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Columbia Sportswear Suffers Covid Hangover in Q3

E-commerce was a bright spot in a bleak quarter for Columbia Sportswear, as was its liquidity position.

In a Nutshell: Columbia Sportswear reported lower net sales and profitability in the third quarter compared to a year earlier, primarily reflecting the ongoing negative effects of the coronavirus pandemic.

For the fourth quarter, the company forecast net sales of $850 million to $880 million, representing a net sales decline of 8 percent to 11 percent. Operating income of $91 million to $112 million is expected, representing an operating margin of 10.7 to 12.7 percent. Diluted earnings per share (EPS) is projected to be $1.07 to $1.32.

The specialist in active outdoor lifestyle apparel, footwear, accessories and equipment said there are significant business uncertainties and risks surrounding the ongoing pandemic, economic conditions, logistics capacity constraints, global geopolitical tensions and changes in consumer behavior and confidence that are not captured in the outlook, which assumes no material deterioration or disruption to its current business operations, consumer demand or services performed by third-party logistics providers. Recent pandemic containment actions in Europe are also not captured.

Columbia said the ongoing pandemic has created a combination of production, distribution and logistics bottlenecks in its supply chain. During the quarter, the company realized $45 million in sales, general and administrative (SG&A) savings from lower variable expenses and cost containment actions and is on track to exceed $100 million in annual cost savings in comparison to last year, before extraordinary expenses related to the Covid-19 pandemic.

The company exited the quarter with $314.5 million in cash and short-term investments, no bank debt and nearly $1 billion in total liquidity. Inventories increased 8 percent to $771.7 million in the quarter, compared to $717.4 million at Sept. 30, 2019.

Sales: Net sales for the third quarter ended Sept. 30 decreased 23 percent to $701.1 million compared to the same period in 2019. Excluding approximately $45 million of Fall 2020 shipments shifting into fourth quarter 2020, third quarter net sales would have decreased 18 percent.

In the direct-to-consumer channel, e-commerce net sales increased 55 percent year-over-year, while brick and mortar store traffic and sales trends remained well below prior year levels, the company reported.

Earnings: Net income fell 47 percent to $62.8 million, or 94 cents per diluted share, from net income of $119.3 million, or $1.75 per diluted share, for the prior-year period.

Gross margin contracted 40 basis points to 48.9 percent of net sales, from 49.3 percent of net sales for the comparable period in 2019.

Operating income decreased 44 percent to $85.6 million, or 12.2 percent of net sales, compared to third quarter 2019 operating income of $152.0 million, or 16.8 percent of net sales.

CEO’s Take: Tim Boyle, chairman, president and CEO, said: “I’m pleased to report third quarter results exceeded our internal forecast. While results were down substantially in comparison to last year, sales and profitability trends sequentially improved compared to the second quarter and we expect continued improvement in the fourth quarter and into 2021. E-commerce was once again a bright spot, with net sales surging 55 percent year-over-year. During the quarter, we successfully completed the deployment of our new e-commerce platform, X1, with implementation in North America for the Columbia, Sorel and Mountain Hardwear brands, following a successful deployment across Europe and prAna in 2019. The newly refreshed sites have been aesthetically enhanced and are delivering an improved consumer experience right in time for the peak holiday sales season.

“While we are early in the Fall 2020 season, I’m encouraged by early sell-through and reorder trends within the U.S. wholesale channel,” Boyle added. “This Fall we are celebrating the 10th anniversary of Columbia’s best-selling winter technology, Omni-Heat, with marketing and social media events throughout the fourth quarter. We plan to build on this momentum for Fall 2021 with the introduction of Omni-Heat Infinity, the newest innovation in the Omni-Heat proprietary technology family which provides significantly more heat reflection, and dramatically different visual appearance to the consumer. Looking to 2021, our spring order book and expectation for a return to growth in our direct-to-consumer business would indicate high-teens percent net sales growth in the first half of 2021. Outdoor recreational activities are surging during the pandemic and we are well positioned to equip these outdoor adventurers with our innovative product line.”

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