMB Val d'Aran race wearing Columbia Konos Speed shoes from start to finish, validating Columbia as a high-performance trail running brand. - Mountain Hardware's fourth collaboration with Stussy surpassed prior collection sales with strong sell-through; the new Kazam Ultralight Trail Backpack immediately became a top 10 style by sell-through. Prana opened its third full-price store in La Jolla, California, with a strong early performance. - **Spring 2027 Wholesale Order Book** - The order book is nearly complete, and currently indicates low to mid-single-digit percent growth, with growth across all brands, geographies, and account tiers, including priority brand-enhancing partners. Footwear growth is outpacing apparel, with strong adoption of new styles targeting younger dynamic active consumers.

Guidance

- **Third Quarter 2026** - Net sales are expected to be down 1.5% to flat compared to Q3 2025, with EPS guidance of $1.15 to $1.35. - A net gross margin headwind from factory accommodations related to tariff refunds is expected in Q3, with a corresponding tailwind in Q4. - **Full Year 2026** - Full-year net sales guidance is maintained at 1% to 3% YoY growth. - Reported gross margin guidance is raised to 52.1% to 52.3% (up 160 to 180 basis points YoY), reflecting the impact of Q2 tariff refunds. - SG&A as a percentage of net sales is expected to be 43.6% to 44.2%, up slightly YoY but growing slower than net sales. - Reported operating margin guidance is raised to 8.5% to 9.3%, and reported diluted EPS guidance is raised to $4.45 to $4.90, reflecting a full-year tax rate assumption of approximately 25%. - Underlying second half sales and margin outlooks are moderately lower than prior guidance due to observed macroeconomic and supply chain headwinds. All anticipated second half growth is now expected to shift to Q4 due to shipment delays.

Segment performance

By Brand: - Columbia: Net sales increased 1% year-over-year (YoY), with international growth offsetting U.S. declines. It accounts for the majority of total revenue. - Sorel: Net sales decreased 14% YoY, driven by later wholesale shipment timing. Q2 typically represents less than 10% of Sorel's annual business. Growth is expected in the second half of 2026. - Prana: Net sales increased 14% YoY, with double-digit wholesale growth and high single-digit DTC e-commerce growth. DTC brick-and-mortar growth was flat. - Mountain Hardware: Net sales grew 6% YoY, driven by double-digit DTC growth, partially offset by a low double-digit wholesale decline from lower closeout sales. By Geography: - U.S.: Net sales decreased 4% YoY, representing under 60% of total revenue. U.S. wholesale declined 8-9% YoY; DTC net sales were slightly down, while e-commerce grew low single-digit percent. - Latin America & Pacific (LAP): Net sales increased 13% (constant currency). LAP distributor markets grew 25% YoY. - China: Net sales increased mid-single-digit percent (constant currency), driven by DTC e-commerce growth, partially offset by wholesale and brick-and-mortar declines. Strong performance during the 618 shopping event with robust YoY growth and improved markdown rates. - Japan: Net sales increased low double-digit percent (constant currency), rebounding from Q1 2026 challenges. - Korea: Net sales increased low double-digit percent (constant currency), with double-digit growth in both wholesale and DTC e-commerce. - EMEA: Net sales increased high single-digit percent overall. Europe direct grew low double-digit percent, while EMEA distributor grew mid-single-digit percent. - Canada: Net sales decreased high single-digit percent, driven by wholesale declines, partially offset by DTC growth.

Risks & headwinds

- U.S. tariff policy remains highly uncertain: while current guidance assumes 10% to 12.5% tariff rates remain in place for 2026, the administration has signaled potential returns to higher IEPA-era tariff rates, which would negatively impact margins. - The ongoing conflict in the Middle East has driven prolonged elevated global gasoline prices, increasing pressure on discretionary consumer spending and sentiment, particularly for lower and middle-income consumers, which may reduce demand in the second half of 2026. - Supply chain disruptions related to the Middle East conflict, plus capacity constraints at a global supply chain node, have caused meaningful shipment delays that shift all projected second half growth to Q4, increasing downside risk to full year results given current macro headwinds. - Persistent macroeconomic weakness and soft store traffic in the U.S. and other major markets may require higher promotional activity, pressuring gross margins. - Elevated oil prices since Q2 are expected to create input cost headwinds for Fall 2027 product, which is still being finalized.

Analyst Q&A

• Q: How large is the Fall 2026 shipment shift from Q3 to Q4, what regions are impacted, and what is driving the delay? /

  A: The shipment shift is larger than the previously referenced $30 million. Adjusting for timing, underlying full second half growth would be in the 4-5% range, with Q3 slower than Q4. The impact is global but predominantly concentrated in North America. Contributing factors include Middle East supply chain disruptions, rush of imports to the U.S. at current lower tariff rates ahead of potential hikes, and an earlier Fall 2025 shipment schedule that creates a less favorable comp for Q3 2026.

• Q: What is the outlook for China growth for the full year, and what trends are you seeing there? /

  A: China remains one of Columbia's largest long-term growth opportunities, and the company is still small relative to peers there. The Q2 618 shopping event delivered robust online sales growth, and e-commerce growth remains strong across platforms. Management reaffirms prior guidance of full year double-digit constant currency growth for China, tracking in line with expectations despite periodic weather and macro disruptions.

• Q: Are the new younger consumers acquired by the Columbia U.S. e-commerce business buying new elevated products, and is this proof the Accelerate strategy is working? /

  A: New acquired consumers are largely younger, and they are buying the company's higher-priced, newer product lines, particularly footwear. This traction is a direct result of targeted high-impact marketing campaigns like the award-winning Expedition Impossible and the Robert Irwin footwear campaign. These results are very encouraging and confirm the Accelerate strategy's direction is yielding positive early results.

• Q: Is increased promotional activity a response to channel inventory imbalance, or primarily soft consumer traffic? /

  A: Columbia's overall inventory, both internal and across wholesale channels, is currently clean and balanced. Higher promotional activity is primarily a response to Q2's step-down in store traffic that has held steady through mid-2026, driven by inflationary pressure on consumer discretionary spending from elevated food and fuel prices. Promotions are dynamically adjusted to maintain sales velocity given weaker consumer demand, and are concentrated in U.S. brick-and-mortar outlet locations.