Columbia Sportswear’s second-quarter net sales decreased 40 percent to $316.6 million on net losses of $50.7 million. In the U.S., net sales fell 42 percent with the steepest decline in April, though things improvement slightly in May and June as stores reopened. Across markets, e-commerce sales increased 72 percent year-over-year, partially offsetting the declines in brick-and-mortar store traffic and sales.
“Nearly all” of the company’s 450 directly operated global stores have been reopened, according to Columbia Sportswear chairman, president and CEO, Tim Boyle. But the company did confirm that some underperforming stores will close in 2021.
In a Nutshell: “We anticipate the second quarter will prove to be the steepest year-over-year quarterly percent decline in net sales of the year,” Boyle said in a statement. The company expects sales volume to stay below prior year levels for the balance of the year.
Based on cost-containment actions and lower variable expenses, which include lowering personnel-related expenses, reducing demand creation spend and minimizing discretionary expenditures, Columbia remains on track to lower 2020 operating expenses by more than $100 million.
The company continues to evaluate further actions to “right size” the ongoing expense structure in 2021 and beyond. These actions will include the permanent closure of a “small” but undisclosed number of underperforming retail stores. The company is presently engaging with landlords in lease discussions, which should result in rent abatement and reductions of ongoing lease costs.
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Inventories increased 7 percent to $806.9 million, compared to $756.4 million in the year-ago period. Despite supply chain disruptions related to the pandemic that occurred earlier in the year, Columbia expects to deliver the vast majority of its fall orders on time, according to Boyle.
“While unsold and aged inventories are higher than they were a year ago, we remain confident in our ability to profitably sell remaining inventory in current and future seasons, leveraging the company’s wholesale partners, e-commerce platforms, and fleet of outlet stores,” he said on a company earnings call. “I’m also encouraged that in some parts of the world, particularly the U.S., retailer spring 2020 inventory positions are much cleaner than we would have anticipated when the outbreak began.”
Wholesale has continued to be a problem area for Columbia, both due to the store closures throughout the pandemic and the ensuing bankruptcies. The company continues to maintain a “bad debt” reserve that is significantly elevated in anticipation of additional retail pressure, meaning payments have still not been received from retail partners.
Cash and short-term investments totaled $475.8 million and total liquidity exceeded $1 billion at quarter-end.
Selling, general and administrative (SG&A) expenses decreased 10 percent to $217.7 million, or 68.7 percent of net sales, from $240.8 million, or 45.8 percent of net sales, in the year-ago period. The decrease reflects a reduction in global retail expenses due to store closures, lower advertising expenses and lower discretionary spending.
As previously announced, Columbia withdrew its 2020 financial outlook and did not provide guidance for the third quarter or the full year.
Net Sales: Net sales decreased 40 percent to $316.6 million, from $526.2 million in the year-ago period. This slightly beat on Wall Street analyst estimates, which forecast revenues of $304.2 million.
In the direct-to-consumer channel, e-commerce net sales increased 72 percent year-over-year, partially offsetting brick-and-mortar store traffic and sales trends that remained “well below pre-pandemic levels,” according to the company. E-commerce sales represented 28 percent of the company’s net sales throughout the period. Columbia estimates that in the U.S., including its own e-commerce site and its wholesale partners’ online businesses, the brand’s second-quarter online penetration is even higher, at roughly 40 percent.
In the Latin America/Asia Pacific (LAAP) region, net sales decreased 32 percent in constant currency. Korea was the lone market to generate sales growth in part driven by government stimulus that boosted retail consumption during the quarter. China, which was the first market to experience pandemic weakness, was down mid-teens in constant currency.
The Europe, the Middle East and Africa (EMEA) region saw net sales dip 36 percent, reflecting lower consumer demand across both its wholesale and direct businesses.
Net Earnings: Columbia had a net loss of $50.7 million, or a loss of 77 cents per diluted share, compared to a net income of $23 million, or 34 cents per diluted share, for the comparable period in 2019. The loss of 77 cents per share beat Wall Street estimates of a loss of 79 cents per share.
The company also saw operating losses of $70.3 million thanks to the decrease in SG&A expenses, down from operating income of $16.4 million in the year-ago period.
Gross margin contracted 200 basis points to 46.2 percent of net sales, from 48.2 percent of net sales for the comparable period in 2019.
CEO’s Take: “We remain acutely focused on cost containment while also continuing to invest in our strategic priorities,” Boyle said in a statement. “I’m confident our global team of employees, powerful brand portfolio, strong financial position and operating discipline will all contribute to Columbia Sportswear emerging from this crisis in a stronger competitive position.”
Continuing, he said: “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, enhance 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.”