Columbia Sportswear reported earnings fell 47 percent in the third quarter as revenues were down 23 percent. Both sales and EPS came in below Wall Street’s consensus targets. Looking forward, the company predicted fourth-quarter earnings would decline between 20 and 35 percent as sales slump in the range of 8 to 11 percent.
Chairman, president and CEO Tim Boyle commented, “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. 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.
“The tremendous efforts of our global team of dedicated employees as well as our cost containment and capital preservation actions have preserved our financial strength and position us well to recover from the pandemic and execute our strategic plan. We exited the quarter with $315 million in cash and short-term investments, no bank borrowings and nearly $1 billion in total liquidity. We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities 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.”
While there were isolated temporary store closures resulting from local regulations or safety concerns, the vast majority of the company’s owned stores remained open throughout the third quarter. Overall brick & mortar store traffic trends remain well below prior-year levels. With respect to supply chain operations, the ongoing pandemic has created a combination of production, distribution and logistics bottlenecks. The company is focused on maximizing sales volume within these constraints. During the third quarter 2020, the company realized $45 million in 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. Please refer to the CFO Commentary exhibit for a detailed review of COVID-19 pandemic related issues and our response.
Third Quarter 2020 Financial Results
All comparisons are between third quarter 2020 and third quarter 2019 unless otherwise noted.
- Net sales decreased 23 percent to $701.1 million, from $906.8 million for the comparable period in 2019. Revenues came in below Wall Street’s consensus target of $767.1 million;
- 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;
- SG&A expenses decreased 13 percent to $261.2 million, or 37.3 percent of net sales, from $299.2 million, or 33.0 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, from operating income of $152.0 million, or 16.8 percent of net sales, for the comparable period in 2019; and
- Net income decreased 47 percent to $62.8 million, or $0.94 per diluted share, from net income of $119.3 million, or $1.75 per diluted share, for the comparable period in 2019. EPS fell short of Wall Street’s consensus target of $1.16.
First Nine Months 2020 Financial Results
All comparisons are between the first nine months 2020 and the first nine months 2019, unless otherwise noted.
- Net sales decreased 24 percent to $1,585.9 million, from $2,087.6 million for the comparable period in 2019.
- Gross margin contracted 170 basis points to 48.0 percent of net sales, from 49.7 percent of net sales for the comparable period in 2019;
- SG&A expenses decreased 5 percent to $755.7 million, or 47.6 percent of net sales, compared to $791.8 million, or 37.9 percent of net sales, for the comparable period in 2019;
- Operating income decreased 95 percent to $13.4 million, or 0.8 percent of net sales, from operating income of $256.3 million, or 12.3 percent of net sales, for the comparable period in 2019; and
- Net income decreased 94 percent to $12.3 million, or $0.18 per diluted share, compared to net income of $216.5 million, or $3.15 per diluted share, for the comparable period in 2019.
Balance Sheet As Of September 30, 2020
- Cash, cash equivalents and short-term investments totaled $314.5 million, compared to $240.8 million at September 30, 2019.
- The company had no short-term borrowings at quarter-end. Including committed and uncommitted credit lines, the company had nearly $1 billion in total liquidity exiting the quarter.
- Inventories increased 8 percent to $771.7 million, compared to $717.4 million at September 30, 2019.
Share Repurchases For The Nine Months Ended September 30, 2020
- In first-quarter 2020, the company repurchased 1,557,184 shares of common stock for an aggregate of $132.9 million, or an average price per share of $85.34. As part of a broader capital preservation effort during the ongoing COVID-19 pandemic, the company suspended share repurchases and has not repurchased shares since first-quarter 2020.
- At September 30, 2020, $82.2 million remained available under the current stock repurchase authorization. Management may resume share repurchases at any time, depending upon market conditions and the company’s capital requirements.
Fourth Quarter 2020 Financial Outlook
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, these risks and uncertainties are not captured in the outlook, which assumes no material deterioration or disruption to the company’s current business operations, consumer demand, or services performed by third-party logistics providers. Recent pandemic containment actions in Europe are also not captured in the outlook.
- 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, representing operating margin of 10.7 percent to 12.7 percent; and
- Diluted earnings per share of $1.07 to $1.32. Earnings in the year-ago period were $1.67.
Photo courtesy Columbia Sportswear