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 provide our products through our four brands: Columbia, SOREL, Mountain Hardwear, and prAna; and two major product categories: apparel, accessories and equipment products and footwear products. 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 110 countries and operate in four geographic segments: U.S., LAAP, EMEA, and Canada. 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. ACCELERATE Growth Strategy Last year, we announced the Columbia brand ("Brand") ACCELERATE Growth Strategy. At its core, the ACCELERATE Growth Strategy is intended to elevate the Brand to target a younger and more active consumer. It is a multi-year initiative centered around several consumer-centric shifts to the 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 company-wide 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. 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 the 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. The Profit Improvement Program focuses on four areas of cost reduction and realignment, including: • operational cost savings; • organizational cost savings; • operating model improvements; and • indirect, or non-inventory, spending. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 20 Table of Contents In 2024, our Profit Improvement Program delivered approximately $90 million in realized cost savings, net of approximately $3 million of severance costs. In 2025, in response to ongoing SG&A expense and operating profit pressures, we have initiated a review of our cost structure as we pursue additional cost savings, beyond the previously stated $125 to $150 million target. On a cumulative basis, actions executed in 2024 and planned for 2025 are intended to yield annualized cost savings exceeding $150 million. Our review of the Company's cost structure is ongoing, as we seek additional savings and respond to tariff-induced pressures on profitability. These actions are intended to lower the Company's SG&A expenses as a percentage of consolidated net sales and to increase the Company's operating margin, over time. Business Environment and Trends Tariffs Uncertainty | We are headquartered in the U.S. and are subject to the laws and regulations governing companies operating in the U.S. In April 2025, the U.S. presidential administration announced an incremental tariff of 10 percent on products imported into the U.S. from most countries, with the potential for these incremental tariffs to move much higher. These incremental tariffs are in addition to the product-based tariffs the Company already pays for its imported goods into the U.S. These actions, and the potential for retaliatory actions by other countries and their consumers, have led to significant volatility and uncertainty in global markets. We originally planned for Vietnam, Bangladesh, Indonesia, and India to represent approximately 44 percent, 22 percent, 11 percent, and 10 percent, respectively, of our finished goods imports into the U.S. in 2025. Additionally, we originally planned for China to represent a low-single-digit percent of our finished goods imports into the U.S. in 2025. These percentages were based on our original plan and will likely change based on our tariff mitigation strategies. While we have very little direct exposure to the new U.S. tariffs on products from China, China remains a strategically important country for us, and we intend to continue investing in product creation capabilities in China and remain committed to manufacturing in China to support our China direct business as well as other international markets. While the final scope and application of these incremental tariffs remain uncertain at this time, higher tariffs on U.S. imports are already adversely impacting our U.S. p roduct input costs. We expect these incremental tariffs may also impact demand for our products as consumers weigh discretionary spending. While we are currently continuing to import products into the U.S. to meet delivery deadlines and take advantage of the 90-day tariff pause, decisions across the industry could potentially lead to broader supply chain disruptions. We expect our inventories to also be impacted by a reduction in consumer and customer demand and are rationalizing Fall 2025 and Spring 2026 inventory buys, while seeking to preserve our strategic sourcing relationships, in order to reduce the risk of excess inventory. For Fall 2025, we are focused on maximizing our marketplace opportunity. We are working with our wholesale partners to deliver value to consumers and keep inventory and wholesale partner margins healthy. As a result, at this point in time, we expect to absorb much of the incremental tariff cost related to Fall 2025 in 2025 and early in 2026 as the costs are realized. For 2026, we are contemplating strategies to offset the impact of higher U.S. tariffs on our business. Our team of experts is exploring possibilities to mitigate the impact of increased tariffs including to re-design, re-develop, re-resource and re-price products, among other mitigation tactics. Our tariff mitigation strategy will evolve in response to trade policy changes. We continue to monitor the changing tariff and trade restrictions and have taken several actions in response to the announced tariffs to reduce costs and capital outflows, including domesticating all on-hand U.S. inventory through our owned Foreign Trade Zone distribution centers prior to the April 2 nd announcement, taking actions to restrain discretionary spending and making progress against our Profit Improvement Program. Retaliatory actions and anti-American consumer sentiment may also adversely impact our ability to compete in other regions of the world. Heightened Geopolitical Risk | We sell our products in more than 110 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 will continue to manifest themselves in certain regions where we operate. Evolving North America Strategy | Over the past year, U.S. consumer demand for traditional outdoor apparel and footwear brands softened and remains lackluster. This weakness can be attributed to several factors, including a highly competitive environment as many brands have shifted their strategies and new brands have entered the marketplace to capitalize on the emergence of casual and lifestyle trends. In response to marketplace trends and to drive profitable growth, the Columbia brand created the ACCELERATE Growth Strategy, to retain our historical value-oriented consumers while attracting younger and more active consumers to the Columbia brand. As part of the Columbia brand ACCELERATE Growth Strategy, we are approaching the North America marketplace with an updated omni-channel perspective and evaluating how, when, and where we utilize promotions across all channels, creating new product assortments and enhancing our marketing to attract these younger and more active consumers. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 21 Table of Contents During 2024, we shifted our marketing strategies for the Columbia brand's U.S. direct-to-consumer ("DTC") e-commerce business to become less promotional, in order for Columbia.com to represent the best expression of the Brand. In our DTC brick-and-mortar business, we have opened a small number of branded stores in high-traffic shopping malls in North America. These new branded stores feature elevated product assortments that showcase Columbia’s apparel and footwear innovations. These stores join the hundreds of Columbia branded stores that raise the image of the Brand in important international markets. Within our U.S. wholesale business, we are implementing pricing, promotional and segmentation strategies that are also intended to elevate the positioning of the Brand in the marketplace. While we expand the Columbia brand's North America target consumer, we intend to continue serving our core consumer base that is focused primarily on value. To capture demand associated with value-oriented consumers, we have increasingly relied on our fleet of DTC brick-and-mortar outlet stores. We remain committed to increasing our investment in demand creation in 2025 to bring our new highly differentiated marketing campaign and enhanced product assortment to life. We are also leveraging modern digital and social-first strategies to be more efficient and effective with our demand creation investments. In this period of tariff turmoil, we believe we have the opportunity to set ourselves apart. International Trends | We haven’t seen a meaningful change in trends in most of our international businesses, which were quite healthy in the first quarter. Across our LAAP and EMEA markets, our product offerings, marketing activations and marketplace strategies, are working to create a more premium Columbia brand experience. However, it is not possible to predict the extent to which U.S. tariff actions will impact international economic growth and consumer demand for our products globally. 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 U.S. 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 U.S. dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period into U.S. 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 of 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 | Q1 2025 FORM 10-Q | 22 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 March 31, (in thousands, except for percentage of net sales and per share amounts) 2025 2024 Net sales $ 778,452 100.0 % 769,982 100.0 % Cost of sales 382,395 49.1 % 380,423 49.4 % Gross profit 396,057 50.9 % 389,559 50.6 % Selling, general and administrative expenses 354,471 45.5 % 349,270 45.4 % Net licensing income 4,922 0.6 % 4,392 0.6 % Operating income 46,508 6.0 % 44,681 5.8 % Interest income, net 6,817 0.9 % 9,197 1.2 % Other non-operating income, net 1,551 0.2 % 271 — % Income before income tax 54,876 7.0 % 54,149 7.0 % Income tax expense 12,628 1.6 % 11,849 1.5 % Net income $ 42,248 5.4 % $ 42,300 5.5 % Diluted earnings per share $ 0.75 $ 0.71 COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 23 Table of Contents Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Net Sales. Net sales by brand, product category and channel are summarized in the following table: Three Months Ended March 31, (in thousands, except for percentages) Reported Net Sales 2025 Adjust for Foreign Currency Translation Constant-currency Net Sales 2025 (1) Reported Net Sales 2024 Reported Net Sales % Change Constant-currency Net Sales % Change (1) Brand net sales: Columbia $ 683,121 $ 12,470 $ 695,591 $ 663,965 3% 5% SOREL 42,205 515 42,720 45,660 (8)% (6)% prAna 28,114 8 28,122 31,298 (10)% (10)% Mountain Hardwear 25,012 298 25,310 29,059 (14)% (13)% Total $ 778,452 $ 13,291 $ 791,743 $ 769,982 1% 3% Product category net sales: Apparel, accessories and equipment $ 628,820 $ 10,312 $ 639,132 $ 619,054 2% 3% Footwear 149,632 2,979 152,611 150,928 (1)% 1% Total $ 778,452 $ 13,291 $ 791,743 $ 769,982 1% 3% Channel net sales: Wholesale $ 399,769 $ 6,421 $ 406,190 $ 390,897 2% 4% Direct-to-consumer 378,683 6,870 385,553 379,085 —% 2% Total $ 778,452 $ 13,291 $ 791,743 $ 769,982 1% 3% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Our global net sales increase was driven by growth within our LAAP and EMEA regions, partially offset by declines in Canada and the U.S., as compared to the same period in 2024. The growth in our LAAP and EMEA net sales was largely driven by the strength of our Columbia brand within our wholesale business across many markets. The strength in our Columbia brand was attributable to the execution of our business strategies, as well as to the benefit of certain trends and/or factors favorably impacting the outdoor apparel and footwear sector. The declines in Canada and the U.S. were primarily driven by retailer cautiousness and increased competition within the outdoor lifestyle category, coupled with a difficult macroeconomic environment as global economic uncertainty weighs on consumer sentiment, particularly in the U.S. Gross Profit. Gross profit is summarized in the following table: Three Months Ended March 31, (in thousands, except for percentages and basis points) 2025 2024 Change Gross profit $ 396,057 $ 389,559 $ 6,498 2 % Gross margin 50.9 % 50.6 % 30 bps Gross margin expanded due to several factors including a favorable increase in channel profitability reflecting lower outbound shipping expenses, higher closeout margins, and favorable Spring 2025 product input costs. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 24 Table of Contents Selling, General and Administrative Expenses. SG&A expenses are summarized in the following table: Three Months Ended March 31, (in thousands, except for percentages and basis points) 2025 2024 Change Selling, general and administrative expenses $ 354,471 $ 349,270 $ 5,201 1 % Selling, general and administrative expenses as percent of net sales 45.5 % 45.4 % 10 bps SG&A expenses increased primarily due to the following factors: • higher omni-channel expenses, reflecting higher DTC brick-and-mortar expenses associated with new stores; and • higher demand creation expenses, reflecting our increased investment in demand creation in line with our ACCELERATE Growth Strategy. Interest Income, Net. Interest income, net is summarized in the following table: Three Months Ended March 31, (in thousands, except for percentages) 2025 2024 Change Interest income, net $ 6,817 $ 9,197 $ (2,380) (26) % Interest income, net as a percent of net sales 0.9 % 1.2 % Interest income, net, decreased primarily reflecting lower yields on decreased 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 March 31, (in thousands, except for percentages) 2025 2024 Change Income tax expense $ 12,628 $ 11,849 $ 779 7 % Effective income tax rate 23.0 % 21.9 % Income tax expense increased to $12.6 million for the three months ended March 31, 2025 from a tax expense of $11.8 million for the comparable period in 2024. Our effective tax rate was 23.0% for the three months ended March 31, 2025 compared to 21.9% for the comparable period in 2024. For the three months ended March 31, 2025, our effective income tax rate increased as compared to the same period in 2024 due to discrete non-deductible compensation tax adjustments included in the current period. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 25 Table of Contents Results of Operations — Segment Segment operating income includes net sales, cost of sales, segment SG&A expenses, and other segment items for each of our four reportable segments. For each reportable segment, other segment items include certain corporate expenses and net licensing income allocated to each of the reportable segments, as well as net licensing income directly attributable to each of the reportable segments. Refer to Note 16 in Part II, Item 8 of our Annual Report on Form 10-K for further information. Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Net sales by reportable segment are summarized in the following table: Three Months Ended March 31, (in thousands, except for percentage changes) Reported Net Sales 2025 Adjust for Foreign Currency Translation Constant-currency Net Sales 2025 (1) Reported Net Sales 2024 Reported Net Sales % Change Constant-currency Net Sales % Change (1) U.S. $ 471,181 $ — $ 471,181 $ 474,406 (1)% (1)% LAAP 152,210 5,263 157,473 138,646 10% 14% EMEA 107,480 4,438 111,918 104,520 3% 7% Canada 47,581 3,590 51,171 52,410 (9)% (2)% $ 778,452 $ 13,291 $ 791,743 $ 769,982 1% 3% (1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information. Segment operating income for each reportable segment and unallocated corporate expenses are summarized in the following table: Three Months Ended March 31, (in thousands) 2025 2024 Change U.S. $ 65,954 $ 72,993 $ (7,039) LAAP 26,330 21,822 4,508 EMEA 18,978 19,146 (168) Canada 8,963 11,168 (2,205) Total segment operating income 120,225 125,129 (4,904) Unallocated corporate expenses (73,717) (80,448) 6,731 Operating income $ 46,508 $ 44,681 $ 1,827 U.S. U.S. segment operating income decreased $7.0 million to $66.0 million, or 14.0% of net sales, for the first quarter of 2025 from $73.0 million, or 15.4% of net sales, for the comparable period in 2024. The decrease was driven primarily by decreased net sales and gross profit combined with increased segment SG&A expenses. U.S. net sales decreased $3.2 million, or 1%, for the first quarter of 2025, compared to the same period in 2024, driven primarily by decreased net sales in our U.S. DTC e-commerce business, partially offset by growth in our U.S. DTC brick-and-mortar business. The declines in our e-commerce net sales were attributable to a challenging e-commerce environment for outdoor brands and increased competition within the outdoor lifestyle category, coupled with a difficult macroeconomic environment as global economic uncertainty weighs on consumer sentiment. The growth in our brick-and-mortar business was primarily driven by new stores for the three months ended March 31, 2025. As of March 31, 2025, our U.S. business operated 169 retail stores, compared to 161 stores as of March 31, 2024. Our U.S. wholesale business remained relatively flat, reflecting a modest increase in Spring 2025 shipments as compared to the same period in 2024. U.S. segment SG&A expenses increased as a percentage of net sales to 31.1% for the first quarter of 2025, compared to 29.3% for the same period in 2024. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 26 Table of Contents LAAP LAAP segment operating income increased $4.5 million to $26.3 million, or 17.3% of net sales, for the first quarter of 2025 from $21.8 million, or 15.7% of net sales, for the comparable period in 2024. The increase was driven primarily by increased net sales and gross profit. LAAP net sales increased $13.6 million, or 10% (14% constant-currency), for the first quarter of 2025, compared to the same period in 2024, primarily driven by increased net sales in our China, LAAP distributor, and Japan businesses, partially offset by declines in our Korea business. The growth in our China business reflected continued strong consumer demand which we believe was attributable to the execution of our marketplace strategies, including premium product offerings and marketing activations. The growth was further aided by positive outdoor category trends as compared to the same period in 2024. The growth in our LAAP distributor business was driven by double-digit growth in our Spring 2025 orders as compared to the same period in 2024. The growth in our Japan business was driven by strong consumer demand for late season winter products across all channels, as compared to the same period in 2024. The declines in our Korea business reflected unfavorable effects from foreign currency fluctuation, which more than offset constant-currency net sales growth resulting from consumer demand for late season winter products. LAAP segment SG&A expenses decreased as a percentage of net sales to 34.9% for the first quarter of 2025, compared to 36.2% for the same period in 2024, primarily driven by increased net sales. In total, LAAP segment SG&A expenses increased 5.7% for the three months ended March 31, 2025 as compared to the same period in 2024. EMEA EMEA segment operating income decreased $0.2 million to $19.0 million, or 17.7% of net sales, for the first quarter of 2025 from $19.1 million, or 18.3% of net sales, for the comparable period in 2024. The decrease was driven primarily by increased segment SG&A expenses. EMEA net sales increased $3.0 million, or 3% (7% constant-currency), for the first quarter of 2025, compared to the same period in 2024, primarily driven by our Europe-direct business, partially offset by a decline in our EMEA distributor business. The growth in our Europe-direct business was primarily driven by robust demand within our DTC brick-and-mortar businesses that we believe was attributable to the execution of our marketplace strategies, including marketing activations and elevating the in-store consumer experience. The decline in our EMEA distributor business was driven by a shift of Spring 2025 shipments out of the first quarter of 2025 into the second quarter of 2025, partially offset by growth in our Spring 2025 orders as compared to the same period in 2024. EMEA segment SG&A expenses increased as a percentage of net sales to 29.9% for the first quarter of 2025, compared to 27.6% for the same period in 2024. Canada Canada segment operating income decreased $2.2 million to $9.0 million, or 18.8% of net sales, for the first quarter of 2025 from $11.2 million, or 21.3% of net sales, for the comparable period in 2024. The decrease was primarily driven by lower net sales and gross profit combined with increased segment SG&A expenses. Canada net sales decreased $4.8 million, or 9% (2% constant-currency), for the first quarter of 2025, compared to the same period in 2024, driven by decreased net sales in our Canada wholesale and DTC businesses. The declines in our wholesale and DTC businesses resulted from retailer cautiousness. Canada segment SG&A expenses increased as a percentage of net sales to 24.3% for the first quarter of 2025, compared to 19.8% for the same period in 2024. Unallocated Corporate Expenses Unallocated corporate expenses decreased by $6.7 million to $73.7 million for the first quarter of 2025 from $80.4 million for the same period in 2024, driven by lower personnel expenses. LIQUIDITY AND CAPITAL RESOURCES Our primary sources of liquidity include cash, cash equivalents, short-term investments, and available committed credit lines. Our liquidity is 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. We expect that our cash position will be impacted by incremental tariff costs for U.S. product in the third and fourth quarter of 2025 in a meaningful way. To the extent necessary in the third and fourth quarter of 2025, we have a $500 million committed credit facility on which we can draw until we receive fourth quarter cash receipts. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 27 Table of Contents Cash Flow Activities Cash flows are summarized in the following table: Three Months Ended March 31, (in thousands) 2025 2024 Change Net cash provided by (used in): Operating activities $ (32,038) $ 106,773 $ (138,811) Investing activities (61,431) 37,109 (98,540) Financing activities (118,649) (71,343) (47,306) Net effect of exchange rate changes on cash 3,588 (4,396) 7,984 Net increase (decrease) in cash and cash equivalents $ (208,530) $ 68,143 $ (276,673) The change in cash flows used in operating activities was driven by a $142.0 million decrease in cash provided by changes in assets and liabilities, as well as a $3.2 million increase in cash provided by net income and non-cash adjustments. The most significant comparative changes in assets and liabilities included Inventories , Accounts payable and Accrued Liabilities. The $60.1 million decrease in cash provided by Inventories reflected cash provided of $131.7 million for the three months ended March 31, 2024 as we liquidated excess inventory levels, as compared to cash provided of $71.6 million for the three months ended March 31, 2025 as we replenished inventory levels to align inventory supply with anticipated seasonal demand. The $40.3 million increase in cash used in Accounts Payable was primarily driven by the timing of inventory receipts, including higher in-season inventory, and increased related payments for the three months ended March 31, 2025 as compared to March 31, 2024 . The $22.0 million increase in cash used in Accrued liabilities primarily reflected a decrease in our sales returns reserve for specific wholesale customers as compared to March 31, 2024 . Net cash used in investing activities was $61.4 million for the three months ended March 31, 2025, compared to $37.1 million of cash provided by investing activities for the three months ended March 31, 2024. The decrease in cash provided by investing was primarily driven by higher purchases of short-term investments in the first quarter of fiscal 2025, as compared to the first quarter of fiscal 2024. Net cash used in financing activities was $118.6 million for the three months ended March 31, 2025 compared to $71.3 million for the three months ended March 31, 2024. The increase in cash used in financing in the first quarter of fiscal 2025 was primarily driven by higher share repurchases of common stock, as compared to the first quarter of fiscal 2024. Sources of Liquidity Cash and cash equivalents and short-term investments As of March 31, 2025, we had cash and cash equivalents of $323.3 million and short-term investments of $335.1 million, compared to $531.9 million and $283.6 million, respectively, as of December 31, 2024 and $418.5 million and $369.3 million, respectively, as of March 31, 2024. Committed Credit Facilities As of March 31, 2025, 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. Refer to Note 6 in Part II, Item 8 of our Annual Report on Form 10-K for further information regarding our domestic credit facility. Further, as of March 31, 2025, 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. Uncommitted Credit Facilities As of March 31, 2025, collectively, our international subsidiaries had unsecured, uncommitted lines of credit, credit facilities and overdraft facilities, providing for borrowings up to approximately US$98.9 million. There were no balances outstanding under these facilities. COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 28 Table of Contents 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 and cash equivalents, short-term investments, 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 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 March 31, 2025, our inventory balance increased to $623.7 million, compared to $607.4 million as of March 31, 2024, as we replenished inventory levels to align inventory supply with anticipated seasonal demand, as compared to the same period in 2024 which saw inventory levels decrease as we liquidated excess inventory levels. We believe older season inventories represent a manageable portion of our total inventory mix. We have planned 2025 capital expenditures of approximately $60 to $80 million. This includes investments in our DTC operations, including new stores and supply chain and digital 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 $708.6 million as of March 31, 2025, compared to $473.0 million and $675.0 million as of December 31, 2024 and March 31, 2024, 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, 2024. 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 base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances. The business and economic uncertainty resulting from volatile geopolitical conditions, including expanded tariffs, have made such estimates and assumptions more difficult to calculate. Accordingly, actual results may differ from these estimates and assumptions. 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. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 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 COLUMBIA SPORTSWEAR COMPANY | Q1 2025 FORM 10-Q | 29 Table of Contents 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, 2024. 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, 2024.