Columbia Sportswear Company (COLM Quick QuoteCOLM - Free Report) reported fourth-quarter 2020 results, wherein both top and bottom lines declined year over year. Though results were down year over year, trends improved on a sequential basis and the company anticipates continued revival in 2021. Moreover, both earnings and sales exceeded the Zacks Consensus Estimate in the fourth quarter.

Management remains encouraged about the better-than-expected fourth-quarter show as well as broad-based growth in the company’s solid brands as it enters 2021. Management stated that results are all the more impressive, reflecting the company’s ability to counter hurdles related to the pandemic, such as supply-chain hiccups, regional lockdowns and obstacles stemming from safety protocols. Incidentally, the fourth-quarter results exceeded the company’s financial guidance, even amid obstacles, such as port congestion, logistics and parcel shipping capacity restrictions as well as strained fulfillment levels stemming from increased distribution center health and safety protocols.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted earnings of $1.44 per share, which slid 16% year over year. Nonetheless, the bottom line came in ahead of the Zacks Consensus Estimate of $1.21.

Net sales dropped 4% to $915.7 million, while it surpassed the consensus mark of $866 million. Sales declined across all categories and channels, and across most regions. However, sales improved for all brands, except Columbia. Sales were marred by continued impacts of the ongoing pandemic, partly compensated by gains from delayed timing of the Fall shipments.     

In the reported quarter, the direct-to-consumer (DTC) channel displayed a sales decline of 3% and wholesale net sales fell 5%. DTC channel sales were hurt by reduced brick-and-mortar sales, somewhat made up by solid e-commerce improvement. Notably, e-commerce sales surged 41% in the quarter and formed about one-fourth of the company’s total sales mix. In full-year 2020, DTC e-commerce sales increased 39%, and formed 19% of the total sales mix.

The company noted that its mobile-first e-commerce platform, X1 performed brilliantly in the peak season, and led to better site performance as well as conversion. X1 went live in North America for the Columbia, SOREL, and Mountain Hardwear brands in the third quarter of 2020.

Gross margin expanded 50 basis points (bps) to 50.6%, which can be attributed to lower-than-anticipated promotional pricing activity. SG&A expenses remained almost flat at $343.3 million. As a percentage of sales, the same escalated from 36.1% to 37.5%. During the quarter, Columbia Sportswear generated SG&A savings of $30 million from reduced variable costs and cost-curtailment efforts.

The company’s operating income of $123.7 million declined 11% year over year. The operating margin contracted from 14.5% to 13.5%. 

Regional Segments

In the United States, net sales fell 6% to $599.1 million. Latin America/Asia Pacific (LAAP) net sales decreased 5% to $163.6 million. Further, net sales tumbled 14% to $85.6 million in Europe/the Middle East/Africa (EMEA). In Canada, net sales surged 36% to $67.4 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category declined 5% to $661.4 million, while the same for Footwear slipped 1% to $254.3 million.

Further, the Columbia brand registered a sales decline of 7%, whereas Mountain Hardwear, prAna and Sorel brand sales grew 7%, 11% and 5%, respectively.

Other Financial Updates

Columbia Sportswear ended the fourth quarter with cash, cash equivalents and short-term investments of $791.9 million and shareholders’ equity of $1,832.7 million. The company had no borrowings on its balance sheet as of Dec 31. During the fourth quarter of 2020, Columbia Sportswear refinanced its domestic credit agreement — with a new one offering a five-year unsecured revolving credit facility of $500 million. During full-year 2020, the company generated cash from operating activities of $276.1 million.

Management had earlier suspended share-buyback activities as part of its efforts to preserve capital amid the COVID-19 crisis. In its fourth-quarter earnings release, the company unveiled intentions to resume buyback activity in 2021. In fact, on Jan 29, 2021, management authorized additional buybacks worth $400 million. Apart from this, the company has $82.2 million available under its prior share-buyback authorization.  

Additionally, along with the earnings release, management announced quarterly cash dividend of 26 cents per share, which is payable on Mar 22, 2021, to shareholders of record as on Mar 9. Management highlighted its priority to return at least 40% of its annual free cash flow to stockholders via dividends and share buybacks — with intentions to raise dividend over time.

COVID-19 Update & Outlook

Most of the company-owned stores were open throughout the fourth quarter, apart from some isolated temporary closures due to local regulations or safety factors. Nevertheless, management highlighted that brick-and-mortar traffic was significantly below the year-ago period’s level. Traffic has been most affected in stores and destination locations, as well as stores operating in markets dependent on tourists. The company expects traffic in these regions to remain soft till the resumption of international tourism activities.

Columbia Sportswear is on track with recalibrating its DTC store strategy, given the current retail landscape. The company shut 13 underperforming stores in the United States and one in Europe in 2020, which were mainly full-priced branded stores. The company intends to selectively restart store openings in 2021, depending on market conditions. At present, it expects to open about 8 stores in the United States – mainly outlet stores.

The company entered 2021, with uncertainty and business risks related to coronavirus remaining. That being said, management remains encouraged about its e-commerce growth, which along with its wholesale orders for Spring and Fall 2021 season, is expected to aid continued business revival in 2021. Incidentally, given the solid Fall 2020 sell-through, Columbia Sportswear’s wholesale partners are in good shape to exit the season with clean inventories.     

Management intends to continue its investments to create demand, drive brand awareness and enhance digital capabilities. It will also continue strengthening its DTC business and improving support processes. All said, the company issued the 2021 guidance, which is based on anticipations of sequential revival in retail store traffic as well as sales all through the year.

For 2021, the company expects net sales in the range of $2.95-3 billion, indicating an 18-20% increase from the year-ago period. This is expected to be backed by spring and fall 2021 orders, continued growth in DTC e-commerce as well as growth revival in DTC brick-and-mortar sales. The company projects net sales growth in high teens percentage to low 20% range in the first half of the year.

In 2021, operating income is expected to be $320-$346 million, suggesting an operating margin of 10.8-11.5%. In full-year 2020, the company’s operating income and margin came in at $137 million and 5.5%, respectively. Finally, management envisions earnings per share in the range of $3.75-$4.05 for the ongoing year.  The consensus mark is currently pegged at $3.85 per share.

Shares of this Zacks Rank #5 (Strong Sell) company have dipped 0.5% in the past year, against the industry’s growth of 9.8%.

Looking for High-Performance Stocks? Here’re a Few

Crocs (CROX Quick QuoteCROX - Free Report) has an expected long-term earnings growth rate of 15% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. (PVH Quick QuotePVH - Free Report) has a projected long-term earnings growth rate of 18% and flaunts a Zacks Rank #1.

Central Garden & Pet (CENT Quick QuoteCENT - Free Report) has a Zacks Rank #2 (Buy). The company’s bottom line has outperformed the Zacks Consensus Estimate by a significant margin in the trailing four quarters, on average.

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>