As Asian stores reopen and U.S. business slowly returns, Columbia’s CEO said the firm is “focused on emerging in a stronger competitive position.”
In a Nutshell: Columbia Sportswear Company reported declines in net sales and profitability in the first quarter, reflecting the impact of lower consumer demand resulting from the ongoing COVID-19 pandemic.
Columbia Sportswear said lower consumer demand related to the pandemic began to impact financial performance in China in late January, South Korea and Japan in early February, and North America and Europe in March. Retail traffic trends declined across North America and Europe in early March, prior to store closures that began in mid-March.
In light of the current and anticipated environment, the company took several actions to mitigate the financial impacts of the coronavirus pandemic, including financial liquidity enhancements, capital preservation actions that included suspending dividends and share repurchases, cost containment measures and actions to manage inventory.
Short-term borrowings totaled $174.4 million at quarter’s end. There were no short-term borrowings at March 31, 2019. Inventories increased 11 percent to $577.1 million.
The company said given the ongoing business disruption and uncertainty surrounding the pandemic, it has withdrawn its first-half and full-year 2020 financial outlook and is not providing further full-year outlook updates at this time. Columbia said the second quarter is historically its seasonally lowest sales period and based on current and anticipated store closures, as well as uncertainty regarding retail traffic as stores reopen, it expects a significant decline in second-quarter net sales and an operating loss.
Sales: Net sales for the first quarter ended March 31 decreased 13 percent to $568.2 million, compared to $654.6 million in the year-ago period.
Earnings: Net income decreased nearly 100 percent in the quarter to $200,000 from $74.2 million for the comparable period in 2019.
Loss from operations was $2 million, or 0.3 percent of net sales, compared to first-quarter 2019 operating income of $88 million, or 13.4 percent of net sales. First-quarter 2020 loss from operations include a $21.5 million year-over-year increase in bad debt expense and a $9.2 million year-over-year increase in inventory obsolescence provisions.
The company reported break-even diluted earnings per share, compared to first-quarter 2019 diluted earnings per share of $1.07. Gross margin contracted 360 basis points to 47.8 percent of net sales from 51.4 percent of net sales for the comparable period in 2019.
Sales, general and administrative (SG&A) expenses increased 10 percent to $276.8 million, or 48.7 percent of net sales, from $251.8 million, or 38.5 percent of net sales, for the comparable period in 2019.
CEO’s Take: Tom Boyle, chairman, president and CEO, said: “First quarter results largely reflect the impact of the COVID-19 pandemic, which escalated throughout the quarter as the global effort to contain the pandemic unfolded. It is important to note that we entered into this crisis in a position of strength, with a fortress balance sheet and top quartile operating margin performance in our industry in 2019. As consumers look to make every dollar they spend count within this challenging economic environment, we believe the Columbia brand’s differentiated innovation and exceptional value are as important as ever.
“It is impossible to predict when this crisis will pass, but we have weathered many storms during Columbia’s long history, which spans more than 80 years, and I am confident that we will get through this one, as well,” Boyle added. “We have quickly taken steps to enhance liquidity, preserve capital, contain costs and manage inventory to mitigate the financial impact of the pandemic, and we are keenly focused on emerging in a stronger competitive position. Our long-term commitment to driving sustainable and profitable growth has not changed and our strategic priorities remain to drive brand awareness and sales growth through increased focused demand creation investments, enhanced consumer experience and digital capabilities in all our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems, and invest in our people and optimize our organization across our portfolio of brands.”