COLUMBIA SPORTSWEAR CO 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. OVERVIEW 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. We provide our products through our four brands: Columbia, SOREL, Mountain Hardwear, and prAna. Apparel, accessories, and equipment products are provided by our Columbia, Mountain Hardwear and prAna brands. Footwear products are provided by our Columbia and SOREL brands. We sell our products in more than 100 countries and operate in four geographic segments: U.S., LAAP, EMEA, and Canada. ACCELERATE Growth Strategy As part of our strategic priorities, in October 2024, we announced the ACCELERATE Growth Strategy. At its core, the ACCELERATE Growth Strategy is intended to elevate the Columbia brand ("Brand") to target a younger and more active consumer. It is a multi-year initiative centered around several consumer-centric shifts to our Brand, product and marketplace strategies, as well as enhanced ways of working. We believe successful execution of the ACCELERATE Growth Strategy can elevate the Brand and drive profitable growth. Through the ACCELERATE Growth Strategy, we will focus on achieving the following objectives: • steward existing consumer segments while focusing on bringing new younger and active consumers into the Brand; • elevate consumers' perception of the Brand; • create product based on a consumer-centric product construct; • enhance the positioning of the Brand in the U.S. marketplace; and • deliver integrated full-funnel marketing. In addition, we are committed to investing in our strategic priorities with a renewed emphasis to: • accelerate profitable growth; • create iconic products that are differentiated, functional and innovative; • drive brand engagement through increased, focused demand creation investments; • enhance consumer experiences by investing in capabilities to delight and retain consumers; • amplify marketplace excellence, with digitally-led, omni-channel, global distribution; and • empower talent that is driven by our core values through a diverse and inclusive workplace. Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative expense efficiency, and drive improved operating margin over the long-term. Profit Improvement Program Concurrent with our ACCELERATE Growth Strategy, we continue to make progress on our multi-year profit improvement program to accelerate profitable growth and improve the efficiency of our operations. We are focused on four areas of cost reduction and realignment, including: • operational cost savings; • organizational cost savings; • operating model improvements; and • indirect, or non-inventory, spending. When the benefits of this program are combined with the cost savings we anticipate to receive from normalized inventory levels, we believe we can reach $125 million to $150 million in annualized savings by 2026. We anticipate these cost savings will ramp up over the course of COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 21 Table of Contents 2024 and 2025, with the full benefit being realized in 2026. In 2024, we expect to attain approximately $90 million in realized cost savings and avoidance, net of approximately $3 million to $4 million of severance and other costs. Business Environment and Trends Increasing U.S. Competitive Environment and Evolving U.S. Consumer Trends | We believe our competition in the historical U.S. outdoor apparel and footwear market has increased as many brands have shifted their strategies and new brands have entered the marketplace to capitalize on the emergence of casual and lifestyle trends . The versatility of casual and lifestyle products provides consumers the ability to use these products in a variety of settings, including outdoor activities. We believe the successful implementation of our strategic priorities, including our Columbia brand ACCELERATE Growth Strategy, will enable us to better compete in this evolved U.S. marketplace in the future. North America Economic Environment | We believe general economic uncertainty in the U.S. and Canada is impacting consumer and customer behavior and demand. A culmination of economic indicators including high interest rates, increased consumer debt, and ongoing inflationary pressures, amongst other indicators, are contributing to wholesale customer cautiousness, as well as changes in consumer confidence and shopping behavior. This has contributed to slower-than-planned sales within our DTC and wholesale businesses in North America. In the near-term, we expect our DTC and wholesale channels in North America to continue to be challenged, in part due to the economic environment. Promotional and Clearance Environment | Since last year, we have been proactively managing promotional activity on Columbia.com to help establish the site as the best expression of the Brand. However, we believe certain consumers are still seeking value, particularly in the U.S. This, among other factors, is contributing to reduced demand for our direct-to-consumer ("DTC") e-commerce sites for certain brands and branded stores. To capture demand associated with value conscious consumers, we have increasingly relied on our fleet of DTC brick-and-mortar outlet stores and clearance locations, which offer discounted and clearance merchandise. Further, in an effort to reduce inventories and to assist with our transition of merchandise containing perfluoroalkyl and polyfluoroalkyl substances ("PFAS") chemicals, we opened temporary outlet stores in the U.S in 2024 . The use of temporary clearance stores results in lower DTC product margins, increased SG&A expenses and modest operating income . We believe this method of liquidation results in stronger financial returns to the Company in comparison to wholesale closeout sales channel alternatives and has a less disruptive impact in the marketplace. We anticipate continuing to utilize temporary clearance locations to assist with inventory liquidation through 2024 with plans to ramp down these locations throughout 2025. Changing International Consumer Trends | We believe consumers in our international markets have adjusted their shopping habits, particularly in China as the outdoor category sector rapidly expands and Japan as the market continues to benefit from international tourism. We expect certain of our international businesses to continue to grow year-over-year and into 2025. Delayed Inventory Receipts | Supply chain disruptions, including impacts of Red Sea closures, Bangladesh factory disruptions, port strikes and severe weather events, have extended our supply chain lead times resulting in delayed receipt of inventory. Later receipts of inventory impact our ability to capture consumer demand and increase the risk of wholesale order cancellations and lower potential reorders, some of which is currently occurring. Distribution Center and Third-Party Capacity Pressure | Elevated inventory levels resulted in storage and process capacity pressures within our distribution centers and third-party logistics operations throughout 2023. These pressures included additional inventory carrying costs related to incremental outside storage, and other inventory related holding and handling costs, including losses in productivity, as we worked to normalize our inventory position. We exited 2023 with more normalized inventory levels. As these storage and process capacity pressures have alleviated, we have begun to realize lower distribution-related expenses and expect to see further benefit in our operating results for full year 2024. Freight Cost Environment | We have realized declines in ocean freight rates and costs in comparison to prior elevated levels. These lower ocean freight rates resulted in substantially lower inbound freight costs, which benefited our gross margin in 2023 and through the third quarter of 2024. We anticipate these lower ocean freight costs will abate providing less of a gross margin benefit in the fourth quarter of 2024 and diminishing even more so into 2025. Seasonality | Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis, and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. In 2023, nearly 60% of our net sales and nearly 80% of our operating income were realized in the second half of the year. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 22 Table of Contents Heightened Geopolitical Risk | We sell our products in more than 100 countries and our ability to sell, import into and produce in certain markets may be impacted by ongoing geopolitical tensions. We believe these tensions will remain elevated and have manifested, and will continue 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, has significantly increased. We expect this trend to continue and, as a result, will 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, social, privacy, and product chemistry. For example, in anticipation of the effectiveness of the regulations in California and New York states related to PFAS chemicals, we have worked to eliminate PFAS chemicals across our global product line. These PFAS matters have resulted in a more promotional environment in 2024 as retailers sell through merchandise containing PFAS . RESULTS OF OPERATIONS The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with Part I, Item 1 of this Quarterly Report on Form 10-Q. Non-GAAP Financial Measure To supplement financial information reported in accordance with accounting principles generally accepted in the United States ("GAAP"), we disclose constant-currency net sales information, which is a non-GAAP financial measure, to provide a framework to assess how the business performed excluding the effects of changes in foreign currency exchange rates against the United States dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period into United States dollars at the exchange rates that were in effect during the comparable period of the prior year. Management believes that this non-GAAP financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may find the non-GAAP measure useful by reviewing our net sales results without the volatility in foreign currency exchange rates. This non-GAAP financial measure also facilitates management's internal comparisons to our historical net sales results and comparisons to competitors' net sales results. Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The following discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP below. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 23 Table of Contents Results of Operations — Consolidated 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 September 30, Nine Months Ended September 30, (in millions, except for percentage of net sales and per share amounts) 2024 2023 2024 2023 Net sales $ 931.8 100.0 % $ 985.7 100.0 % $ 2,272.0 100.0 % $ 2,427.2 100.0 % Cost of sales 464.2 49.8 % 505.5 51.3 % 1,141.5 50.2 % 1,233.5 50.8 % Gross profit 467.6 50.2 % 480.2 48.7 % 1,130.5 49.8 % 1,193.7 49.2 % Selling, general and administrative expenses 361.2 38.8 % 351.6 35.7 % 1,013.3 44.6 % 1,011.5 41.7 % Net licensing income 6.1 0.7 % 6.0 0.7 % 16.2 0.7 % 15.0 0.6 % Operating income 112.5 12.1 % 134.6 13.7 % 133.4 5.9 % 197.2 8.1 % Interest income, net 5.4 0.6 % 1.9 0.1 % 22.9 1.0 % 8.6 0.4 % Other non-operating income (expense), net 1.3 0.1 % (0.4) — % 2.0 0.1 % 0.4 — % Income before income tax 119.2 12.8 % 136.1 13.8 % 158.3 7.0 % 206.2 8.5 % Income tax expense 29.0 3.1 % 32.6 3.3 % 37.6 1.7 % 48.1 2.0 % Net income $ 90.2 9.7 % $ 103.5 10.5 % $ 120.7 5.3 % $ 158.1 6.5 % Diluted earnings per share $ 1.56 $ 1.70 $ 2.04 $ 2.56 COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 24 Table of Contents Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Net Sales. Net sales by brand, product category and channel are summarized in the following table: Three Months Ended September 30, (in millions, except for percentages) Reported Net Sales 2024 Adjust for Foreign Currency Translation Constant-currency Net Sales 2024 (1) Reported Net Sales 2023 Reported Net Sales % Change Constant-currency Net Sales % Change (1) Brand Net Sales: Columbia $ 799.7 $ 3.7 $ 803.4 $ 804.0 (1)% —% SOREL 73.9 0.2 74.1 122.1 (39)% (39)% prAna 28.6 — 28.6 30.7 (7)% (7)% Mountain Hardwear 29.6 0.2 29.8 28.9 2% 3% Total $ 931.8 $ 4.1 $ 935.9 $ 985.7 (5)% (5)% Product Category Net Sales: Apparel, Accessories and Equipment $ 735.4 $ 2.9 $ 738.3 $ 731.7 1% 1% Footwear 196.4 1.2 197.6 254.0 (23)% (22)% Total $ 931.8 $ 4.1 $ 935.9 $ 985.7 (5)% (5)% Channel Net Sales: Wholesale $ 605.2 $ 2.3 $ 607.5 $ 664.3 (9)% (9)% Direct-to-consumer 326.6 1.8 328.4 321.4 2% 2% Total $ 931.8 $ 4.1 $ 935.9 $ 985.7 (5)% (5)% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Our global net sales decrease primarily reflects lower wholesale net sales in the U.S. and Canada, partially offset by continued strength in international markets, compared to the same period in 2023. The declines in wholesale net sales reflect the impact of lower Fall 2024 wholesale orders as a result of retailer cautiousness and a difficult competitive environment in the U.S. and Canada, as well as delayed shipment of Fall 2024 wholesale orders in the third quarter compared to earlier shipment of Fall 2023 orders in the same period of the prior year. The strength in international markets is aided by a higher portion of Fall 2024 distributor orders shipping in the third quarter compared to the timing of Fall 2023 shipments in the prior year, as well as generally robust consumer demand within many markets of our LAAP and EMEA businesses. DTC net sales increased, reflecting growth in our brick-and-mortar business from temporary and new stores, partially offset by declines in our e-commerce business, compared to the same period in 2023. The declines in e-commerce net sales resulted from softness in the U.S., which we attribute to a challenging e-commerce environment for outdoor brands, coupled with efforts to de-emphasize promotions on Columbia.com. Gross Profit. Gross profit is summarized in the following table: Three Months Ended September 30, (in millions, except for percentages and basis points) 2024 2023 Change Gross profit $ 467.6 $ 480.2 $ (12.6) (3) % Gross margin 50.2 % 48.7 % 150 bps Gross margin expanded primarily due to the following factor: • favorable other costs, including lower inbound freight costs; partially offset by COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 25 Table of Contents • unfavorable decrease in channel profitability reflecting higher clearance and promotional activity, partially offset by favorable input costs and product mix. Selling, General and Administrative Expenses. SG&A expenses are summarized in the following table: Three Months September 30, (in millions, except for percentages and basis points) 2024 2023 Change Selling, general and administrative expenses $ 361.2 $ 351.6 $ 9.6 3 % Selling, general and administrative expenses as percent of net sales 38.8 % 35.7 % 310 bps SG&A expenses increased primarily due to the following factors: • higher omni-channel expenses of $14.3 million, reflecting higher DTC brick-and-mortar expenses, including costs associated with new stores and temporary clearance locations and personnel expense; and • higher incentive compensation, reflecting higher performance against target as compared to the comparative period; partially offset by • lower supply chain expenses, reflecting decreased global distribution center expenses resulting from more normalized inventory levels and supply chain optimization efforts. Interest Income, Net. Interest income, net is summarized in the following table: Three Months Ended September 30, (in millions, except for percentages) 2024 2023 Change Interest income, net $ 5.4 $ 1.9 $ 3.5 184 % Interest income, net as a percent of net sales 0.6 % 0.1 % Interest income, net increased, primarily reflecting higher yields on increased levels of 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 September 30, (in millions, except for percentages) 2024 2023 Change Income tax expense $ 29.0 $ 32.6 $ (3.6) (11) % Effective income tax rate 24.4 % 24.0 % Income tax expense decreased to $29.0 million for the third quarter of 2024 from a tax expense of $32.6 million for the comparable period in 2023. Our effective tax rate was 24.4% for the three months ended September 30, 2024 compared to 24.0% for the same period in 2023. For the three months ended September 30, 2024, our effective tax rate was primarily impacted by a non-recurring expense related to a foreign currency gain resulting from an intercompany transaction. For the three months ended September 30, 2023, our effective tax rate was primarily impacted by a non-recurring benefit related to a foreign currency loss resulting from an intercompany transaction. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 26 Table of Contents Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Net Sales. Net sales by brand, product category and channel are summarized in the following table: Nine Months Ended September 30, (in millions, except for percentages) Reported Net Sales 2024 Adjust for Foreign Currency Translation Constant-currency Net Sales 2024 (1) Reported Net Sales 2023 Reported Net Sales % Change Constant-currency Net Sales % Change (1) Brand Net Sales: Columbia $ 1,972.2 $ 13.6 $ 1,985.8 $ 2,043.8 (4)% (3)% SOREL 140.6 0.2 140.8 220.4 (36)% (36)% prAna 81.7 — 81.7 90.8 (10)% (10)% Mountain Hardwear 77.5 0.5 78.0 72.2 7% 8% Total $ 2,272.0 $ 14.3 $ 2,286.3 $ 2,427.2 (6)% (6)% Product Category Net Sales: Apparel, Accessories and Equipment $ 1,818.4 $ 10.5 $ 1,828.9 $ 1,853.2 (2)% (1)% Footwear 453.6 3.8 457.4 574.0 (21)% (20)% Total $ 2,272.0 $ 14.3 $ 2,286.3 $ 2,427.2 (6)% (6)% Channel Net Sales: Wholesale $ 1,274.5 $ 5.6 $ 1,280.1 $ 1,445.1 (12)% (11)% Direct-to-consumer 997.5 8.7 1,006.2 982.1 2% 2% Total $ 2,272.0 $ 14.3 $ 2,286.3 $ 2,427.2 (6)% (6)% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Our global net sales decrease primarily reflects lower wholesale net sales in the U.S. and Canada, partially offset by continued strength in international markets, compared to the same period in 2023. The declines in wholesale net sales have generally resulted from retailer cautiousness and a difficult competitive environment throughout the year, primarily in the U.S and Canada. The strength in international markets has generally resulted from robust consumer demand within many markets of our LAAP and EMEA businesses. DTC net sales increased, reflecting growth in our brick-and-mortar business from temporary and new stores, partially offset by declines in our e-commerce business, compared to the same period in 2023. The declines in e-commerce net sales have resulted from softness in the U.S. throughout the year, which we attribute to a challenging environment for outdoor brands, coupled with efforts to de-emphasize promotions on Columbia.com. Gross Profit. Gross profit is summarized in the following table: Nine Months Ended September 30, (in millions, except for percentages and basis points) 2024 2023 Change Gross profit $ 1,130.5 $ 1,193.7 $ (63.2) (5) % Gross margin 49.8 % 49.2 % 60 bps Gross margin expanded primarily due to the following factors: • favorable other costs, including lower inbound freight costs; and • favorable region and channel net sales mix; partially offset by • unfavorable decrease in channel profitability reflecting higher clearance and promotional activity, partially offset by favorable input costs and product mix. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 27 Table of Contents Selling, General and Administrative Expenses. SG&A expenses are summarized in the following table: Nine Months Ended September 30, (in millions, except for percentages and basis points) 2024 2023 Change Selling, general and administrative expenses $ 1,013.3 $ 1,011.5 $ 1.8 — % Selling, general and administrative expenses as percent of net sales 44.6 % 41.7 % 290 bps SG&A expenses increased primarily due to the following factors: • higher omni-channel expenses of $31.7 million, reflecting higher DTC brick-and-mortar expenses, including costs associated with new stores and temporary clearance locations and personnel expenses; partially offset by • lower supply chain expenses of $26.0 million, reflecting decreased global distribution center expenses resulting from more normalized inventory levels and supply chain optimization efforts; and • lower demand creation expenses, primarily reflecting decreased net sales. Interest Income, Net. Interest income, net is summarized in the following table: Nine Months Ended September 30, (in millions, except for percentages) 2024 2023 Change Interest income, net $ 22.9 $ 8.6 $ 14.3 166 % Interest income, net as a percent of net sales 1.0 % 0.4 % Interest income, net increased, primarily reflecting higher yields on increased levels of 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: Nine Months Ended September 30, (in millions, except for percentages) 2024 2023 Change Income tax expense $ 37.6 $ 48.1 $ (10.5) (22) % Effective income tax rate 23.8 % 23.4 % Income tax expense decreased to $37.6 million through the third quarter of 2024 from $48.1 million for the comparable period in 2023. Our effective tax rate was 23.8% for the nine months ended September 30, 2024 compared to 23.4% for the same period in 2023. For the nine months ended September 30, 2024, our effective tax rate was primarily impacted by a non-recurring benefit related to a decrease in accrued foreign withholding taxes. For the nine months ended September 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. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 28 Table of Contents Results of Operations — Segment Segment operating income includes net sales, cost of sales, SG&A expenses, and net licensing income for each of our four reportable geographic segments. Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023 Net sales by geographic segment are summarized in the following table: Three Months Ended September 30, (in millions, except for percentage changes) Reported Net Sales 2024 Adjust for Foreign Currency Translation Constant-currency Net Sales 2024 (1) Reported Net Sales 2023 Reported Net Sales % Change Constant-currency Net Sales % Change (1) U.S. $ 571.3 $ — $ 571.3 $ 635.4 (10)% (10)% LAAP 135.0 1.7 136.7 115.4 17% 18% EMEA 141.8 0.5 142.3 129.4 10% 10% Canada 83.7 1.9 85.6 105.5 (21)% (19)% $ 931.8 $ 4.1 $ 935.9 $ 985.7 (5)% (5)% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Operating income for each reportable segment and unallocated corporate expenses are summarized in the following table: Three Months Ended September 30, (in millions) 2024 2023 Change U.S. $ 115.4 $ 131.6 $ (16.2) LAAP 20.4 14.5 5.9 EMEA 33.2 34.2 (1.0) Canada 22.4 30.2 (7.8) Total segment operating income 191.4 210.5 (19.1) Unallocated corporate expenses (78.9) (75.9) (3.0) Operating income $ 112.5 $ 134.6 $ (22.1) U.S. U.S. operating income decreased $16.2 million to $115.4 million, or 20.2% of net sales, for the third quarter of 2024 from $131.6 million, or 20.7% of net sales, for the comparable period in 2023. The decrease was driven primarily by decreased net sales and gross margin, partially offset by lower SG&A expenses. U.S. net sales decreased $64.1 million, or 10%, for the third quarter of 2024, compared to the same period in 2023, driven primarily by decreased net sales in our U.S. wholesale business. DTC net sales decreased modestly as a result of lower e-commerce net sales, partially offset by net sales growth from our brick-and-mortar business. The declines in wholesale net sales reflect the impact of lower Fall 2024 wholesale orders as a result of retailer cautiousness and a difficult competitive environment in the U.S., as well as delayed shipment of Fall 2024 wholesale orders in the third quarter compared to earlier shipment of Fall 2023 orders. The declines in e-commerce net sales resulted from continued softness in the U.S., which we attribute to a challenging e-commerce environment for outdoor brands, coupled with efforts to de-emphasize promotions on Columbia.com. The increases in brick-and-mortar net sales were primarily driven by temporary clearance locations and new stores, coupled with increased productivity from existing stores. As of September 30, 2024, our U.S. business operated 42 temporary clearance locations, compared to 36 locations for the comparable period in 2023. In addition, our U.S. business operated 169 retail stores as of September 30, 2024, compared to 159 stores for the comparable period in 2023. U.S. SG&A expenses increased as a percentage of net sales to 30.2% for the third quarter of 2024 compared to 27.6% for the same period in 2023, driven by fixed SG&A expenses and decreased net sales. In total, U.S. SG&A expenses decreased for the third quarter of 2024, compared to the same period in 2023, primarily driven by lower supply chain expenses resulting from more normalized inventory levels and supply chain optimization efforts, as well as lower demand creation expenses, partially offset by higher DTC brick-and-mortar expenses, including costs associated with new stores and temporary clearance locations and personnel expenses. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 29 Table of Contents LAAP LAAP operating income increased $5.9 million to $20.4 million, or 15.1% of net sales, for the third quarter of 2024 from $14.5 million, or 12.6% of net sales, for the comparable period in 2023. The increase was driven primarily by increased net sales and gross margin. LAAP net sales increased 17% (18% constant-currency), for the third quarter of 2024, compared to the same period in 2023, primarily driven by our China and LAAP distributor businesses. Increased net sales in our China business reflected continued strong consumer demand, aided by positive outdoor category trends, compared to the same period in the prior year. Increased net sales in our LAAP distributor business reflected growth in our Fall 2024 distributor orders compared to the same period in the prior year. Japan net sales increased within our DTC and wholesale businesses primarily due to strong international tourism. Korea net sales increased primarily due to wholesale net sales reflecting a higher portion of Fall 2024 wholesale orders shipping in the third quarter compared to the timing of Fall 2023 shipments in the prior year, partially offset by declines in DTC net sales reflecting ongoing consumer demand headwinds. LAAP SG&A expenses decreased as a percentage of net sales to 39.4% for the third quarter of 2024 compared to 42.5% for the same period in 2023, driven by increased net sales. In total, LAAP SG&A expenses increased for the third quarter of 2024, compared to the same period in 2023, primarily driven by higher demand creation expenses. EMEA EMEA operating income decreased $1.0 million to $33.2 million, or 23.4% of net sales, for the third quarter of 2024 from $34.2 million, or 26.5% of net sales, for the comparable period in 2023. EMEA net sales increased $12.4 million, or 10% (10% constant-currency), for the third quarter of 2024, compared to the same period in 2023, primarily driven by our EMEA distributor and Europe-direct businesses. Increased net sales in our EMEA distributor business primarily reflected a higher portion of Fall 2024 distributor orders shipping in the third quarter compared to the timing of Fall 2023 shipments in the prior year and, to a lesser extent, increased Fall 2024 orders. Increased net sales in our Europe-direct business reflect continued momentum and increased traffic within our DTC brick-and-mortar and e-commerce businesses. This net sales increase was partially offset by decreased net sales in our Europe-direct wholesale business driven by later shipment of Fall 2024 orders as compared to the same period in the prior year. EMEA SG&A expenses increased as a percentage of net sales to 26.5% for the third quarter of 2024 compared to 25.0% in 2023, primarily driven by higher personnel expenses and variable DTC expenses. Canada Canada operating income decreased $7.8 million to $22.4 million, or 26.8% of net sales, for the third quarter of 2024 from $30.2 million, or 28.6% of net sales, for the comparable period in 2023. Canada net sales decreased $21.8 million, or 21% (19% constant-currency), for the third quarter of 2024, compared to the same period in 2023, primarily reflecting decreased net sales in our wholesale business. Decreased net sales in our wholesale business primarily reflected the impact of lower Fall 2024 wholesale orders due to retailer cautiousness and a difficult competitive environment in Canada, as well as delayed shipment of Fall 2024 wholesale orders in the third quarter compared to earlier shipment of Fall 2023 orders. DTC net sales decreased modestly as a result of lower e-commerce net sales, partially offset by net sales growth from our brick-and-mortar business. Canada SG&A expenses increased as a percentage of net sales to 22.6% for the third quarter of 2024 compared to 18.2% for the same period in 2023, primarily driven by fixed SG&A expenses and decreased net sales. In total, Canada SG&A expenses decreased for the third quarter of 2024 compared to the same period in 2023. Unallocated Corporate Expenses Unallocated corporate expenses increased by $3.0 million to $78.9 million in the third quarter of 2024, from $75.9 million for the same period in 2023. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 30 Table of Contents Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023 Net sales by geographic segment are summarized in the following table: Nine Months Ended September 30, (in millions, except for percentage changes) Reported Net Sales 2024 Adjust for Foreign Currency Translation Constant-currency Net Sales 2024 (1) Reported Net Sales 2023 Reported Net Sales % Change Constant-currency Net Sales % Change (1) U.S. $ 1,385.9 $ — $ 1,385.9 $ 1,552.0 (11)% (11)% LAAP 373.2 14.0 387.2 345.1 8% 12% EMEA 350.2 (1.3) 348.9 338.5 3% 3% Canada 162.7 1.6 164.3 191.6 (15)% (14)% $ 2,272.0 $ 14.3 $ 2,286.3 $ 2,427.2 (6)% (6)% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Operating income for each reportable segment and unallocated corporate expenses are summarized in the following table: Nine Months Ended September 30, (in millions) 2024 2023 Change U.S. $ 211.8 $ 268.3 $ (56.5) LAAP 48.3 36.9 11.4 EMEA 66.8 69.6 (2.8) Canada 33.5 41.1 (7.6) Total segment operating income 360.4 415.9 (55.5) Unallocated corporate expenses (227.0) (218.7) (8.3) Operating income $ 133.4 $ 197.2 $ (63.8) U.S. U.S. operating income decreased $56.5 million to $211.8 million, or 15.3% of net sales, for the nine months ended September 30, 2024 from $268.3 million, or 17.3% of net sales, for the comparable period in 2023. The decrease was driven primarily by decreased net sales and gross margin, partially offset by lower SG&A expenses. U.S. net sales decreased $166.1 million, or 11%, for the nine months ended September 30, 2024, compared to the same period in 2023, driven primarily by decreased net sales in our U.S. wholesale business. DTC net sales decreased modestly as a result of lower e-commerce net sales, partially offset by net sales growth from our brick-and-mortar business. The declines in wholesale net sales have generally resulted from retailer cautiousness and a difficult competitive environment throughout the year. The declines in e-commerce net sales resulted from continued softness in the U.S., which we attribute to a challenging e-commerce environment for outdoor brands, coupled with efforts to de-emphasize promotions on Columbia.com. The increases in brick-and-mortar net sales were primarily driven by temporary clearance locations and new stores, coupled with increased productivity of existing stores for the nine months ended September 30, 2024. U.S. SG&A expenses increased as a percentage of net sales to 34.7% for the nine months ended September 30, 2024 compared to 32.3% for the same period in 2023, primarily driven by fixed SG&A expenses and decreased net sales. In total, U.S. SG&A expenses decreased for the nine months ended September 30, 2024 compared to the same period in 2023, primarily driven by lower supply chain expenses resulting from more normalized inventory levels and supply chain optimization efforts, as well as lower demand creation expenses, partially offset by higher DTC brick-and-mortar expenses, including costs associated with new stores and temporary clearance locations and personnel expenses. LAAP LAAP operating income increased $11.4 million to $48.3 million, or 12.9% of net sales, for the nine months ended September 30, 2024 from $36.9 million, or 10.7% of net sales, for the comparable period in 2023. The increase was driven primarily by increased net sales and gross margin. LAAP net sales increased $28.1 million, or 8% (12% constant-currency), for the nine months ended September 30, 2024, compared to the same period in 2023, primarily driven by our China business. Increased net sales in our China business reflected continued strong COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 31 Table of Contents consumer demand, aided by positive outdoor category trends. Our LAAP distributor business also saw increased net sales driven by growth in our Fall 2024 orders compared to the same period in the prior year. This net sales increase was partially offset by decreased net sales in our Korea DTC business reflecting a challenging competitive and economic environment. Japan net sales were flat driven by strong demand from increased international tourism which was largely offset by unfavorable foreign currency translation compared to the same period in the prior year. LAAP SG&A expenses decreased as a percentage of net sales to 42.4% for the nine months ended September 30, 2024, compared to 44.6% for the same period in 2023, primarily driven by increased net sales. In total, LAAP SG&A expenses increased for the nine months ended September 30, 2024 compared to the same period in 2023, primarily driven by higher demand creation expenses. EMEA EMEA operating income decreased $2.8 million to $66.8 million, or 19.1% of net sales, for the nine months ended September 30, 2024 from $69.6 million, or 20.6% of net sales, for the comparable period in 2023. The decrease was driven primarily by increased SG&A expenses. EMEA net sales increased $11.7 million, or 3% (3% constant-currency), for the nine months ended September 30, 2024, compared to the same period in 2023, primarily driven by our Europe-direct business. Increased net sales in our Europe-direct business were driven by robust demand throughout our DTC brick-and-mortar and e-commerce businesses. Our EMEA distributor business also saw increased net sales. This net sales increase was partially offset by decreased net sales in our Europe-direct wholesale business. EMEA SG&A expenses increased as a percentage of net sales to 28.6% for the nine months ended September 30, 2024 compared to 26.5% for the same period in 2023, primarily driven by higher personnel expenses and variable DTC expenses. Canada Canada operating income decreased $7.6 million to $33.5 million, or 20.6% of net sales, for the nine months ended September 30, 2024 from $41.1 million, or 21.4% of net sales, for the comparable period in 2023. This decrease was primarily driven by lower net sales and gross margin, partially offset by lower SG&A expenses. Canada net sales decreased $28.9 million, or 15% (14% constant-currency), for the nine months ended September 30, 2024, compared to the same period in 2023, driven primarily by decreased net sales in our Canada wholesale business. DTC net sales increased driven by increases in our brick-and-mortar business, offset by declines in our e-commerce business. Canada SG&A expenses increased as a percentage of net sales to 28.8% for the nine months ended September 30, 2024 compared to 25.2% for the same period in 2023, primarily as a result of fixed expenses and decreased net sales. In total, Canada SG&A expenses decreased for the nine months ended September 30, 2024 compared to the same period in 2023. Unallocated Corporate Expenses Unallocated corporate expenses increased by $8.3 million to $227.0 million for the nine months ended September 30, 2024 from $218.7 million for the same period in 2023. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity include cash, cash equivalents, short-term investments and available committed credit lines. Our liquidity may be affected by the general seasonal trends common to the industry. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. Our cash and cash equivalents and short-term investments balances generally are at their lowest level just prior to the start of the U.S. holiday season and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales. 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. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 32 Table of Contents Cash Flow Activities Cash flows are summarized in the following table: Nine Months Ended September 30, (in millions) 2024 2023 Change Net cash provided by (used in): Operating activities $ (76.6) $ 22.2 $ (98.8) Investing activities 321.1 (38.5) 359.6 Financing activities (284.6) (197.6) (87.0) Net effect of exchange rate changes on cash (3.6) (3.1) (0.5) Net decrease in cash and cash equivalents $ (43.7) $ (217.0) $ 173.3 The change in cash flows used in operating activities was driven by a $55.9 million increase in cash used in changes in assets and liabilities, as well as a $42.9 million decrease in cash provided by net income and non-cash adjustments. The most significant comparative changes in assets and liabilities included Inventories , Prepaid expenses and other current assets , and Accounts payable. The $185.8 million decrease in cash provided by Inventories reflected cash provided of $135.4 million for the nine months ended September 30, 2023 as we liquidated excess inventory levels throughout 2023, as well as cash used of $50.3 million for the nine months ended September 30, 2024 as we aligned inventory supply with anticipated seasonal demand. The $21.8 million decrease in cash provided by Prepaid expenses and other current assets was primarily driven by lower inventory prepayments. These amounts were partially offset by the $135.1 million decrease in cash used in Accounts payable driven by the timing of inventory receipts, including higher in-season inventory, and related payments, including a reduction in the use of early payments. Net cash provided by investing activities was $321.1 million for the nine months ended September 30, 2024, compared to $38.5 million of cash used in investing activities for the nine months ended September 30, 2023. For the 2024 period, net cash provided by investing activities consisted of $751.2 million in cash provided by sales and maturities of short-term investments, partially offset by $388.3 million in cash used for purchases of short-term investments and $41.7 million for capital expenditures. For the 2023 period, net cash used in investing activities consisted of $117.9 million in purchases of short-term investments and $41.4 million for capital expenditures, partially offset by $120.7 million provided by sales and maturities of short-term investments. Net cash used in financing activities was $284.6 million for the nine months ended September 30, 2024 compared to $197.6 million for the nine months ended September 30, 2023. For the 2024 period, net cash used in financing activities primarily consisted of repurchases of common stock of $230.9 million and dividend payments to our shareholders of $52.9 million. For the 2023 period, net cash used in financing activities primarily consisted of repurchases of common stock of $144.6 million and dividend payments to our shareholders of $55.4 million. Sources of Liquidity Cash and cash equivalents and short-term investments As of September 30, 2024, we had cash and cash equivalents of $306.7 million and short-term investments of $67.2 million, compared to $350.3 million and $414.2 million, respectively, as of December 31, 2023 and $213.3 million and $1.5 million, respectively, as of September 30, 2023. 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, 2023 for further information regarding our domestic credit facility. As of September 30, 2024, 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. COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 33 Table of Contents International Credit Facility As of September 30, 2024, 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$4.9 million). There was no balance outstanding under the facility. Other Sources As of September 30, 2024, collectively, our international subsidiaries had unsecured, uncommitted lines of credit, credit facilities and overdraft facilities, providing for borrowings up to approximately US$106.4 million. There was no balance outstanding under these facilities. Capital Requirements Our expected short-term and long-term cash needs are primarily for working capital and capital expenditures. We expect to meet these short-term and long-term cash needs primarily with cash flows from operations and, if needed, borrowings from our existing credit facilities. Our working capital management goals include maintaining an optimal level of inventory necessary to deliver goods on time to our customers and our retail stores to satisfy end consumer demand, alleviating manufacturing capacity constraints, and driving efficiencies to minimize the cycle time from the purchase of inventory from our suppliers to the collection of accounts receivable balances from our customers. Inventory balances may be elevated in advance of periods of expected high demand. As of September 30, 2024, our inventory balance decreased to $798.2 million, compared to $885.2 million as of September 30, 2023, driven by a reduction in current season and carryover inventory resulting from lower inventory buys, as well as the use of our outlet stores and temporary clearance locations to profitably sell excess merchandise. We believe older season inventories represent a manageable portion of our total inventory mix. We have planned 2024 capital expenditures of approximately $60 to $70 million. This includes investments in our DTC operations, including new stores and digital and supply chain capabilities to support our strategic priorities. Our actual capital expenditures may differ from the planned amounts depending on factors such as the timing of system implementations and new store openings and related construction. Our long-term goal is to maintain a strong balance sheet and a disciplined approach to capital allocation. Dependent upon our financial position, market conditions and our strategic priorities, our capital allocation approach includes: • investing in organic growth opportunities to drive long-term profitable growth; • returning at least 40% of free cash flow to shareholders through dividends and share repurchases; and • considering opportunistic mergers and acquisitions. Free cash flow is a non-GAAP financial measure. Free cash flow is calculated by reducing net cash flow from operating activities by capital expenditures. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders and acquisitions after making the capital investments required to support ongoing business operations and long-term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures since it excludes certain mandatory expenditures. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Other cash commitments Our inventory purchase obligations were $437.2 million as of September 30, 2024, compared to $343.4 million and $367.3 million as of December 31, 2023 and September 30, 2023, 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, 2023. CRITICAL ACCOUNTING ESTIMATES Management's discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make various estimates and judgments that affect reported amounts of assets, liabilities, sales, cost of sales, and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting for sales reserves, allowance for uncollectible accounts receivable, excess, close-out and slow-moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results may COLUMBIA SPORTSWEAR COMPANY | Q3 2024 FORM 10-Q | 34 Table of Contents differ from the estimates we use in applying these critical accounting policies and estimates. 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, 2023 for additional information regarding our critical accounting policies and estimates. Management regularly discusses with our audit committee our critical accounting estimates and the development and selection of these accounting estimates. These discussions typically occur at our quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. There have been no significant changes to the Company's significant accounting policies described in Note 2 in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2023. RECENT ACCOUNTING PRONOUNCEMENTS Refer to Note 1 in Part I, Item 1 of this Quarterly Report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has not been any material change in the market risk disclosure contained in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.