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 in China in December 2019 and a global pandemic of
respiratory disease caused by COVID-19 was declared by the World Health
Organization in March 2020. As of March 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 in China in late
January, Korea and Japan in early February and North America and Europe in
March. Retail traffic trends declined across North America and Europe 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 in China and
Korea 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 around Tokyo prompted store closures.
Across North America and Europe, 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
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and our customers during this reopening process. In Europe, a small number of
stores have reopened and U.S. store openings are expected to begin as early as
May 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 as Russia, 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 in
Asia 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.

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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 ended March 31 of the particular year.
To supplement financial information reported in accordance with accounting
principles generally accepted in the 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 into United 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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