What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-04 · 246 added, 124 removed, 183 unchanged (67% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Special Note Regarding Forward-Looking Statements", Part I, Item 1 and Part II, Item 1A of this Quarterly Report on Form 10-Q.

In addition, refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for our discussion and analysis comparing financial condition and results of operations from 2022 to 2021.

We connect active people with their passions.

We are a global leader in designing, developing, marketing, and distributing outdoor, active and lifestyle products.

We manage these products in two categories:

As a global leader in designing, developing, marketing, and distributing outdoor, active and lifestyle products, our mission is to connect active people with their passions.

We manage our product line in two major categories:

apparel, accessories, and equipment products and footwear products.

14 unchanged sentences

Business Environment and Trends

Economic Environment Impacting Consumer Spending Ability and Preferences | We believe inflationary pressures, increasing interest rates and recessionary fears are impacting wholesale customer behavior, including cautiousness in placing advance orders for merchandise.

In addition, we anticipate risk of consumer discretionary spending coming under pressure as the U.S.

federal funds rate fluctuates and credit markets tighten.

Elevated Inflationary Pressures | Inflationary pressures, including outbound freight, raw materials, labor and wage rates, and product input costs, impacted our first quarter 2023 results.

We implemented product price increases for our Spring 2023 season, which varied by market and product category.

In the U.S., on average, we increased pricing by a mid-single to high-single-digit percent.

We do not expect to implement additional meaningful product price increases as we anniversary prior year increases and begin to see inflationary pressure moderate.

Dollar | In 2022, the rapid strengthening of the U.S.

dollar relative to major foreign currencies unfavorably impacted our results.

The impact of unfavorable foreign currency translation unfavorably impacted net sales and profitability in the first quarter of 2023, and is anticipated to continue to through at least the first half of 2023 before shifting to a favorable impact in the second half of 2023.

Heightened Geopolitical Environment | Geopolitical tensions throughout the globe escalated in 2022 as a result of the invasion of Ukraine by Russia and other actions.

We believe these geopolitical tensions will remain elevated and have the potential to manifest themselves in certain regions where we directly operate.

Increased Freight Charges | For the majority of 2022, we experienced elevated ocean freight costs as a result of price increases stemming from an imbalance of supply and demand for steamship and ocean container capacity.

As a result, these costs have had a substantially unfavorable impact on our gross margin.

Beginning in the fourth quarter of 2022, we experienced significant declines in ocean freight cost, which we expect will benefit gross margin throughout 2023.

We anticipate these lower ocean freight costs to persist into 2023.

Economic Environment Impacting Demand | We believe inflationary pressure and increased interest rates are impacting consumer and wholesale customer behavior and demand.

Wholesale customers have been increasingly cautious placing advance orders, while consumer demand, particularly in the U.S., has softened and reflected a shift toward discounted merchandise.

Promotional and Clearance Environment | A surge in consumer demand in late 2021 and continuing through the first half of 2022 resulted in exceptionally low promotional levels which began to normalize in the second half of 2022.

We believe consumers are seeking value and promotions in the marketplace, which has dampened demand in full price channels, particularly in the U.S., including our direct-to-consumer ("DTC") e-commerce sites and branded stores.

In the first half of 2023, promotional levels were on par with or slightly above historical norms.

However, the proportion of older season clearance inventory being marked down and sold through our outlet stores has increased and resulted in lower DTC product margins.

We expect this trend to continue in the second half of 2023 and remain until excess inventories return to normalized levels.

Changing Consumer Expectations and Shopping Habits | Consumer behavior continues to fluctuate.

We believe consumers in the U.S.

are still adjusting shopping habits in a post-COVID world, including a shift back to brick-and-mortar retail shopping experiences.

A culmination of other factors have and will continue to contribute to shifts in consumer preferences, including increased spending on dining, travel, and entertainment, as well as other discretionary forms of spending.

As a result of these behavior shifts, anticipating future demand is increasingly challenging.

Improved Inventory Receipts | As a result of supply chain disruptions, we received Spring 2022 and Fall 2022 inventory later than expected and realized much higher than normal cancellations from our wholesale customers.

Inventory production and logistics transit times have improved markedly for Spring 2023 and Fall 2023, resulting in earlier production and receipt of inventory, and enabling timely (and even early) shipment of orders to our wholesale customers.

As a result, the year-over-year timing of wholesale shipments have materially impacted our net sales growth during the first half of 2023.

We expect to continue to uphold these improved transit times and to be more in-line with our historical experience throughout 2023, assuming no disruptions of distribution and logistics operations.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 21

Improved Inventory Receipts | As a result of certain supply chain disruptions, we received Spring 2022 and Fall 2022 inventory later than expected and realized much higher than normal cancellations from our wholesale customers.

Inventory production and logistics transit times have improved markedly for Spring 2023, impacting sales and inventory.

We expect to continue to uphold these improved transit times and to be more in-line with our historical experience throughout 2023, assuming no material downturn in port or railroad labor relations.

COVID-19 Impacts in China | From 2020 to 2022, government efforts to control the spread of COVID-19 in China severely impacted our business in China.

Elevated Inventories | As a result of highly volatile shifts in supply and demand and supply chain challenges, we exited 2022 with elevated inventory.

During the first half of 2023, improved on-time production and inventory transit times further contributed to an increase in our inventory levels.

At the end of the second quarter of 2023, our inventory primarily reflected current season inventory and, to a lesser extent, increased carryover and older season inventory.

To address our elevated inventory levels, we meaningfully reduced purchases of Spring 2023 and Fall 2023 inventory.

Additionally, we are leveraging our outlet stores and recently opened temporary outlet stores to profitably clear excess inventory.

To a far lesser extent, we are selling merchandise through close-out sales to our wholesale customers.

We expect our inventories to begin to normalize in the second half of the year as we sell carryover and excess inventory during the Fall 2023 season.

Increased Distribution Center Capacity Pressure | Elevated inventory levels are resulting in storage and process capacity pressures within our distribution centers and third-party logistics operations.

We began to experience these pressures as we received Fall 2022 inventory and expect this trend to continue through 2023.

We have incurred and expect to continue to incur additional inventory carrying costs in 2023 related to incremental outside storage, and other inventory related holding and handling costs, including losses in productivity, as we look to normalize our inventory position.

China | From 2020 to 2022, government efforts to control the spread of COVID-19 in China severely impacted our business in China.

We believe these efforts resulted in lower consumer demand, as well as disruption of our operations, including operations of our owned DTC stores and stores operated by our wholesale customers, and warehousing and fulfillment operations.

Upon the change in China's zero-COVID policy in December 2022, our business in China has experienced a surge in consumer demand.

We expect to continue to see our China business improve in 2023 as the market benefits from re-opening and pent-up demand.

Elevated Inventories | Following strong consumer demand in 2021 combined with healthy retail marketplace inventories exiting 2021, wholesale customers placed aggressive orders for inventory.

Correspondingly, our inventory purchases were far greater than historical norms.

However, in 2022, a slowing of consumer demand in the market combined with our delivery delays, resulted in our elevated inventory levels.

As retailers rationalized their inventory needs and demonstrated a more conservative approach to inventory management, we experienced increased order cancellations for Spring 2022 and Fall 2022 orders.

At the end of the first quarter of 2023, our inventory levels reflected elevated carryover inventory and, to a lesser extent, increased older season inventory.

To address these higher inventory levels, we have adjusted future inventory purchases and plan to utilize our outlet stores to sell a portion of our excess inventory.

We expect our inventories to remain elevated through the first half of 2023 and to begin to normalize in the second half of the year.

Increased Distribution Center Capacity Pressure | Elevated inventory levels combined with uneven flow of inventory receipts and shipments are resulting in storage and process capacity pressures within our distribution centers and third-party logistics operations.

We began to experience these pressures as we received Fall 2022 inventory and expect this trend to continue well into 2023.

We have and expect to continue to incur additional inventory carrying costs in 2023 as a result of additional costs for outside storage, and other inventory related holding costs, including losses in productivity, as we look to normalize our inventory position.

Changes in Promotional Environment | Near the end of the third quarter of 2022, we began to increase promotional activity based on the marketplace and our inventory position.

This resulted in an unfavorable impact to our DTC product margins compared to the same period in the prior year in which promotional activity was exceptionally low.

In the first quarter of 2023, we believe our current level of promotional activity is consistent with historical norms and reflects a return to those levels in the marketplace.

We anticipate this to continue throughout 2023.

In addition, in the first quarter of 2023, we experienced strong consumer traffic in our retail stores and a softening of e-commerce sales as we believe consumers are seeking out value and promotions in the marketplace.

Increased Outdoor Participation by Consumers | The COVID-19 pandemic drew a record number of individuals in the United States to spend an increased amount of time outside, including participating in outdoor recreational activities.

We believe we have benefited from the consumers need for outdoor products.

However, we believe the outdoor participation growth rates are returning to normalized levels.

We have seen this in certain parts of our business, such as outdoor footwear.

In the first quarter 2023, footwear sales for hiking and trail activities have softened, following growth over the last several years.

Changing Consumer Expectations and Shopping Habits | Consumer behavior continues to fluctuate.

Consumer expectations and the related competitive pressures have increased and continue to increase relative to various aspects of our e-commerce business, including speed of product delivery, shipping charges, return privileges and other evolving expectations.

We also believe consumers in the U.S.

are still adjusting shopping habits in a post-COVID world, which may be indicative of consumer habits shifting back to brick and mortar retail.

Since the change in China's zero-COVID policy in December 2022, our business in China has experienced a surge in consumer demand.

We expect to continue to see our China business improve throughout 2023.

Pricing | In response to prior supply chain and product input inflationary cost pressures, we implemented product price increases for our Spring 2023 season merchandise, which varied by market and product category.

In the U.S., on average, we increased pricing by a mid-single to high-single-digit percent to mitigate inflationary pressure.

As certain supply chain costs have normalized and product input costs are more stable, we have not implemented additional meaningful product price increases.

Normalized Freight Charges | For the majority of 2022, we experienced elevated ocean freight costs, which had a substantially unfavorable impact on our gross margin.

Beginning in the fourth quarter of 2022, we began to experience significant declines in ocean freight costs and recently have seen ocean freight container rates returning to historical levels.

Our gross margin has begun to realize the benefits of these lower costs and we anticipate these lower ocean freight costs will persist and continue to benefit gross margin throughout 2023 and into 2024.

Seasonality | Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns.

1 unchanged sentence

In 2022, over 60% of our net sales and over 75% of our operating income were realized in the second half of the year.

Dollar | In 2022, the rapid strengthening of the U.S.

dollar relative to major foreign currencies unfavorably impacted our results.

With the continued strength of the U.S.

dollar in 2023, foreign currency translation has unfavorably impacted net sales and profitability in the first half of 2023.

We anticipate foreign currency translation having a favorable impact in the second half of 2023 due to shifts in foreign currency exchange rates, including modest weakening of the U.S.

dollar in comparison to the second half of 2022.

Heightened Geopolitical Risk | We believe geopolitical tensions will remain elevated and have the potential to manifest themselves in certain regions where we operate.

Increasing Regulatory Environment | Recently, the number of regulations at the global and jurisdictional level impacting our business and, in particular, our products, is increasing.

We expect this trend to continue, and as result, impact our expenses, product input costs and ultimately, our products, which may in turn impact our revenue.

These regulatory matters at a minimum include regulations related to climate, privacy and product chemistry.

For example, in anticipation of the effectiveness of the regulations in California and New York states surrounding perfluoroalkyl and polyfluoroalkyl substances ("PFAS"), we have been working to eliminate PFAS chemicals across our global product line.

We intend to stop manufacturing any apparel or footwear with PFAS intentionally added prior to our Fall 2024 season.

This transition has the potential to impact the flow of our wholesale business in 2024, as well as our inventory management strategies for existing merchandise.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 22

11 unchanged sentences

The following table presents the items in our unaudited Condensed Consolidated Statements of Operations, both in dollars and as a percentage of net sales:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in millions, except for percentage of net sales and per share amounts) 2023 2022 2023 2022

6 unchanged sentences

Interest income, net 3.5 0.6 % 0.5 0.2 % 6.7 0.5 % 0.9 0.1 %

Other non-operating income, net 0.9 0.1 % — — %

Other non-operating income (loss), net (0.1) (0.1) % (1.5) (0.3) % 0.7 0.1 % (1.4) (0.1) %

Income before income tax 9.6 1.5 % 7.8 1.4 % 70.1 4.9 % 91.9 6.9 %

3 unchanged sentences

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 23

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net sales by brand, product category and channel are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except for percentages) Reported

13 unchanged sentences

Wholesale $ 328.3 $ 2.5 $ 330.8 $ 299.9 9% 10%

Direct-to-consumer 368.1 9.5 377.6 353.3 4% 7%

DTC 292.6 4.3 296.9 278.2 5% 7%

Total $ 620.9 $ 6.8 $ 627.7 $ 578.1 7% 9%

1 unchanged sentence

See "Non-GAAP Financial Measure" above for further information.

Overall, our global net sales increased primarily due to earlier shipments of Spring 2023 wholesale orders and higher consumer demand in our DTC business, partially offset by unfavorable impacts from changes in foreign currency exchange rates.

While our wholesale business benefited from improved transit times, Columbia and SOREL brand net sales reflect a decline in footwear net sales, highlighting challenging dynamics in the footwear market.

Our DTC e-commerce net sales contracted 1% year-over-year for the three months ended March 31, 2023 compared to the same period in the prior year.

For the three months ended March 31, 2022, DTC e-commerce net sales grew 21% compared to the same period in the prior year.

Our global net sales increased primarily due to international sales growth, including favorable timing of Fall 2023 international distributor shipments, and increased sales in China as the market recovers from prior year pandemic restrictions.

By brand, Columbia and SOREL brands' net sales benefited from earlier shipment of Fall 2023 international distributor and wholesale orders, while all brands were impacted by a lower portion of Spring 2023 shipments occurring in the quarter compared to the same period in the prior year.

Footwear growth primarily reflected earlier shipment of Fall 2023 orders and increased closeout sales.

Our global DTC e-commence net sales increased 2% for the three months ended June 30, 2023 compared to the same period in the prior year.

Gross Profit.

Gross profit is summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except for percentages and basis points) 2023 2022 Change

1 unchanged sentence

Gross margin 50.6 % 49.2 % 140 bps

Gross margin contracted primarily due to the following factors:

• unfavorable channel profitability due to the net effect of lower DTC margins and, to a lesser extent, higher wholesale margins;

Gross margin expanded primarily due to the following factors:

• an approximate 210 bps related to lower inbound freight costs;

and, to a lesser extent,

• year-over-year changes in inventory provisions;

partially offset by

• decreased channel profitability resulting from lower DTC product margins due to increased clearance and promotional activity and lower wholesale margins reflecting actions to reduce excess inventory.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 24

Selling, General and Administrative Expenses.

SG&A expenses is summarized in the following table:

Three Months June 30,

(in millions, except for percentages and basis points) 2023 2022 Change

Selling, general and administrative expenses $ 312.5 $ 281.3 $ 31.2 11 %

Selling, general and administrative expenses as percent of net sales 50.3 % 48.7 % 160 bps

SG&A expenses growth was comprised of variable expenses incurred to support sales growth, investments to support growth strategies, increased distribution and fulfillment costs related to elevated inventory, and inflationary pressures, including increases in employee salaries and wages.

SG&A expenses increased primarily due to the following factors:

• higher omni-channel expenses of $11.0 million, reflecting higher DTC expenses, including increased personnel expenses and costs associated with new and temporary stores;

• higher supply chain expenses, reflecting increased global distribution center expenses, including higher warehousing and fulfillment expenses, increased third-party logistics costs and investments to drive future productivity gains;

• higher information technology related expenses, reflecting increased personnel expenses to support digital strategies.

Interest Income, net.

Interest income, net is summarized in the following table:

Three Months Ended June 30,

(in millions, except for percentages) 2023 2022 Change

Interest income, net $ 3.5 $ 0.5 $ 3.0 600 %

Interest income, net as a percent of net sales 0.6 % 0.2 %

Interest income, net increased primarily reflecting higher yields on cash, cash equivalents and short-term investments.

Income Tax Expense.

Income tax expense and the related effective income tax rate are summarized in the following table:

Three Months Ended June 30,

(in millions, except for percentages) 2023 2022 Change

Income tax expense $ 1.2 $ 0.6 $ 0.6 100 %

Effective income tax rate 12.6 % 8.6 %

Our effective income tax rate for the three months ended June 30, 2023 and 2022 were impacted by discrete tax items, which lowered the effective income tax rate for each period.

For the three months ended June 30, 2023 and 2022, our effective income tax rate was primarily impacted by a non-recurring benefit related to a foreign currency loss resulting from an intercompany transaction.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 25

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net sales by brand, product category and channel are summarized in the following table:

Six Months Ended June 30,

(in millions, except for percentages) Reported

Adjust for Foreign Currency Translation Constant-currency

% Change Constant-currency

Brand Net Sales:

Columbia $ 1,239.8 $ 25.8 $ 1,265.6 $ 1,129.7 10% 12%

SOREL 98.3 1.0 99.3 92.3 7% 8%

prAna 60.1 — 60.1 73.4 (18)% (18)%

Mountain Hardwear 43.3 0.6 43.9 44.2 (2)% (1)%

Total $ 1,441.5 $ 27.4 $ 1,468.9 $ 1,339.6 8% 10%

Product Category Net Sales:

Apparel, Accessories and Equipment $ 1,121.5 $ 20.2 $ 1,141.7 $ 1,034.3 8% 10%

Footwear 320.0 7.2 327.2 305.3 5% 7%

Total $ 1,441.5 $ 27.4 $ 1,468.9 $ 1,339.6 8% 10%

Channel Net Sales:

Wholesale $ 780.8 $ 13.6 $ 794.4 $ 708.1 10% 12%

Direct-to-consumer 660.7 13.8 674.5 631.5 5% 7%

Total $ 1,441.5 $ 27.4 $ 1,468.9 $ 1,339.6 8% 10%

(1) Constant-currency net sales is a non-GAAP financial measure.

See "Non-GAAP Financial Measure" above for further information.

Our global net sales increased primarily due to international sales growth, including favorable timing of Fall 2023 international distributor shipments, increased sales in China as that market recovers from prior year pandemic restrictions and strong results in our EMEA direct business.

Columbia brand net sales benefited from earlier shipment of Fall 2023 international distributor and wholesale orders partially offset by a lower portion of Fall 2022 and Spring 2023 wholesale orders occurring in the first half of 2023 compared to the same period in the prior year.

While our wholesale business benefited from earlier production and receipt of inventory, Columbia and SOREL brand net sales were tempered by challenging dynamics in the footwear market.

Our DTC e-commerce net sales remained flat year-over-year for the six months ended June 30, 2023 compared to the same period in the prior year.

Gross Profit.

Gross profit is summarized in the following table:

Six Months Ended June 30,

(in millions, except for percentages and basis points) 2023 2022 Change

Gross profit $ 713.5 $ 662.6 $ 50.9 8 %

Gross margin 49.5 % 49.5 % 0 bps

Gross margin was flat primarily due to the following factors:

• lower inbound freight costs;

Lower DTC margins discussed above were primarily driven by higher promotional activity and elevated outbound freight costs.

• unfavorable channel profitability reflecting the net effect of lower DTC product margins and higher wholesale margins.

Lower DTC margins discussed above were primarily driven by higher clearance and promotional activity, including a greater proportion of sales resulting from excess inventory.

Higher wholesale margins discussed above were primarily driven by price increases more than offsetting inflationary product costs, partially offset by actions to reduce excess inventory.

2 unchanged sentences

SG&A expenses is summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions, except for percentages and basis points) 2023 2022 Change

1 unchanged sentence

Selling, general and administrative expenses as percent of net sales 45.8 % 43.3 % 250 bps

SG&A expense growth reflects elevated expenses to support the growth of our business, inflationary pressures, and investments to drive our brand-led consumer-focused strategies.

SG&A expenses growth was comprised of variable expenses incurred to support sales growth, investments to support growth strategies, increased distribution and fulfillment costs related to elevated inventory, and inflationary pressures including increases in employee salaries and wages.

SG&A expenses increased primarily due to the following factors:

• higher supply chain expenses of $18.8 million, reflecting increased global distribution center expenses, including higher warehousing and fulfillment expenses, resulting from elevated inventory levels as well as third-party logistics transition-related costs;

• higher omni-channel expenses of $13.8 million, including higher DTC expenses, including variable expenses including personnel expenses and costs associated with new stores.

• higher supply chain expenses of $27.6 million, reflecting increased global distribution center expenses resulting from elevated inventory levels, including higher warehousing and fulfillment expenses, as well as third-party logistics transition-related costs;

• higher omni-channel expenses of $24.8 million, reflecting higher DTC expenses, including variable expenses including personnel expenses and costs associated with new and temporary stores.

Interest Income, net.

Interest income, net is summarized in the following table:

Six Months Ended June 30,

(in millions, except for percentages) 2023 2022 Change

Interest income, net $ 6.7 $ 0.9 $ 5.8 644 %

Interest income, net as a percent of net sales 0.5 % 0.1 %

Interest income, net increased primarily reflecting higher yields on cash, cash equivalents and short-term investments.

Income Tax Expense.

Income tax expense and the related effective income tax rate are summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions, except for percentages) 2023 2022 Change

1 unchanged sentence

Effective income tax rate 22.2 % 19.5 %

Our effective income tax rates for the three months ended March 31, 2023 and 2022 were impacted by discrete tax items, which lowered the effective income tax rate in each period.

For the three months ended March 31, 2023, our effective income tax rate was primarily impacted by a non-recurring benefit related to foreign currency gains resulting from an intercompany transaction.

For the three months ended March 31, 2022, our effective income tax rate was primarily impacted by the non-recurring benefit related to the finalization of U.S.

and foreign audits.

Our effective income tax rates for the six months ended June 30, 2023 and 2022 were impacted by discrete tax items, which lowered the effective income tax rate in each period.

For the six months ended June 30, 2023, our effective income tax rate was primarily impacted by a non-recurring benefit related to a foreign currency loss resulting from an intercompany transaction.

For the six months ended June 30, 2022, our effective income tax rate was primarily impacted by a benefit related to the finalization of the U.S.

and foreign audits and a non-recurring benefit related to a foreign currency loss resulting from an intercompany transaction.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 27

5 unchanged sentences

We anticipate this trend to continue until other segments achieve scale efficiencies from higher levels of net sales volume relative to the fixed cost structure necessary to operate the business.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Net sales by geographic segment are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except for percentage changes) Reported

8 unchanged sentences

See "Non-GAAP Financial Measure" above for further information.

Operating income (loss) for each reportable segment and unallocated corporate expenses are summarized in the following table:

Three Months Ended June 30,

(in millions) 2023 2022 Change

$ 55.1 $ 67.3 $ (12.2)

LAAP 4.1 (3.1) 7.2

EMEA 15.0 (1.0) 16.0

Canada 0.1 3.5 (3.4)

Total segment operating income 74.3 66.7 7.6

Unallocated corporate expenses (68.1) (57.9) (10.2)

Operating income $ 6.2 $ 8.8 $ (2.6)

operating income decreased $12.2 million to $55.1 million, or 13.8% of net sales, for the second quarter of 2023 from $67.3 million, or 16.3% of net sales, for the comparable period in 2022.

The decrease was driven primarily by decreased net sales and increased SG&A expenses.

net sales decreased $13.4 million, or 3%, for the second quarter of 2023, compared to the same period in 2022.

net sales decreased primarily in our U.S.

wholesale business for Columbia, prAna, and Mountain Hardwear brands.

Decreased U.S.

wholesale net sales reflected unfavorable impacts from timing of wholesale shipments, including a lower portion of Spring 2023 orders, partially offset by a higher portion of Fall 2023 shipments in the second quarter compared to the same period in the prior year.

DTC net sales increased primarily due to sales growth generated from our retail stores, partially offset by decreased net sales in our e-commerce business.

As of June 30, 2023, our U.S.

business operated 157 retail stores, compared to 147 stores as of June 30, 2022.

In addition, we opened temporary outlet stores during the second quarter of 2023 to support excess inventory liquidation efforts.

SG&A expenses increased as a percentage of net sales to 38.7% for the second quarter of 2023 compared to 34.1% for the same period in 2022, primarily driven by increased DTC expenses reflecting increased personnel expenses and costs associated with new and temporary stores, as well as higher warehousing and fulfillment expenses resulting from elevated inventory levels.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 28

LAAP operating income increased $7.2 million to $4.1 million, or 4.4% of net sales, for the second quarter of 2023 from an operating loss of $3.1 million, or (4.2)% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales and decreased SG&A expense as a percentage of net sales.

LAAP net sales increased $20.5 million, or 28% (35% constant-currency), for the second quarter of 2023, compared to the same period in 2022, primarily in our China and LAAP distributor businesses.

LAAP net sales reflected higher consumer demand in China as we lapped prior year government mandated restrictions to prevent the spread of COVID-19, as well as increased net sales due to earlier shipment of higher Fall 2023 distributor orders compared to shipments in the prior year.

LAAP SG&A expenses decreased as a percentage of net sales to 53.1% for the second quarter of 2023 compared to 61.4% for the same period in 2022, primarily driven by leveraging of fixed operating expenses.

EMEA operating income increased $16.0 million to $15.0 million, or 14.9% of net sales, for the second quarter of 2023 from an operating loss of $1.0 million, or (1.8)% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales and decreased SG&A expense as a percentage of net sales.

EMEA net sales increased $43.2 million, or 75%, for the second quarter of 2023, compared to the same period in 2022, driven by increased net sales in our EMEA distributor business.

EMEA distributor net sales increased primarily due to the earlier shipment of Fall 2023 shipments in the second quarter compared to the same period in the prior year.

EMEA SG&A expenses decreased as a percentage of net sales to 26.7% for the second quarter of 2023 compared to 44.5% in 2022, primarily driven by leveraging of fixed operating expenses.

Canada operating income decreased $3.4 million to $0.1 million, or 0.4% of net sales, for the second quarter of 2023 from $3.5 million, or 10.0% of net sales, for the comparable period in 2022.

The decrease primarily resulted from decreased net sales.

Canada net sales decreased $7.5 million, or 21% (16% constant-currency), for the second quarter of 2023, compared to the same period in 2022.

Canada net sales decreased primarily due a lower portion of Spring 2023 shipments occurring in the second quarter compared to the same period in the prior year.

Canada SG&A expenses increased as a percentage of net sales to 48.5% for the second quarter of 2023 compared to 34.9% for the same period in 2022, primarily driven by deleverage of fixed operating expenses resulting from the decline in net sales.

Unallocated Corporate Expenses

Unallocated corporate expenses increased by $10.2 million to $68.1 million in second quarter of 2023, from $57.9 million in 2022, primarily driven by higher personnel expense.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Net sales by geographic segment are summarized in the following table:

Six Months Ended June 30,

(in millions, except for percentage changes) Reported

Adjust for Foreign Currency Translation Constant-currency

% Change Constant-currency

$ 916.6 $ — $ 916.6 $ 914.4 —% —%

LAAP 229.7 16.8 246.5 194.5 18% 27%

EMEA 209.1 5.3 214.4 152.3 37% 41%

Canada 86.1 5.3 91.4 78.4 10% 17%

$ 1,441.5 $ 27.4 $ 1,468.9 $ 1,339.6 8% 10%

(1) Constant-currency net sales is a non-GAAP financial measure.

See "Non-GAAP Financial Measure" above for further information.

COLUMBIA SPORTSWEAR COMPANY | Q2 2023 FORM 10-Q | 29

Operating income for each reportable segment and unallocated corporate expenses are summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2023 2022 Change

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Operating income $ 62.7 $ 92.4 $ (29.7)

operating income decreased $31.6 million to $81.6 million, or 15.8% of net sales, for the first quarter of 2023 from $113.2 million, or 22.5% of net sales, for the comparable period in 2022.

The decrease was driven primarily by increased net sales, more than offset by decreased gross margin and increased SG&A expenses.

net sales increased $15.6 million, or 3%, for the first quarter of 2023, compared to the same period in 2022.

net sales increased across all channels and was primarily driven by U.S.

wholesale net sales for our Columbia brand.

Increased U.S.

wholesale net sales were primarily driven by earlier shipment of Spring 2023 orders compared to shipment of Spring 2022 orders in the prior year.

DTC net sales increased due to sales growth generated from our retail stores and was partially offset by decreased net sales in our e-commerce business.

gross margin decreased primarily due to lower DTC margins resulting from higher promotional activity.

As of March 31, 2023, our U.S.

business operated 156 retail stores, compared to 143 stores as of March 31, 2022.

SG&A expenses increased as a percentage of net sales to 33.1% for the first quarter of 2023 compared to 27.5% for the same period in 2022, primarily driven by increased distribution center expenses and higher third-party logistics expenses including transition related costs.

operating income decreased $43.8 million to $136.7 million, or 14.9% of net sales, for the six months ended June 30, 2023 from $180.5 million, or 19.7% of net sales, for the comparable period in 2022.

The decrease was driven primarily by increased SG&A expenses.

net sales increased $2.2 million, or less than 1%, for the six months ended June 30, 2023, compared to the same period in 2022.

net sales increased primarily due to higher DTC consumer demand, largely offset by unfavorable impacts from the timing of wholesale shipments.

DTC net sales increased primarily for the Columbia brand due to sales growth generated from our retail stores, partially offset by decreased net sales in our e-commerce business.

wholesale net sales decreased primarily due to impacts from timing of shipments, reflecting a lower portion of Fall 2022 and Spring 2023 order shipping, partially offset by a higher portion of Fall 2023 orders shipped during the six months ended June 30, 2023 compared to the same period in the prior year.

As of June 30, 2023, our U.S.

business operated 157 retail stores, compared to 147 stores as of June 30, 2022.

In addition, we opened temporary outlet stores during the second quarter of 2023 to support excess inventory liquidation efforts.

SG&A expenses increased as a percentage of net sales to 35.6% for the six months ended June 30, 2023 compared to 30.5% for the same period in 2022, primarily driven by increased warehousing and fulfillment expenses resulting from elevated inventory levels and higher DTC expenses reflecting higher personnel and costs associated with new and temporary stores.

LAAP operating income increased $12.5 million to $22.4 million, or 9.8% of net sales, for the six months ended June 30, 2023 from $9.9 million, or 5.1% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales and decreased SG&A expenses as a percentage of net sales.

LAAP net sales increased $35.2 million, or 18% (27% constant-currency), for the six months ended June 30, 2023, compared to the same period in 2022.

Increased LAAP net sales was primarily driven by our China and LAAP distributor businesses, partially offset by declines in our Korea business.

LAAP net sales increased due to higher consumer demand, including demand in China reflecting the change in its zero-COVID policy and prior year related lockdowns, as well as earlier shipment of Fall 2023 distributor orders compared to shipments in the same period in the prior year.

LAAP SG&A expenses decreased as a percentage of net sales to 45.7% for the six months ended June 30, 2023 compared to 52.1% for the same period in 2022, primarily driven by leveraging of fixed operating expenses.

EMEA operating income increased $19.9 million to $35.4 million, or 16.9% of net sales, for the six months ended June 30, 2023 from $15.5 million, or 10.2% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales and decreased SG&A expenses as a percentage of net sales.

EMEA net sales increased $56.8 million, or 37% (41% constant-currency), for the six months ended June 30, 2023, compared to the same period in 2022, driven by increased net sales in our EMEA distributor and Europe-direct businesses.

EMEA distributor net sales increased primarily due to earlier shipment of Fall 2023 orders compared to shipments in the same period in the prior year, tempered by our prior year decision to pause taking new orders from a third-party international distributor for Russia, Ukraine and Belarus markets.

Europe-direct net sales increased primarily due to broad-based growth across wholesale and DTC businesses.

EMEA SG&A expenses decreased as a percentage of net sales to 27.4% for the six months ended June 30, 2023 compared to 33.2% for the same period in 2022, primarily driven by leveraging of fixed operating expenses.

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LAAP operating income increased $5.3 million to $18.3 million, or 13.4% of net sales, for the first quarter of 2023 from $13.0 million, or 10.7% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales and decreased SG&A expenses, partially offset by decreased gross margin.

LAAP net sales increased $14.7 million, or 12% (22% constant-currency), for the first quarter of 2023, compared to the same period in 2022.

Increased LAAP net sales was primarily driven by our LAAP distributor and China businesses, partially offset by our Korea business.

LAAP net sales increased due to higher consumer demand, including a surge in demand in China partially resulting from the change in its zero-COVID policy, as well as earlier shipment of Spring 2023 orders compared to shipment of Spring 2022 orders.

LAAP SG&A expenses decreased as a percentage of net sales to 40.6% for the first quarter of 2023 compared to 46.6% for the same period in 2022, primarily driven by leveraging of fixed operating expenses.

EMEA operating income increased $3.9 million to $20.4 million, or 18.8% of net sales, for the first quarter of 2023 from $16.5 million, or 17.4% of net sales, for the comparable period in 2022.

The increase was driven primarily by increased net sales.

EMEA net sales increased $13.6 million, or 14% (20% constant-currency), for the first quarter of 2023, compared to the same period in 2022, driven by increased net sales in our Europe-direct business.

Europe-direct net sales increased primarily due to earlier shipment of Spring 2023 orders compared to shipment of Spring 2022 orders, as well as broad-based growth across wholesale and DTC businesses.

EMEA distributor net sales decreased primarily due to our prior year decision to pause taking new orders from a third-party international distributor for Russia, Ukraine and Belarus markets, partially offset by growth in other EMEA markets.

EMEA SG&A expenses increased as a percentage of net sales to 28.0% for the first quarter of 2023 compared to 26.3% for the same period in 2022.

Canada operating income increased $2.7 million to $10.8 million, or 18.5% of net sales, for the first quarter of 2023 from $8.1 million, or 18.9% of net sales for the comparable period in 2022.

The increase primarily resulted from increased net sales.

Canada net sales increased $15.2 million, or 35% (43% constant-currency), for the first quarter of 2023, compared to the same period in 2022, primarily driven by increased net sales in our Canada wholesale and DTC businesses.

Canada SG&A expenses decreased as a percentage of net sales to 26.8% for the first quarter of 2023, compared to 28.5% for the same period in 2022.

Canada operating income decreased $0.8 million to $10.9 million, or 12.7% of net sales, for the six months ended June 30, 2023 from $11.7 million, or 14.9% of net sales for the comparable period in 2022.

The decrease primarily resulted from increased net sales more than offset by increased SG&A expenses as a percentage of net sales.

Canada net sales increased $7.7 million, or 10% (17% constant-currency), for the six months ended June 30, 2023, compared to the same period in 2022, driven by increased net sales in our Canada DTC and wholesale businesses.

Canada SG&A expenses increased as a percentage of net sales to 33.8% for the six months ended June 30, 2023, compared to 31.4% for the same period in 2022.

Unallocated Corporate Expenses

Unallocated corporate expenses increased by $7.6 million to $74.7 million for the first quarter of 2023 from $67.1 million for the same period in 2022, primarily driven by higher personnel expense.

Unallocated corporate expenses increased by $17.5 million to $142.7 million for the six months ended June 30, 2023 from $125.2 million for the same period in 2022, primarily driven by higher personnel expense.

LIQUIDITY AND CAPITAL RESOURCES

Including cash, cash equivalents, short-term investments and available committed credit lines, we had approximately $965 million in total liquidity as of March 31, 2023.

Including cash, cash equivalents, short-term investments and available committed credit lines, we had approximately $810 million in total liquidity as of June 30, 2023.

Our liquidity may be affected by the general seasonal trends common to the industry.

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This trough cash position is impacted by the amount of product we order from our contract manufacturers in anticipation of customer demand and is more heavily impacted in advance of periods of expected high demand.

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Cash Flow Activities

Cash flows are summarized in the following table:

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2023 2022 Change

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The most significant comparative changes in assets and liabilities included Inventories , and to a lesser extent, Accounts payable , Prepaid expenses and other current assets , and Accrued liabilities .

The $142.6 million increase in cash provided by Inventories reflected a decrease in inventory due to a larger portion of Spring 2023 being received on time, which allowed it to be delivered to customers, compared to Spring 2022 in which a larger portion of inventory was in transit as of March 31, 2022.

The $197.0 million decrease in cash used in Inventories reflected less of an increase in inventory for the first half of 2023 as we curtailed inventory purchases due to elevated inventories exiting 2022 and to eventually align inventory supply with future demand .

The $53.6 million increase in cash provided by Prepaid expenses and other current assets was primarily driven by changes to inventory prepayments.

The $21.9 million decrease in cash used in Accrued liabilities was primarily driven by lower bonus payments in 2023 compared to 2022.

These amounts were partially offset by the $74.6 million increase in cash used in Accounts payable primarily resulting from the effects of lower payables related to a decline in in-transit inventory in the first quarter of 2023 compared to the first quarter of 2022.

Net cash used in investing activities was $111.7 million for the three months ended March 31, 2023, compared to $56.8 million for the three months ended March 31, 2022.

These amounts were partially offset by the $105.1 million increase in cash used in Accounts payable primarily resulting from earlier production and payment of Fall 2023 inventory and the $23.6 million increase in cash used in Accrued liabilities, which was primarily driven by higher sales reserves at the beginning of 2023 as compared to 2022 as a result of higher sales in the fourth quarter of 2022.

Net cash used in investing activities was $89.9 million for the six months ended June 30, 2023, compared to $101.9 million of cash provided by investing activities for the six months ended June 30, 2022.

For the 2023 period, net cash used in investing activities consisted of $67.1 million in net purchases of short-term investments and $22.8 million in cash used for capital expenditures.

For the 2022 period, net cash used in investing activities consisted of $43.9 million in net purchases of short-term investments and $12.9 million for capital expenditures.

Net cash used in financing activities was $35.6 million for the three months ended March 31, 2023 compared to $237.9 million for the three months ended March 31, 2023.

For the 2022 period, net cash provided by investing activities consisted of $130.9 million in net sales and maturities of short-term investments partially offset by $29.0 million in cash used for capital expenditures.

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Net cash used in financing activities was $115.2 million for the six months ended June 30, 2023 compared to $325.3 million for the six months ended June 30, 2022.

For the 2023 period, net cash used in financing activities primarily consisted of repurchases of common stock of $78.3 million and dividend payments to our shareholders of $37.1 million.

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Cash and cash equivalents and short-term investments

As of March 31, 2023, we had cash and cash equivalents of $361.0 million and short-term investments of $99.5 million, compared to $430.2 million and $0.7 million, respectively, as of December 31, 2022 and $435.2 million and $175.0 million, respectively, as of March 31, 2022.

As of June 30, 2023, we had cash and cash equivalents of $231.6 million and short-term investments of $71.2 million, compared to $430.2 million and $0.7 million, respectively, as of December 31, 2022 and $413.1 million and $1.1 million, respectively, as of June 30, 2022.

Domestic Credit Facility

Refer to Note 7 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022 for further information regarding the domestic credit facility.

As of March 31, 2023, we had available an unsecured, committed revolving credit facility, which provides for borrowings up to $500.0 million.

As of June 30, 2023, we had available an unsecured, committed revolving credit facility, which provides for borrowings up to $500.0 million.

We were in compliance with all associated covenants and there was no balance outstanding under the facility.

International Credit Facility

As of March 31, 2023, our European subsidiary had available an unsecured, committed line of credit, which is guaranteed by the Company and provides for borrowings up to €4.4 million (approximately US$4.8 million).

As of June 30, 2023, our European subsidiary had available an unsecured, committed line of credit, which is guaranteed by the Company and provides for borrowings up to €4.4 million (approximately US$4.8 million).

There was no balance outstanding under the facility.

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Other Sources

As of March 31, 2023, collectively, our international subsidiaries had unsecured, uncommitted lines of credit, credit facilities and overdraft facilities, providing for borrowings up to approximately US$106.8 million.

As of June 30, 2023, collectively, our international subsidiaries had unsecured, uncommitted lines of credit, credit facilities and overdraft facilities, providing for borrowings up to approximately US$105.8 million.

There was no balance outstanding under these facilities.

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Inventory balances may be elevated in advance of periods of expected high demand.

As of March 31, 2023, our inventory balance increased to $959.2 million, compared to $714.4 million as of March 31, 2022, driven by elevated carryover inventory, earlier receipts of Spring 2023 product, and, to a lesser extent, increased older season inventory.

As of June 30, 2023, our inventory balance increased to $1,162.5 million, compared to $962.9 million as of June 30, 2022, driven by earlier receipts of current season product, and, to a lesser extent, higher carryover and older season inventory.

We believe older season inventories represent a manageable portion of our total inventory mix.

To address higher inventory levels, we have adjusted future inventory purchases and we are leveraging our outlet stores to sell excess merchandise.

We expect inventory to remain elevated into the second half of 2023 as we carry forward inventory into future seasons, balancing reducing inventory levels with maintaining profitability.

We expect our inventories to begin to normalize in the second half of the year as we sell carryover and excess inventory during the Fall 2023 season .

We have planned 2023 capital expenditures of approximately $60 to $70 million.

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• considering opportunistic mergers and acquisitions.

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Free cash flow is a non-GAAP financial measure.

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Other cash commitments

Our inventory purchase obligations were $540.6 million as of March 31, 2023, compared to $401.4 million and $876.3 million as of December 31, 2022 and March 31, 2022, respectively.

Our inventory purchase obligations wer e $301.9 million a s of June 30, 2023, compared to $401.4 million and $654.4 million as of December 31, 2022 and June 30, 2022, respectively.

There have been no other significant changes to our other cash commitments as described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

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Because of the uncertainty inherent in these matters, actual results may differ from the estimates we use in applying these critical accounting policies and estimates.

We base our ongoing estimates on historical

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experience and other assumptions that we believe to be reasonable in the circumstances.

We base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances.

Refer to Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding our critical accounting policies and estimates.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis