This quarterly report contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including statements regarding store openings, the time-frame for the return of consumer demand, capital outflows, operating expense, our ability to timely fulfill future season orders, our ability to manage credit risk, outlet expectations, sales order cancellations, inventory purchases, net sales, profitability, cash and our ability to meet our cash needs. Forward-looking statements often use words such as "will", "anticipate", "estimate", "expect", "should", "may", and other words and terms of similar meaning or reference future dates. Our expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, each forward-looking statement involves a number of risks and uncertainties, including those described in Part II, Item 1A, Risk Factors in this quarterly report. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations. New factors emerge from time to time and it is not possible for us to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Our Business As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, we design, develop, market, and distribute outdoor and active lifestyle apparel, footwear, accessories, and equipment primarily under the Columbia, SOREL,Mountain Hardwear , and prAna brands. Our products are sold through a mix of wholesale distribution channels, our own DTC businesses and independent international distributors. In addition, we license some of our trademarks across a range of apparel, footwear, accessories, equipment, and home products. The popularity of outdoor activities and active lifestyles, changing design trends, consumer adoption of innovative performance technologies, variations in seasonal weather, and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by developing new products with innovative performance features and designs, creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention, and adjusting the mix, price points and selling channels of available product offerings. Seasonality and Variability of Business Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. In 2019, approximately 60% of our net sales and approximately 75% of our operating income were realized in the second half of the year, illustrating our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs. We generally solicit orders from wholesale customers and independent international distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance spring season orders to customers beginning in January and continuing through June. Similarly, we typically ship the majority of our advance fall season orders to customers beginning in July and continuing through December. Generally, orders are subject to cancellation prior to the date of shipment. Results of operations in any period should not be considered indicative of the results to be expected for any future period. Impacts of COVID-19 COVID-19 was first identified inChina inDecember 2019 and a global pandemic of respiratory disease caused by COVID-19 was declared by theWorld Health Organization inMarch 2020 . As ofMarch 31, 2020 , in response to this pandemic, many regional and local governments worldwide had implemented travel restrictions, business shutdowns or slowdowns, and shelter-in-place or stay-at-home orders. In first quarter 2020, lower consumer demand related to the COVID-19 pandemic began to impact financial performance inChina in late January,Korea andJapan in early February andNorth America andEurope in March. Retail traffic trends declined acrossNorth America andEurope in early March, prior to store closures which began in mid-March. As of the date of this filing, certain regional and local governments have started lifting restrictions and orders. Our top priority throughout this crisis has been to protect the health and safety of our employees, their families, our customers, and our communities. To promote the health and safety and slow the spread of this virus, we closed our retail stores around the world at various points in time, applied work from home measures, and implemented best practices related to social distancing and cleaning. We aim to minimize the impact the COVID-19 pandemic is having on our employees and have implemented Catastrophic Paid Leave and furlough benefits which vary by business unit and by region. As of the time of this filing, the vast majority of our stores inChina andKorea have reopened, although many still operate with reduced store hours. In these markets, retail traffic trends have been improving but remain well below pre-pandemic levels.Japan experienced a similar recovery trend until early April when a spike of new cases in and aroundTokyo prompted store closures.Across North America andEurope , most of our stores remain closed. We continue to evaluate timelines for reopening stores in phases and are following the advice of governments and relevant public health authorities to determine when stores reopen. Our focus will remain on protecting both our employees 20
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Table of Contents and our customers during this reopening process. InEurope , a small number of stores have reopened andU.S. store openings are expected to begin as early asMay 8, 2020 . The store reopening process will likely take time as each market faces its own unique set of circumstances. It is uncertain how long it will take until foot traffic increases significantly. Other geographies throughout the world where our products are sold by our wholesale customers or distributors, such asRussia , have been significantly impacted by the pandemic and its related economic effects. The vast majority of our wholesale customers' and distributors' stores have followed store closure timelines similar to our store closures, which vary by region, depending on when local governments took action to slow the spread of the virus. Due to the effects of retail stores closures and the resulting decrease in consumer demand, as well as actions being taken by our wholesale customers to preserve their capital and liquidity, we have received and anticipate significant Spring and Fall 2020 sales order cancellations. To mitigate the impact of these cancellations, we have significantly curtailed planned Fall 2020 inventory purchases. Among our top priorities is a focused effort matching inventory supply with projected demand to optimize the use of inventory and maximize sales potential. In anticipation of elevated inventory levels within our business and in the general marketplace, we expect to increase the amount of clearance inventory that is sold through our outlet stores. As retailers attempt to reduce excess levels of inventory, the current and potentially continuing elevated promotional environment is anticipated to impact our net sales and gross margin. In addition, we are also experiencing supply chain disruptions, largely resulting from temporary raw material and finished goods supplier closures inAsia related to the COVID-19 pandemic, which we expect will likely affect our ability to timely fulfill some Fall 2020 orders. We have taken a number of actions to provide greater financial flexibility and liquidity, reduce capital outflows, preserve capital, and contain costs for our business. As of the time of this filing, we have: •increased our total available committed and uncommitted credit lines and facilities to provide$631 million of borrowing capacity, of which$525 million is committed; •suspended the quarterly dividend and share repurchases; •reduced planned capital expenditures; and •initiated numerous cost containment measures across the organization, including lowering personnel related expenses, reducing demand creation spend, and minimizing discretionary expenditures. The second quarter is historically our seasonally lowest sales volume period, and based on current and anticipated store closures, as well as uncertainty regarding retail traffic as stores reopen, we expect a significant a decline in our net sales and an operating loss in the second quarter of 2020. Given the ongoing business disruption and uncertainty surrounding the COVID-19 pandemic, we are unable to estimate full year results with reasonable accuracy. However we do expect future material financial impacts associated with the COVID-19 pandemic, including, but not limited to, lower global net sales, the delay of inventory production and fulfillment, and incremental costs associated with the COVID-19 pandemic, such as, exceptional provisions for bad debt, severance and restructuring charges and other related expenses. Strategic Priorities Our immediate focus is on maintaining a strong balance sheet, financial flexibility and sufficient liquidity. Our long-term commitment to driving sustainable and profitable growth has not changed and our strategic priorities remain to: •drive 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 improving global DTC operations with supporting processes and systems; and •invest in our people and optimizing our organization across our portfolio of brands. Capital Allocation Given the anticipated declines in net sales, profitability and cash related to the COVID-19 pandemic, our capital allocation priorities have shifted. We remain committed to maintaining our strong balance sheet in order to provide ourselves with maximum strategic flexibility and access to additional liquidity if warranted. Within that context, our first priority is to build and preserve liquidity for business operations while continuing to fund high-priority strategic initiatives. Our second priority is to limit the risk of financial distress given the pressure currently impacting the retail industry. We plan to revisit our capital allocation priorities when the business stabilizes and there is a more reliable and predictable flow of cash. As a result of our updated capital allocation priorities, we have suspended quarterly cash dividend payments and further share repurchases. 21
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Table of Contents Results of Operations The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and accompanying Notes that appear in Part I, Item 1, Financial Statements in this quarterly report. All references to quarters relate to the quarter endedMarch 31 of the particular year. To supplement financial information reported in accordance with accounting principles generally accepted inthe United States ("GAAP"), we disclose constant-currency net sales information, which is a non-GAAP financial measure, to provide a framework to assess how the business performed excluding the effects of changes in the exchange rates used to translate net sales generated in foreign currencies intoUnited States dollars. Management believes that this non-GAAP financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may find the non-GAAP measures useful by reviewing our net sales results without the volatility in foreign currency exchange rates. This non-GAAP financial measure also facilitates management's internal comparisons to our historical net sales results and comparisons to competitors' net sales results. Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The following discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP below. Highlights of the First Quarter of 2020 Lower net sales and profitability in first quarter 2020 compared to first quarter 2019 primarily reflect the impact of lower consumer demand resulting from the ongoing COVID-19 pandemic. •Net sales decreased$86.4 million , or 13%, to$568.2 million from$654.6 million in the first quarter of 2019. •Income from operations decreased$89.9 million , or 102%, to a loss of$2.0 million from$88.0 million in the first quarter of 2019. •Net income decreased$74.0 million , or 100%, to$0.2 million , or$0.00 per diluted share, from$74.2 million , or$1.07 per diluted share, in the first quarter of 2019.
The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items in our Condensed Consolidated Statements of Operations:
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