Columbia Sportswear Company (COLM - Free Report) has been reeling under concerns related to the novel coronavirus. The company’s operations in the second quarter of 2020 were largely hurt by store closures and other hurdles like elevated costs associated with COVID-19. However, almost all company-owned stores had reopened worldwide by the quarter-end, while traffic remains below year-ago levels.
Further, the company is benefiting from its direct-to-consumer (DTC) e-commerce business. Apart from this, Columbia Sportswear’s focus on the Experience First initiative or the X1 initiative as well as robust brand enhancement efforts bode well. Hence, let’s check both sides of the coin and see how this provider of outdoor, active and everyday lifestyle apparel, footwear and other accessories is placed.
Hurdles in Columbia Sportswear’s Way
In second-quarter 2020, the company’s top and bottom lines plummeted year over year. Sales declined across all brands, categories, channels and regions and were largely affected by store closures amid the pandemic. Almost all company-owned stores were opened worldwide by the quarter-end. However, the company, in its last earnings call, noted that some stores in a few locations that had reopened globally had to be shut down again due to local regulations and safety factors. Further, management highlighted that brick-and-mortar traffic remains quite low, with outlets in destination locations and tourist-dependent regions most affected.
The company expects its sales volume to remain lower than the year-ago period through the remainder of 2020, though the second quarter is likely to have witnessed the biggest sales decline of 2020. Apart from this, high COVID-19 costs and increased promotional activities remain a threat to margins. In its earnings release, management commented that it intends to continue its investments to create demand, drive brand awareness and enhance digital capabilities. Though these investments are likely to fuel growth, they may weigh on margins.
Factors Working in Columbia Sportswear’s Favor
Columbia Sportswear remains committed to expanding and enhancing its global DTC business, through accelerated investments. In the second quarter, the company’s DTC e-commerce sales soared 72% and formed 28% of the company’s top line. In the United States, the company’s Columbia brand’s online penetration was roughly 40% in the second quarter. Management said that DTC e-commerce is seeing robust momentum with more consumers opting to shop online. E-commerce sales remained strong through the first few weeks of July. This channel is likely to continue performing well in the forthcoming periods.
Further, the company is on track with the X1 initiative, which is aimed at enhancing e-commerce operations to keep pace with the evolving consumer environment. Notably, the company’s e-commerce platform has been largely operational during the pandemic, except for some distribution center closures. The company is focused on implementing X1 in a phased manner. In this regard, the initiative was implemented across 10 countries in Europe-direct and for the prAna brand in the United States in 2019. The company expects to keep implementing X1 in North America in 2020. It anticipates this platform to become operational for Columbia, SOREL and Mountain Hardwear brands ahead of the holiday season peak.
These upsides, together with this Zacks Rank #3 (Hold) company’s brand enhancement endeavors, are likely to help it battle the barriers in its path. Notably, Columbia Sportswear undertakes brand-enhancing and unique marketing initiatives to further strengthen its presence in the apparel industry. Even amid the pandemic, the company remains committed to undertaking innovation. It has a solid pipeline for apparel innovation. To this end, the company has a number of planned launches for spring and fall 2021. It is also making investments to strengthen its footwear products across Columbia and SOREL brands.
We note that shares of Columbia Sportswear have gained 13.4% in the past three months compared with the industry’s growth of 13.8%.
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