Columbia's Profit Swing Rides One-Time Tariff Refund, Not Demand
Columbia Sportswear swung to $0.52 in diluted earnings per share in the second quarter, but a $78 million IEEPA tariff refund accounted for $0.93 of that figure, implying underlying results were negative.
Columbia Sportswear (COLM), the outdoor-apparel and footwear maker behind the Columbia, SOREL, prAna and Mountain Hardwear brands, reported second-quarter diluted earnings of $0.52 a share, reversing a $0.19 loss a year earlier. The swing traced almost entirely to a one-time item: a roughly $78 million refund of previously paid tariffs under the International Emergency Economic Powers Act.
Of that refund, $62 million was recognized in earnings, $60 million of it booked in cost of sales and $2 million as interest income, with the remaining $15 million applied as an inventory reduction that will benefit cost of sales in future periods. The tariff refund alone contributed $0.93 to diluted EPS, meaning the underlying business ran at a loss for the quarter once the one-time benefit is stripped out.
Net sales rose 2% year over year to $614.4 million, or 1% in constant currency, a deceleration from the roughly flat sales Columbia posted in the first quarter and a reversal from the 2% decline recorded in the fourth quarter of 2024. Gross margin expanded 920 basis points to 58.3%, but nearly all of that expansion, about 980 basis points, came from the tariff refund rather than pricing, mix or cost control; the first quarter had shown a 20-basis-point margin contraction on the same underlying basis. Operating income swung to $30.9 million, or 5.0% of sales, from an operating loss of $23.6 million a year earlier, a $54.5 million improvement almost entirely attributable to the refund. SG&A expenses deleveraged to 54.1% of sales from 53.8%, as higher direct-to-consumer store impairment charges and new store costs outweighed savings from the prior year's Profit Improvement Program.
Geography told a more consistent story than the tariff windfall. U.S. net sales fell 4% to $320.1 million, continuing a pattern of domestic softness that has persisted for three straight quarters, while Latin America and Asia Pacific grew 12% and EMEA grew 10%. Among brands, SOREL was the weakest performer, with sales down 14% in both the quarter and the first half, compared with a 1% gain at the flagship Columbia brand, a 14% decline at prAna and 6% growth at Mountain Hardwear.
Columbia raised full-year guidance for gross margin, operating margin and EPS for a third consecutive quarter, lifting the gross-margin outlook to 52.1%-52.3% from 50.3%-50.5% in the first quarter, operating margin to 8.5%-9.3% from 6.7%-7.5%, and diluted EPS to $4.45-$4.90 from $3.55-$4.00. Full-year net sales guidance, by contrast, held unchanged at $3.43 billion to $3.50 billion across the past three releases, indicating the improved outlook is a function of the tariff refund and margin mechanics rather than stronger demand. For the third quarter, Columbia guided to net sales of $929 million to $943 million, a decline of as much as 1.5% from the $943 million posted a year earlier, the first quarter this cycle for which the company has guided to an outright sales decline, which it attributed in part to Fall 2025 shipments shifting into the fourth quarter.
Columbia also lowered its full-year operating cash flow guidance slightly, to $290 million to $310 million from $300 million to $330 million, even as it raised EPS guidance. Inventories fell 6% year over year to $874.8 million and cash and short-term investments rose to $624.6 million from $579.0 million, but share repurchases stopped after $150.0 million bought back in the first quarter; the company repurchased no shares in the second quarter, leaving $276.5 million remaining under its authorization. Columbia disclosed no new detail in the anchor release on the co-president succession structure it announced on November 12, 2024, under which Peter J. Bragdon and Joseph P. Boyle were named co-presidents alongside continuing Chief Executive Tim Boyle.