Columbia sportswear

Columbia Sportswear’s fourth-quarter profit slumps on impairment charges

Columbia Sportswear Company said fourth-quarter profits were down 16% in part due to impairment charges related to retail and its Prana brand. Sales fell by 4%. Earnings and sales, however, exceeded Wall Street targets.

Chairman, President and Chief Executive Officer Tim Boyle said, “I am encouraged to see better-than-expected fourth quarter results and broad-based momentum across our strong portfolio of brands as we enter 2021. These results are particularly impressive in the context of a global pandemic and demonstrate the dedication and commitment of our global workforce of employees who overcame the impact of COVID-19 safety protocols, supply chain constraints and regional blockages. E-commerce net sales increased 41% year-over-year in the quarter, accounting for nearly a quarter of our total sales mix. With high sales rates in fall 2020, our wholesale partners are well positioned to end the season with clean inventory positions.

“As we begin 2021, there is continued uncertainty and business risks surrounding the ongoing pandemic, including the timing and effectiveness of global efforts to contain the spread of COVID-19. That said, I am encouraged by the growth in our e-commerce as well as wholesale orders for the spring and fall 2021 seasons, which we believe will fuel our continued recovery in 2021.

“Our profitable growth trajectory and strengthened balance sheet, with cash and short-term investments of over $790 million and no borrowings, gave our Board of Directors the confidence to approve a quarterly cash dividend, increase our share buyback authorization and return to our pre-pandemic capital allocation strategy. We are committed to generating long-term sustainable and profitable growth and investing in our strategic priorities to:

  • drive brand awareness and sales growth through increased and targeted demand generation investments;
  • improve customer experience and digital capabilities across all of our channels and geographies;
  • develop and improve global direct-to-consumer operations with supporting processes and systems; and
  • investing in our people and optimizing our organization through our brand portfolio.

COVID-19 Update
Although there were isolated temporary store closures due to local regulations or safety concerns, the majority of company-owned stores remained open throughout the fourth quarter. Overall physical store traffic trends remain well below prior year levels. It released fourth quarter 2020 results ahead of our financial outlook, despite port congestion, logistics and parcel shipping capacity constraints, and improved fulfillment center health and safety protocols that strained fulfillment service levels. During the fourth quarter of 2020, the company realized savings of approximately $30 million in general and administrative expenses through cost containment measures and lower variable expenses.

Fourth quarter 2020 financial results
All comparisons are between the fourth quarter of 2020 and the fourth quarter of 2019, unless otherwise indicated.

  • Net sales fell 4% to $915.7 million from $954.9 million for the comparable period in 2019. Wall Street’s consensus estimate was $866.40 million. Net sales benefited from the subsequent shipment of fall 2020 wholesale orders, as reported in the third quarter 2020 earnings release.
  • In the direct-to-consumer channel, e-commerce net sales increased 41% year-over-year, while physical store traffic and sales trends improved sequentially but remained strong below the levels of the previous year.
  • Gross margin increased by 50 basis points to 50.6% of net sales, compared to 50.1% of net sales for the comparable period in 2019.
  • SG&A expenses remained essentially flat at $343.3 million, or 37.5% of net sales, compared to $344.4 million, or 36.1% of net sales, for the comparable period in 2019.
  • Operating profit decreased 11% to $123.7 million, or 13.5% of net sales, from operating profit of $138.6 million, or 14.5% net sales, for the same period of 2019. Fourth quarter 2020 operating income includes $18.1 million in impairments and store closing costs and an impairment of the prAna brand of $17.5 million .
  • Net income decreased 16% to $95.8 million, or $1.44 per diluted share, from net income of $114.0 million, or $1.67 per diluted share, for the comparable period in 2019. The consensus estimate on Wall Street was $1.21.
  • Ended the quarter with $791.9 million in cash and short-term investments and no borrowings. The company also refinanced its national credit agreement with a new agreement providing for a five-year, $500 million unsecured revolving credit facility.

2020 annual financial results
All comparisons are between the fourth quarter of 2020 and the fourth quarter of 2019, unless otherwise indicated.

  • Net sales decreased 18% to $2,501.6 million from $3,042.5 million in 2019.
  • Gross margin contracted by 90 basis points to 48.9% of net sales from 49.8% of net sales in 2019.
  • SG&A expenses decreased 3% to $1,098.9 million, or 43.9% of net sales, from $1,136.2 million, or 37.3% of net sales, in 2019.
  • Operating profit decreased 65% to $137.0 million, or 5.5% of net sales, from operating profit of $395.0 million, or 13. 0% of net sales, in 2019.
  • Net income decreased 67% to $108.0 million, or $1.62 per diluted share, from net income of $330.5 million, or $4.83 per diluted share, in 2019.

Balance sheet as of December 31, 2020

  • Cash, cash equivalents and short-term investments totaled $791.9 million, compared to $687.7 million as of December 31, 2019.
  • The company had no borrowings at the end of the quarter. During the fourth quarter of 2020, the company refinanced its national credit agreement with a new agreement providing for a five-year, $500 million unsecured revolving credit facility.
  • Inventories decreased 8% to $556.5 million from $606.0 million as of December 31, 2019.

Share buybacks for the twelve months ended December 31, 2020

  • In the first quarter of 2020, the company repurchased 1,557,184 shares of common stock for a total of $132.9 million, or an average price per share of $85.34. As part of a broader effort to preserve capital during the ongoing COVID-19 pandemic, the company has suspended share buybacks and has not repurchased shares since the first quarter of 2020. Management has intends to resume share buyback activity in 2021.
  • At its regular meeting of the Board of Directors on January 29, 2021, the Board of Directors approved an additional share repurchase authorization of $400.0 million. This is in addition to the $82.2 million currently remaining available under the pre-authorized share buyback. The authorization to buy back shares does not oblige the company to acquire a specific number of shares or to acquire shares over a specific period.

Quarterly cash dividend
The Board of Directors has approved a regular quarterly cash dividend of $0.26 per share, payable March 22, 2021 to shareholders of record March 9, 2021.

Photo courtesy of Columbia Sportswear