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Columbia Sportswear's (COLM) Q2 Loss Narrower Than Expected

Columbia Sportswear Company COLM reported second-quarter 2020 results, wherein the top and bottom lines plummeted year over year, though they came ahead of the Zacks Consensus Estimate. Results were largely affected by store closures and other concerns related to COVID-19.

Nonetheless, e-commerce sales surged 72% in the quarter, forming 28% of total sales. E-commerce sales remained high in July and management is taking steps to adapt its distribution centers accordingly.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted a loss of 77 cents against the year-ago period’s earnings of 34 cents. However, the quarterly loss was narrower than the Zacks Consensus Estimate of a loss of 88 cents.

Columbia Sportswear Company Price, Consensus and EPS Surprise

Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote

Net sales slumped 40% to $316.6 million, though it came ahead of the consensus mark of $315 million. Sales declined across all brands, categories, channels and regions. Sales plummeted 58%, 47% and 20% in April, May and June, respectively.

In the reported quarter, DTC channels displayed a sales decline of 32%, while wholesale net sales tumbled 46%.

Gross margin declined 200 basis points (bps) to 46.2% due to coronavirus-led impacts. These include reduced DTC product margins due to elevated promotional activities, increased inventory reserves and reduced wholesale close-out sales volumes.

SG&A expenses dropped 10% to $217.7 million. As a percentage of sales, the same escalated from 45.8% to 68.7%. SG&A costs were lower on account of reduced retail costs, lower spending on demand creation and a decline in discretionary spending. This was countered by COVID-19-related costs. The company reported an operating loss of $70.3 million against an operating income of $16.4 million in the year-ago period.

Regional Segments

In the United States, net sales fell 42% to $183.2 million. Latin America/Asia Pacific (LAAP) net sales fell 34% to $67.4 million. Further, net sales dropped 36% to $58.3 million in Europe/Middle East/Africa (EMEA). In Canada, net sales were down 56% to $7.7 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category declined 44% to $243.8 million, while the same for Footwear fell 23% to $72.8 million.

Further, the Columbia, prAna, Mountain Hardwear and Sorel brands registered sales declines of 42%, 28%, 44% and 12%, respectively.

Other Financial Updates

Columbia Sportswear, which shares space with Hanesbrands HBI, ended the quarter with cash, cash equivalents and short-term investments of $475.8 million and total shareholders’ equity of $1,652.8 million. The company also had short-term borrowings of $2.8 million in its balance sheet. During the quarter, the company used cash from operating activities of $37.3 million, while it incurred capital expenditures of almost $21 million.

Management recently suspended share buyback activities and quarterly dividend payments as part of its efforts to preserve capital amid the COVID-19 crisis.

COVID-19 Update

The company’s second-quarter results were largely affected by store closures amid the pandemic. Most of the company’s owned stores in the United States, Japan, Europe and Canada were closed in the beginning of the second quarter. Also, many of the company’s international distributors and wholesale customers were closed. However, in May and June, stores started gradually reopening in these markets, and by the quarter-end, almost all company-owned stores were open worldwide. However, the company noted that a few stores at a few locations that had reopened globally shut down again due to local regulations as well as safety factors. 

Further, management highlighted that brick-and-mortar traffic remains significantly lower than the year-ago period, with outlets in destination locations and tourist-dependent regions most affected. Additionally, a rise in coronavirus cases in recent weeks has affected the company’s stores in the impacted regions. The company expects its sales volume to remain lower than the year-ago period through the remainder of 2020, while it expects the second quarter to have witnessed the biggest year-over-year sales decline in 2020.

Management remains on track to curtail operating costs by more than $100 million in 2020 and is also planning actions to optimize its cost structure in 2021 and thereafter. Management intends to continue its investments to create demand, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in the DTC business and improve support processes.

Shares of this Zacks Rank #3 (Hold) company have lost 19.7% year to date compared with the industry’s decline of 17.8%.

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