Columbia Sportswear Company detailed business impacts of the COVID-19 outbreak, including what it sees as a negative effect on its retail business and supply chain.
The company’s 2020 financial outlook issued on Feb. 6 did not include the potential financial impact of the COVID-19 outbreak, the official name for the novel coronavirus that has sparked more than 80,000 cases globally and killed more than 2,800. On Thursday, chairman, president and CEO Tim Boyle said the coronavirus outbreak’s ongoing, dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to forecast any effects on 2020 results.
“However, as of the date of this release we expect our 2020 results to be significantly affected,” he said, adding that the company will provide an update on the impacts of the COVID-19 outbreak on its first quarter earnings conference call scheduled for April 30.
“While this outbreak will have a material impact on our near-term financial performance in China, we continue to believe China represents one of our largest long-term geographic opportunities,” Boyle said. “We believe our fortress balance sheet, including no long-term debt, and diversified global business model will enable us to overcome this present adversity and unlock the full potential of our brand portfolio in this market over time.”
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Boyle said in 2019, China represented approximately 5 percent of total net sales and the Asia-direct business, which includes Japan, China and South Korea, represented approximately 15 percent of total net sales. He said while stores have begun to reopen in China, approximately half of Columbia’s owned and partner stores there remain temporarily closed.
“Stores that are open in China have experienced a material decline in traffic and corresponding sales,” Boyle said. “There has also been an impact of the COVID-19 outbreak in Japan and [South] Korea. Until normality returns, we expect a continued unfavorable impact on sales in our Asia-direct business.”
He noted that like many other companies, the COVID-19 outbreak is also impacting the company’s supply chain. While only a low-double-digit percent of the company’s finished goods are manufactured in China, its contract manufacturers source a large portion of their raw materials from China.
“Temporary factory closures and the pace of workers returning to work have impacted our contract manufacturers’ ability to source certain raw materials and to produce and fulfill finished goods in a timely manner,” Boyle said. “The outbreak is also impacting distribution and logistics providers’ ability to operate in the normal course of business. These supply chain impacts will likely affect our ability to timely fulfill orders and meet consumer demand. Given we have already received substantially all of our Spring 2020 product, potential order fulfillment delays would impact future seasons.”
Internally, he said there have been no reported incidents of company employees contracting the virus to date, with many of them working remotely from home to help maintain business operations.
For the fiscal year ended, Columbia Sportswear’s net sales increased 9 percent to $3.04 billion, as net income rose 20 percent to $330.49 million.