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Columbia Sportswear’s Q2 Results Show How Inflation Is Weighing on Consumer Demand

Columbia Sportswear Company is the latest retailer to see an impact from shifting consumer habits amid inflation.

The Portland, Ore.-based company on Wednesday reported that net income decreased 82% to $7.2 million, or $0.11 per diluted share. Net sales increased 2% to $578.1 million, compared to Q2 of 2021.

As of Thursday morning, shares of Columbia were down more than 3%.

In a call with investors, Columbia CEO Tim Boyle said that the results were impacted by inflationary pressures, rising interest rates and recession fears. As a result, the company lowered its full year outlook and now expects net sales to increase between 10 and 12 percent to $3.44 to $3.50 billion. This outlook accounts for an expected increase in order cancellations, fewer DTC sales and a more promotional environment.

“The economic news, inflation in particular, and just risk of recession has continued to weigh on the minds of the U.S. consumer,” said CFO Jim Swanson, who said that the impact has been seen though lighter traffic levels and less demand in the second half of Q2 and through July.

As a result of a more conservative consumer, Columbia is dealing with higher-than-usual inventories, up 42% in the quarter. That could take some time to work through.

“We expect a few quarters of significant margin compression as they work through excess inventory as demand for apparel plummets,” wrote equity analyst at CFRA Research Zachary Warring in a note to investors, downgrading the stock from “Buy” to “Hold.”

Higher than usual inventories due to shifting spending habits has been a problem for other retailers as well, especially as consumer prices surge at record highs. Executives from Target, Foot Locker, Macy’s and more said last quarter that they expect to see a surge in discounts as they look to correct their large levels of inventory. Steve Madden CEO Edward Rosenfeld said on Wednesday that it has seen a slowdown in sales across wholesale and DTC channels, as consumers pull back spend.

To liquidate inventory, Boyle said the company has an advantage via its outlet chain, which can be used to offload items if needed. He also noted that a large percentage of this inventory includes evergreen items, which can be sold year round.

“We’ve got the potential to improve our situation,” Boyle said. “But a lot of it is depending on what the consumer does in the next few months.”

Despite the conservative outlook for 2022, Columbia is still seeing wins across its business. Sorel was its fastest growing brand in Q2, with net sales up 24%.

“Sorel’s potential to become a $1 billion footwear brand is evident, and we’re investing in demand creation and product design to fuel that growth,” Boyle said.

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