Gross margin up by 210 basis points
Columbia Sportswear’s (COLM) sales surged 7.8% to $654.61 million, and its adjusted EPS rose 39% to $1.07 in the first quarter of 2019. The company’s gross margin increased by an impressive 210 basis points to 51.4% in the first quarter, reflecting the favorable impact of initiatives undertaken through the company’s Project CONNECT, a higher proportion of full-price products in the wholesale channel sales mix, favorable foreign currency hedge rates, and a higher DTC direct-to-consumer sales mix.
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Columbia Sportswear’s operating margin increased by 360 basis points on a reported basis and 180 basis points on an adjusted basis to 13.4% in the first quarter of 2019. The company’s adjusted operating margin comparison excludes the impact of expenses associated with Project Connect that were recorded in 2018’s first quarter.
The operating margin expansion in the first quarter was driven by higher gross margin, partially offset by 20 basis points deleverage in the selling, general, and expense rate on an adjusted basis caused by investments to support DTC operations, higher personnel expenses, and a rise in demand creation expense.
Columbia Sportswear upgraded its 2019 margin outlook after delivering strong margins in the first quarter. Columbia Sportswear now expects its gross margin to expand by 80 basis points to about 50.3% in 2019. Columbia Sportswear earlier predicted 70 basis points expansion in its gross margin to 50.2%.
Columbia Sportswear expects its operating margin in the range of 12.7% to 12.9% in 2019, compared to the previously issued guidance of 12.4% to 12.6%. The company’s operating margin was 12.5% in 2018. The company expects its operating margin contraction to be flat to 20 basis points compared to the adjusted operating margin of 12.9% in 2018. The pressure on the adjusted operating margin is expected to be caused by accelerated investments in the company’s strategic priorities.