Columbia Announces Senior Leadership Changes, Reports Q3 2020 Financial Results, Provides Q4 2020 Financial Outlook

Columbia has announced third quarter 2020 financial results for the period ended September 30, 2020.

Third Quarter 2020 Financial Results

Lower net sales and profitability in third quarter 2020 compared to third quarter 2019 primarily reflect the ongoing negative effects of the COVID-19 pandemic.

• Net sales decreased 23 percent to $701.1 million, compared to third quarter 2019. Excluding approximately $45 million of Fall 2020 shipments shifting into fourth quarter 2020, third quarter 2020 net sales would have decreased 18 percent.
• In the direct-to-consumer channel, e-commerce net sales increased 55 percent year-over-year while brick & mortar store traffic and sales trends remained well below prior year levels.
• Operating income decreased 44 percent to $85.6 million, or 12.2 percent of net sales, compared to third quarter 2019 operating income of $152.0 million, or 16.8 percent of net sales.
• Diluted earnings per share decreased 46 percent to $0.94, compared to third quarter 2019 diluted earnings per share of $1.75.
• Exited the quarter with $314.5 million in cash and short-term investments, no bank debt and nearly $1 billion in total liquidity.

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 to $880 million, representing a net sales decline of 8 to 11 percent.
• Operating income of $91 to $112 million, representing operating margin of 10.7 to 12.7 percent.
• Diluted earnings per share of $1.07 to $1.32. 

Chairman, President and Chief Executive Officer 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."

CFO's Commentary Available Online

For a detailed review of the Company's third quarter 2020 financial results and additional updates relating to the COVID-19 pandemic, please refer to the CFO Commentary exhibit furnished to the Securities and Exchange Commission (the "SEC") on a Current Report on Form 8-K and published on the Investor Relations section of the Company's website at http://investor.columbia.com/results.cfm at approximately 4:15 p.m. ET today. Analysts and investors are encouraged to review this commentary prior to participating in our conference call.

COVID-19 Update

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 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.

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.

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.

First Nine Months 2020 Financial Results
(All comparisons are between first nine months 2020 and 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.

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.

Quarterly Cash Dividend

As previously announced, the Company’s Board of Directors has suspended quarterly cash dividends as part of a broader capital preservation effort resulting from the pandemic. The Company's Board of Directors will continue to evaluate when to reinstate future dividend distributions.

Columbia has also announced a series of senior leadership changes today executing on transition plans, supporting the Company’s omni-channel plans for growth and unlocking digital opportunities.

Thomas B. Cusick has announced his intention to retire from the Company. In February 2021 Mr. Cusick will step down from his role as Executive Vice President and Chief Operating Officer and transition to a part-time role with the Company, assisting with operational matters, including significant information technology and supply chain initiatives to ensure optimization of these key strategic investments, until his retirement from the Company in the second half of 2021. Mr. Cusick joined Columbia in September 2002 as Corporate Controller and served as Chief Financial Officer from 2009 until assuming his most recent role of Chief Operating Officer in 2017.

“Tom has been a true source of leadership over the past 18 years. During his tenure at Columbia, Tom has helped lead the Company from net sales of approximately $800 million in 2002 to over $3 billion in 2019. He will be sorely missed, but we are thankful for the time and energy he has devoted to elevating the Company to what it is today,” said Timothy P. Boyle, Chairman of the Board, President and Chief Executive Officer.

In accordance with pre-established transition plans, Lisa A. Kulok, Senior Vice President, Global Supply Chain Operations and Manufacturing, will become Executive Vice President, Chief Supply Chain Officer, and Jim A. Swanson, Senior Vice President and Chief Financial Officer, will become Executive Vice President and Chief Financial Officer, both reporting directly to Tim Boyle. Brent Beeson, Vice President, Apparel Manufacturing, will become Senior Vice President, Manufacturing, reporting directly to Ms. Kulok.

“I have worked closely with Lisa and Jim for many years and have complete confidence in their leadership abilities as we navigate through the changes in our business model. I look forward to continuing to partner with them through the transition,” said Mr. Cusick.

In addition, the Company has made changes to its senior leadership organization to support the Company’s omni-channel plans for growth. Consumers are driving a rapid pace of change in the marketplace, which has been accelerated by the pandemic. The Company believes these leadership changes will enable it to meet consumers’ needs in today’s marketplace, with frictionless transitions in process flows and regional alignment of goals.

“We are announcing changes today to capitalize on Columbia’s omni-channel growth potential by aligning our organizational structure globally to accelerate our business transformation with a focus on eCommerce and digital,” said Tim Boyle. “The time for change has never been better and we see real opportunity with these changes.”

Franco Fogliato, Executive Vice President, Americas General Manager, will lead the Company in focusing on the omni-channel experience by transitioning to Executive Vice President, Global Omni-Channel. This leadership role will oversee all Columbia brand sales in direct markets globally by working to support and build strong commercial channel teams that will align to bring a robust brand message to all the direct markets. As a result of this change, Vice President and General Manager for EMEA, Matthieu Schegg, will report directly to Mr. Fogliato, as will Senior Vice President for Asia Direct, Peter Rauch.

In addition to leading all direct markets, Mr. Fogliato will facilitate a close partnership among channel leaders to share best practices and support global Columbia brand goals. eCommerce is a growing focus for the Company, and it has invested significantly to advance digital capabilities in this critical channel. To support Columbia brand eCommerce strategies, Patricia Higgins, Vice President, eCommerce, will transition to Senior Vice President, e-Commerce, reporting directly to Mr. Fogliato. Ms. Higgins will continue to directly manage the North America eCommerce operations, while expanding her scope globally to provide strategic guidance and best practices to enhance the Company’s global Columbia brand eCommerce businesses.

“Franco has been instrumental in driving growth in Europe and in the US, and I believe he will now be enabled to do so on a more global scale,” said Mr. Boyle.

To further enhance the Company’s digital capabilities across the enterprise, the Company is creating a new Chief Digital Information Officer role, which will report directly to Tim Boyle. This role will also serve to replace the Chief Information Officer position when Michael Hirt retires in April 2021. In addition, the Columbia brand is searching for a Chief Marketing Officer, with an emphasis on enhancing marketing and social engagement in a digital marketplace.

“The leadership changes we are making today are intended to accelerate sustainable growth for the organization. We will continue to focus on our strategic priorities to: drive global brand awareness and sales growth through increased, focused demand creation investments; enhance consumer experience and digital capabilities in all of 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. We believe that these changes will make Columbia stronger in the future,” said Mr. Boyle.