Yahoo Finance Strategic Moves Aid Columbia Sportswear (COLM) Despite Obstacles
Columbia Sportswear Company COLM appears well-positioned for long-term growth, supported by its focus on key strategies. The company is on track to enhance operational efficiency and protect profits through its multi-year profit improvement program amid a tough operating landscape in North America and high SG&A costs.
Strategic Priorities Underway
As part of its strategic priorities, Columbia Sportswear intends to continue with its demand creation investments, which are aimed at driving brand awareness and aiding sales. Further, the company remains committed to enhancing consumers’ experience and its digital capacity in all networks and regions.
COLM also explores growth opportunities in the direct-to-consumer (DTC) business and improving support processes. Finally, the company has been keen on investing in its people and optimizing its organization across its brand portfolio. Management remains positive about achieving significant long-term growth opportunities across the business, backed by its strategies.
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Focus on the Profit Improvement Program
Columbia Sportswear is on track to enhance operational efficiency and protect profits through its multi-year profit improvement program. The program targets annual savings of $125-$150 million by 2026, including cost savings of $75-$90 million expected in 2024. Anticipated to ramp up through 2024 and 2025, with full benefits realized by 2026, this profit improvement program marks an integral part of its goal to restore operating margins to a low teens percent rate. This initiative is structured around four key areas of focus, each designed to optimize resources and streamline operations.
Firstly, management aims at generating operational cost savings, with a sharp focus on eliminating expenses associated with excess inventory, as well as enhancing efficiency across the supply chain and distribution network. Secondly, the company targets organizational cost savings through a workforce reduction plan, primarily affecting U.S. corporate teams. With an aim to reduce personnel expenses, the company plans a 3-5% reduction in U.S. corporate personnel costs.
Thirdly, management is committed to operating model improvements, focusing on streamlining decision-making processes and enhancing operating efficiency to drive strategic priorities. By refining ways of working and empowering teams, Columbia Sportswear aims to optimize resource allocation and improve execution capabilities.
Finally, the cost-saving initiative encompasses efforts to cut indirect or non-inventory spending through strategic sourcing and vendor rationalization. While maintaining investments in demand creation, the company seeks to optimize marketing spend to maximize returns, amplifying its impact without compromising on growth objectives.
Demand & Cost Challenges
Columbia Sportswear has been navigating a tough operating landscape in the United States and sluggish overall demand. During the first quarter of 2024, sales declined across most channels, categories and brands. The company saw reduced wholesale net sales (in the United States and Canada), which stemmed from retailer cautiousness, a tough competitive landscape and sluggish overall consumer demand.
North America continues to be the most challenging market. Consumers are still grappling with inflationary pressures that are affecting soft goods demand. Trends in the traditional outdoor category remain weak, particularly in footwear, and retailers are adopting a cautious approach in placing future season orders. For 2024, Columbia Sportswear expects net sales to decline 4-2% to the $3.35-$3.42 billion band. For the second quarter of 2024, COLM anticipates a net sales decline of 10-7% to the $557-$576 million range.
SG&A costs, as a percentage of sales, have been increasing year over year for a while now. In the first quarter of 2024, SG&A expenses, as a percentage of sales, expanded 310 bps to 45.4% due to elevated direct-to-consumer (DTC) expenses. As a percentage of net sales, SG&A expenses are anticipated in the range of 43-43.4% in 2024, up from the 40.6% reported in 2023. For the full-year 2024, the operating margin is expected in the range of 7.7-8.5% compared with 8.9% delivered in 2023.
Wrapping Up
While Columbia Sportswear has near-term hurdles on the way, the company’s long-term prospects look bright, given its brand-enhancing endeavors, strategic priorities and focus on improving profits. Shares of this Zacks Rank #3 (Hold) company have risen 2.7% in the past three months against the industry’s decline of 15.7%.
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Columbia Sportswear Company (COLM) : Free Stock Analysis Report
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