After a brilliant financial year in 2019, Columbia Sportswear did not have a great start to 2020 due to the Covid-19 pandemic. Its net profits stood at just $0.2 million, down from $74.2 million for the year-ago quarter, while sales dropped by 13 percent to $568.2 million.
Lower consumer demand related to coronavirus started to impact financial performance in China in late January, then in Korea and Japan in early February, and finally in North America and Europe in March.
This caused wholesale revenues to tumble by 10 percent to $325.9 million and direct-to-consumer (DTC) sales to drop by 17 percent to $242.3 million. The store fleet included 122 outlets and 20 brand stores at the end of the quarter, against 113 outlets and 21 brand stores last year. Overall, the gross margin fell by 3.6 percentage points to 47.8 percent, primarily reflecting inventory obsolescence provisions related to Covid-19 and lower DTC product margins due to higher promotional activity.
Most stores in China and Korea have re-opened recently, but stores in Europe, Japan and North America remain closed, although this could change soon with easing of restrictions. E-commerce stayed operational in most markets.
Accordingly, by region, sales in EMEA dropped by 20 percent in constant currencies, reflecting lower consumer demand related to coronavirus and widespread store closures that started in mid-March.
In the U.S., the group’s sales decreased by 9 percent, with the steepest decline in March. Retail traffic trends started to decline early in the month before the company closed all its own stores in mid-March.
In constant currencies, revenues fell by 13 percent in Canada. In Latin America and Asia-Pacific, they tumbled by 22 percent. China, the first market to have experienced pandemic-related weakness, was down by more than 40 percent.
By category, the apparel/accessories/equipment segment decreased by 14 percent to $452.2 million, while footwear lost 9 percent to $116.0 million.
The Columbia brand was hit the hardest, suffering a 15 percent decrease in sales during the quarter, owing to lower demand resulting from the pandemic as well as unfavorable weather conditions. At Sorel, sales were down by just 2 percent, with the decline primarily resulting from lower sales of winter utility styles in Europe. In the U.S., the brand experienced robust e-commerce growth. On the other hand, Prana declined by 11 percent, as lower wholesale revenues more than offset e-commerce growth. At Mountain Hardwear, revenues dipped by 2 percent as a healthy start to the year gave way to lower demand due to the pandemic.
Columbia suspended its formal guidance, but said that it expects sales in the seasonally small second quarter to be significantly weaker, resulting in an operating loss. It is planning more clearances, and it has curtailed sourcing for the autumn/winter collections.
As previously reported, the group has taken several measures to reduce spending, such as cutting senior executives’ salaries and placing retail employees on temporary layoffs after keeping them on the payroll for four weeks. To shore up liquidity, the company added $525 million in revolver commitments, plus an available $100 million extension.
The company expects to reduce 2020 capital outflows by about $120 million and SG&A by more than $100 million. However, the it will continue to spend heavily on the further development of its omni-channel capabilities, which have served it well, especially in the U.S.