Q2 2020 Columbia Sportswear Co Earnings Call
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Greetings and welcome to Columbia Sportswear second quarter 2020, <unk> financial results at this time all participants on E listen only mode. A question answer session will follow the formal presentation.
If anyone should require operate assistance during the conference. Please press Star then what are your telephone keypad.
As a reminder, discomfort is being recorded.
I'd now like turn the conference over to Mr., Robert <unk> IR. Thank you Sir you may begin.
Yes, thanks for joining us to discuss Columbia Sportswear company second quarter results.
Turning to the earnings release, refreshed 8-K, containing a detailed CFO commentary explaining our results updates regarding cobot Nike impacts in the company's response. The CFO commentary is available on our Investor Relations website, Investor Dot, Colombia Dot com.
With me today on the call, our chairman President and Chief Executive Officer turmoil Executive Vice President and Chief Operating Officer, Talkies, Senior Vice President and Chief Financial Officer, Jim Swanson, Executive Vice President and Chief administrative Officer, Peter Bragdon.
This conference call will contain forward looking statements regarding columbia's expectations, anticipations and beliefs about the future.
These statements are expressed in good faith are believed to a reasonable basis. However, each forward looking statements subject to many risks and uncertainties actual results may differ materially from what is projected.
Many of these risks and uncertainties are described in Colombia, SEC filings, we caution the forward looking statements are inherently less reliable than historical information, we undertake any duty to update any of the forward looking statements. After the data This conference call to conform the forward looking statements actual results or changes in our expectations.
I'd also like to point out the during the call. We may reference certain non-GAAP financial matters, including constant currency net sales for further information about non-GAAP financial measures and result, including a reconciliation of GAAP to non-GAAP measures explanation I imagine its rationale for reference in these non-GAAP measures. Please refer to the supplemental financial information section and financial tables.
Included in our second quarter 2020 earnings release.
Following our prepared remarks, we'll host acuity period during which we will limit each caller to two questions. So you can get everyone to everyone by the end of the hour now I'll turn the call revert to Tim.
Thanks, Andrew Good afternoon, everyone, well second quarter sales and profitability declines clearly reflect the global effects of the ongoing pandemic I'm encouraged by the improvement in trends over the course of the quarter.
Net sales declined 40% year over year with declines moderate as the quarter progressed.
To put this into perspective April net sales were down nearly 60% and June netscouts were down 20%.
Despite these challenges there were several bright spots in the quarter.
Our D C E commerce business surged over 70% year over year and they were also signs of resilience in our wholesale sell through trends.
We entered this crisis with a fortress balance sheet and took swift action to manage cash flows and maintain our solid financial position.
Exiting the quarter, we had 476 million in cash and short term investments minimal short term borrowings and over $1 billion in total liquidity.
With that said we are facing unprecedented uncertainty as we begin the second half of the year many countries, particularly the United States struggle to contain the virus and geopolitical tensions are high.
Globally, our retail store traffic and performance remain well below pre pandemic levels and the depth and duration of this economic downturn remain unknown.
It is in these uncertain times that I'm extremely thankful and proud of our team of dedicated global employees or enabling fishing business operations across our product creation corporate retail distribution and service center functions around the world.
Throughout this pandemic our objective remains to carefully navigate this environment with our historical disciplined approach and emerge from this crisis in a stronger competitive position.
We remain acutely focused on cost containment.
Well also continue to invest in our strategic priorities. We believe these investments are critical to driving market share gains as many in our industry retrench.
It is clearly at the consumer interested outdoor experiences has surged during the pandemic, we're well positioned to equip those adventures with innovative products as they recreate responsibly.
I'd also like to note that our commitment to our core values has not wavered. During the endemic I encourage you to review our 2019 corporate responsibility report, which was recently posted on our website.
This report highlights our strategy and recent accomplishments that we've made empowering people to standing places is promoting responsible practices.
Before discussing financial matters I'd like to acknowledge recent trad tragedies.
I was chicken by the killing have George Floyd in Minneapolis, Sadly this was not an isolated incident.
Even in our nation's recent history.
We reject hate and bigotry in any for this has been and we'll continue to be a cornerstone of our values as a company founded by immigrants spleen, Nazi Germany, we truly understand the diversity and inclusion is one of the greatest strengths of our global business.
[noise], we have taken several actions to further strengthen our diversity initiatives and support social justice causes well. We know there is still much more work to be done.
I'd now like to provide an update on the impacts and our response to the ongoing pandemic.
I'll quickly review the quarterly results and open the call for questions.
Our top priority throughout this crisis remains to protect the health and safety of our employees their families our customers and our communities as stores reopened.
We're providing training for all returning employees updating store signage to include safety guidelines and lowering store capacities to accommodate social distancing.
We have also implemented protocols at our call centers and distribution centers, including social distancing and sanitation measures. While these protocols impact the efficiency of our operations. We believe safety is paramount.
At the start of second quarter, most of our own stores as well as wholesale partners and international distributors doors workflows.
As the quarter progressed store reopening gain momentum in May and June with nearly all of our own stores opened globally by quarter end.
Overall brick and mortar store traffic and performance remain well below pre pandemic levels stores and destination locations and tourist dependent markets remain some of the hardest hit stores within our fleet.
As travels restricted for consumers choose to shop closer to home and online.
As of today nearly all of our stores remain open we're continually monitoring the status of our stores and in recent weeks a small number of stores closed again due to local regulations or for our own safety concerns.
In some markets, where virus cases have recently surge and stores remain open traffic trends have deteriorated.
The virus still spreading particularly in the United States, it's difficult to predict the impact of potential store closures as well as the performance of stores remaining open.
Turning to E commerce as I referenced earlier in my prepared remarks, our DTC E Commerce business grew 72% year over year and represented 28% global net sales during the quarter.
And the U.S., including our own ecommerce site and wholesale partners online businesses, we estimate the Columbia brand second quarter online penetration was around 40%.
[noise] momentum in the channel remains quite strong as many consumers are still choosing to shop online rather than shop in stores.
Through the first few weeks of July we've seen continued E commerce strength, while DTC brick and mortar store traffic and performance remains well below prior year levels recent wholesale sell through activity has been encouraging.
I would like to discuss the actions we've taken to mitigate the financial impact of the pandemic.
On the last call, we outlined plans to reduce 2020 operating expenses by more than $100 million.
Comparison to last year before any incremental extraordinary expenses related to the bad debt.
Based on lower variable expenses and our cost containment actions, we remain on track to achieve this target.
2020 cost containment actions include lowering personnel related expenses, reducing demand creation spend and minimizing discretionary expenditures among other actions.
It's important to note that some of these costs as well as variable expenses will likely return as business normalizes.
With that mine, we are evaluating all areas of our business and anticipate taking further actions.
In order to rightsize, our ongoing expense structure and 2021 and beyond we're also evaluating the reallocation of resources to enable long term growth and execution of our strategic priorities.
These actions will include permanent closure of a small number of underperforming retail stores.
We're also engaging with landlords and lease discussions, which we believe will result in rent abatement reductions of ongoing lease costs.
I will now cover our strategy for the balance of the year.
While many of our competitors are pulling back on investment spending our financial position provides us the ability to continue investing in key areas, including digital and product innovation to enable long term market share gains.
The pandemic is clearly accelerated the ongoing E commerce market share shift and digital remains a critical area of investment.
We continue to roll out our new mobile ecommerce platform experienced burst or X, one which remains on track to go live for the Columbia, Sorel and mountain Hardwear brands in North America during the current quarter.
You may recall in 2019, we implemented X one across 10 countries in Europe direct.
For the product brand in the U.S.
We also recently went live with new CRM and Pos systems in China to encourage more effective engagement with our consumers in that market.
China remains one of the largest geographic opportunities.
On the marketing front all of our brands have significantly shifted demand creation investments towards digital to connect with consumers and drive sales.
Consumer interest in product innovation has not diminished due to the pandemic and neither has our focus on delivering innovative products that exceptional value.
Our apparel innovation pipeline is robust starting with omni heat black dots. This fall and continuing into next year with several new launches Brown planned for spring and fall 201.
Our investments to enhance our footwear product engine across both surreal and Columbia are fueling a pipeline of exciting new styles for the coming season.
In regard to business operations, we remain focused on fulfilling fall orders and consumer demand as well is taking a disciplined approach inventory management, including liquidation of excess inventory and purchases of future inventory.
Despite supply chain disruptions related to the pandemic that occurred earlier in the year, we expect to deliver the vast majority of our fall order book on time.
Exiting the quarter, our inventories were up 7% year over year.
Well unsold and aged inventories are higher than they were a year ago.
We remain confident in our ability to profitably sell remaining inventory in current and future seasons, leveraging the company's wholesale partners E commerce platforms and fleet of outlet stores.
I'm also encouraged that in some parts of the world, particularly the U.S. retailer spring 2020 inventory positions are much cleaner than we would have anticipated when the outbreak.
Operational execution in our distribution centers is also an important area of focus for the team.
We've made investments and adjustments to adapt to new safety protocols and the higher volume ecommerce sales. We're also actively preparing support anticipated higher volumes of ecommerce sales during the heavier sales volume periods.
The latter part of the year.
On the credit front.
Experiencing a few bankruptcies in the US Canada and Europe during the quarter and continue to maintain maintain a bad debt reserve that is significantly elevated in anticipation of additional retail pressure.
We are extending credit with the same disciplined approach, we've always taken and view our ability to manage credit risk as a competitive strength.
Overall, we believe downturns create opportunities as we could position brands retrench and consumers seek out high value products from the brands They trust.
I also believe our global team of dedicated employees are powerful brand portfolio, our long term retail partnerships and strong financial position and operating discipline will all contribute to Columbia sportswear emerging from this crisis and a stronger competitive position.
Before I quickly review second quarter results I'd like to remind everyone that the second quarter is our lowest volume sales quarter and results are not an accurate gauge to measure underlying long term business trends.
Net sales decreased 40% to 317 million, reflecting the impact of temporary store closures, including our wholesale partner stores and lower demand related to the pandemic.
In the US net sales decreased 42% with the steepest decline in April with improvement in May and June as stores reopened.
In our Latin America, Asia Pacific or L.A.P. region, net sales decreased 32% in constant currency.
Korea was the loan market to generate sales growth in part driven by government stimulus that boosted retail consumption during the quarter.
China, which was the first market to experience pandemic weakness was down mid teens in constant currency.
And our Europe, Middle East Africa, or EMEA region, net sales decreased 36%, reflecting lower consumer demand across both our distributor and direct businesses.
In Canada, which experienced a longer shutdown in many regions net sales declined 54% in constant currency.
Gross margin declined 200 basis points to 46.2% of net sales.
The largest drivers of this contraction were all cobot 19 related including higher inventory provisions and increased promotional activity, resulting in lower product margins, primarily in our DTC channel.
These headwinds were partially offset by a higher mix of DTC ecommerce sales, which generally carry higher gross margins and lower volumes of off price wholesale sales compared to last year.
SGN, a expenses decreased 10% year over year, reflecting a reduction in global retail expenses due to store closures lower advertising expense and lower discretionary spending.
Partially offset by incremental extraordinary expenses related to the pandemic.
This performance resulted in an operating loss of 70.3 million and a loss per share of 77 cents.
Compared to operating profit of 16.4 million and diluted earnings per share of 34 cents in the prior year.
Moving to performance by brand.
Columbia brand net sales decreased 42% in the quarter.
Top performing categories in the quarter included footwear.
Sensorys and PSG sportswear.
Our PSG franchise remains a highly differentiating component of our product line and once again as a top performer in our summer assortment.
Columbia's innovations continue to receive media call outs and awards, including news website business insider, featuring the men silver rich cargo pad and the women's Saturday Trail Pat in their article on essential camping gear.
Men's journal featured the PSC slack tide capture noting that Colombia has established itself as the Rad data River, where.
The revamp of this classic fishing sure.
People magazine featured exclusive article on the Columbia PSG freezer address following any game changing cooling dress perfect for every type of summer activity.
Let me just focus on footwear was evident this spring with the launch of several new franchises, including the test pivot and PSG low drag.
Most recently, we watch facet, a lightweight high performance hikers election with a disruptive aesthetic.
In addition to these new styles, which broaden our assortment and reached a new customers.
All right chronic styles like the Newton rich remain at perennial best seller.
Exclusive innovations developed internally have been a key point of differentiation for the Columbia brand.
This year, we're proud to celebrate the 10th anniversary of Columbia's patented innovations omni heat thermal reflective originally inspired by oil space blankets Omni heat is one of the best selling what are technologies in the world.
In fall 2020, Colombia is watching the next evolution of warm called omni heat Black dot.
This patent pending new fabric technology features thousands of pigmented dots applied to the exterior of the garment.
These dots act as both a heat magnet drawing in energy from the Sun and a thermal shield keeping heat from escaping. This innovation is the first of its kind and will be exclusively available on Colombia Dot com. This fall.
During the quarter, we continue to emphasize digital storytelling, including our outdoor guide collection of stories to educate and inspire the outdoor community as well as highlight our innovative technologies.
Our PSG ambassador and country music startled Combs live stream concert was watched by over 40000 fans lies and has garnered over 1 million views since then.
Combined with our Tempur together campaign, these marketing initiatives generated over 230 million impressions and counting.
I'd also like to congratulate the Columbia sportswear customer service team, which was recently recognized newsweek's best in state customer service study.
MB earn some of the highest scores within the outdoor and athletic apparel category, including being listed as one of the top three brands in the category in 10 States and several first place rankings.
Great work team.
So well was our best performing brand in the quarter, posting just a 12% decline.
The decline reflects the impact of significant door closures in the wholesale channel.
Partially offset by robust ecommerce growth on cereal dot com and wholesale partners online businesses.
Charles position as the year round fashion footwear brand is evident in the strong demand for women spring styles led by the new kinetic sandal Joni wedge and the new roaming flat sandal collections.
On a net sales declined 28% in the second quarter, primarily reflecting the impact of wholesale partner door closures.
Partially offset by robust ecommerce growth that included excellent new customer acquisition trends.
Top performing categories online included women's lounge worst styles and yoga products as consumers adapted to their ethanol routine.
Ron as marketing team quickly pivoted content to reach consumers in this new environment with tips on how to thrive during the pandemic and social media events, including alive Matt.
A lot of these class and Instagram surprise and delight give away.
Brand continues to in body its clothing for a positive change message by taking a stand and actively engaging with consumers timely diversity issues.
Mountain Hardwear is net sales declined 44% of the second quarter, primarily reflecting the impact of wholesale partner door closures.
Finally, offset by strong E commerce growth.
During the second quarter.
Top performing categories online included sportswear and equipment.
Top selling styles like the Dynamo womens I think pant as well as a robust sale of tense sleeping bags and backpacks. All suggest consumers are eager to gear up for their next outdoor adventure in.
In fact outside magazines year of the year award winning at the mineral King completely sold out.
Now turning to our outlook.
As previously announced we withdrew our 2020 financial outlook and are not providing financial outlook today.
While much uncertainty remains we do expect sales volume to remain below prior year levels for the balance of the year.
Absent further pandemic related deterioration in trends, we would anticipate the second quarter to be the steepest year over year quarterly percent decline in net sales with declines moderating in the second half of the year.
In summary, while much uncertainty remains.
Liquidity and operating discipline provide as confident as we ended the second half of the year.
Our long term commitment to driving sustainable and profitable growth has not changed and our strategic priorities remain.
Dr. global brand awareness and sales growth through increased focused demand creation investments.
Enhance our consumer experience and digital capabilities in all of our channels and geographies.
Expand and improve our direct to consumer operations with supporting processes and systems.
And invest in our people and optimize our organization across our portfolio of brands.
That concludes our prepared remarks, we welcome your questions for the remainder of the hour.
Operator could you help us with that.
Thank you at this time, we will conduct a question answer session. If you would like to ask a question. Please press star one point your telephone keypad.
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Once again that star wants to ask a question at this time.
One moment, while we pull for first question.
Our first question comes from Bob.
Please proceed with your question.
Hi, Tim Good evening.
Yes.
Hi, there I guess a couple of questions. Just wondering if you might elaborate on a bit I think the first one is on the order book I.
I guess from the last time you spoke can you just talk about the trends that you're seeing.
How how much.
Prudent you've seen idle month to month week to week, given what you're seeing in wholesale I was wondering if you could just elaborate a little bit on on that as a topic and then the second question that I have is on the inventory levels generally.
When do you think that supply demand.
In your own inventories will be back aligned.
Given your order book given your your plan received some of you could maybe just give us a little bit of flavor in terms of high you think thats going to materialize or it is materializing as we speak thanks.
Certainly.
Well you know.
Our order book was essentially complete in January of 2020 for fall.
Prior to the to the Pandemics real.
You know hit in Europe, and North America and.
Since then the order book has compressed slightly.
Not a tremendous amount but.
What we've seen is.
Frankly.
An opportunity where we have.
Inventory, President where that we believe that frankly later in the season there will be.
A likely shortage of inventory.
Winter products many of our competitors cancelled all orders for merchandise coming in from Asia in winter and.
We were very selective in terms of how we work that that.
Effort and.
So my my feeling is we're in the right position with inventories today matching our order book if you remember I think we last to less than we spoke we talked at length about how we basically reworked our order book to match, our inventories which were existing in country.
Well, that's Europe, or North America, or wherever and match those orders move the orders around so we we could.
Remove purchase orders from Asia for the most risky merchandise so I think frankly.
We're in a great position here and we continue to understand that from discussions with our wholesale partners.
As it relates to the inventory levels for the company and when they'll change and be more in line. If you remember pre pandemic the companys balance sheet was so strong.
We could purchase merchandise from our customer from our vendors in Asia in higher quantities to get better fob prices and thus better gross margins for the company.
At the time, we hit that was the best use of cash for the company.
Since the Pandemics, yet and the right the risks around the business have increased.
Inventory turns have become a much greater focus for the business. So I would expect that our inventory levels will continue to decline.
And when when they'll be.
Right sized I would say.
Is going to be determined by the weather and the results.
Of the pandemic influenza virus begins to subside or what furious found.
But it's an area that we focus on and inventories well no. Prior period were less important to us that are now becoming more important.
Got it okay.
Thanks, very much Tim.
Thanks, Bob.
Our next question.
In the wrong, that's going to school with BNP Paribas. Please proceed with your question.
Oh good afternoon. Thank you very much for taking my question.
If I heard right I think it was mentioned a June was down about 20%.
It's possible could you, possibly parse that out between.
Wholesale DTC did you see sequential monthly improvement across the four regions over the quarter I think I heard the U.S. was called out and are there any other factors that could weigh on any regions sequential improvement for the second half outside of cobot.
Well I would say that the the recovery in traffic and.
Purchasing power in brick and mortar has been lumpy and really.
A result about a result of consumers comfort level going into stores and.
Getting out about.
I would say if I look globally.
Frankly Korea in Europe have improved quicker than.
Then the United States.
Japan as you know opened and was was stronger than closed again open and so.
That area was more lumpy and then the U.S. is.
Across the the the 50 states is really dependent on.
Hey, how seriously the virus has taken by the locals and and then what what's happening with the with the various rules and regulations on closure so.
I would say, it's it's a geographic.
The number in terms of what's what's going on what's likely to happen.
Okay very helpful. Tim and then as a follow up question I think in the CFO commentary as well as in your prepared remarks, you talked about potential additional cost savings for for 2021 2022.
I think it was called out rent Ryan's expands and some small store closures can you talk a little bit more about if there's any other cost savings that could come through.
And and and over the long term after the dust settles with Pandemics should we think about this business still at both as a double digit EBIT margin business.
Yes will run through the this is Jim.
We were in the midst of cost containment efforts, both this year and we're well on track in terms of what we described with 100 million of targeted savings when variable costs and cost containment in 2020 and on the same token given the impact to the pandemic.
Uncertainty in our business, we're looking out beyond.
This year from a cost management standpoint, I would say essentially everything on the table as we look at it Tim called out a couple of specific example, as it relates to our retail store fleet and clothing potential underperforming stores, but we're really looking at.
The entire higher business on Rightsizing, the cost structure and really seeking to strike the right balances. We do that certainly we remain focused on with the strong balance sheet that we have the strategic investments that we need to make in order to continue driving profitable growth. In addition to balancing out that the cost side of equation.
Very helpful. Thank you very much.
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Our next question comes from John timing with Cowen. Please proceed with your question.
Good afternoon, Mrs. Christa on for John Thank you for taking my questions first as we think about a 100 million in cost containment initiatives for fiscal 2008.
With that flow through in the second half of 2020 persons first jobs to be more weighted to Q3 Q4 were pretty uniform and I have one follow up thank you.
Yeah, Chris So looking at the let me answer it this way in terms of looking at the second quarter and 100 million is comprised of a combination of variable based expenses as well as cost containment in the second quarter. If you exclude the impacts of cobot costs, we incurred in the quarter as well as bad debt expense our year over year.
Cdna was down about $40 million and that 40 million about two thirds of that is variable based in the other third cost containment and so as we get into the back half of the year, knowing that we've seen about $40 million of lower asked DNA in that in the second quarter the balance of that'll come through in the in the back half will be dependent upon.
On what we see in part on the topline and I'd anticipate while we've seen the cost containment activity that we've achieved in the second quarter that we continue to see those.
In the back half of the year I think theres, a fair amount of discipline I think our teams are doing a great job worldwide of managing.
Our spend people costs are discretionary spend so we'll keep that focus as we move forward in the back half of the year.
Great. Thank you are among just following up on your your earlier comments on where you think inquiry levels will continue to increase sequentially to the or how should we think about gross margin is there is there potential to term or I guess recovering Keith hladek not positive expansion by the end of your standpoint.
Quarter, considering where you think inventory levels are going to be thank you very much.
I think it's going to be largely dependent upon the.
The consumer and consumer demand and the promotional environment from an overall retail standpoint as you look at our first half gross margin most of the drivers that are in there are our coven related.
Among them are some fairly significant inventory provisions that we've made given our excess inventory position.
Assuming the environment doesn't get worse I wouldn't anticipate that that continues to be a headwind in the latter part of the year. So the variables that are out in the back part of the year really going to be a function of consumer demand. The promotional activity and then I would think that channel mix continues to be a tailwind for us as we're seeing the growth in the digital business.
And then the last piece that I'd add here, whether it's always a significant component to our business in the latter part of the year and can can go either way.
Great. Thank you.
Our next question comes from Chris Svezia with Wedbush. Please proceed with your question.
Good afternoon, everyone. Thanks for taking my questions glad you're all while so I guess just first on now I will go back to E commerce for a moment below 80% increase for the quarter seemed like that accelerated throughout Q2 I'm. Just curious as you stepped into Q3, you know your stores have now more or less open your wholesale partners Mark.
We opened has there been any moderation in E commerce trajectory or how should I think about that as you kind of roll forward into the back half of the year.
Yeah. The E commerce levels, frankly or are in the same range generally.
And.
As we as we mentioned in the comments earlier, we're launching really the only capital expenditure project that survived the coded constraint, which is our X one reformat any of our or E commerce.
Platform, which should allow for some expansion in that business.
On the Columbia Dot Com ends and.
Other brand sites.
This year so the expectation is that over over this year it will improve and.
I think I think consumers are becoming more comfortable with.
With virtual shopping and.
So our expectation is that that business will continue to grow and expand certainly based on the investment we've made in X one.
Okay, and just on on the loyalty program or loyalty initiatives important initiatives any update on that as it pertains to X one as well.
Certainly well we have a loyalty program and has since been installed for quite some time with many members on it I don't think we are at the cutting edge of our loyalty.
Utilization and we can certainly improve.
Are you utilization of that tool.
And X one will allow us now that we have other.
Deficiencies in the in the E com business more settled we can move onto loyalty and other areas of.
Consumer.
Matching with with inventory.
Better more automated way so our expectation is that the continued investment in that in that part of the business will will reap big rewards.
Got it and lastly on I guess, just going back to inventory and started up back half thought process wholesale and their own direct consumer business.
How do I, just think about if by any chance we have a normalized winter everyone is cut back production pretty significantly.
You probably hold off some inventory and products probably for another season, and I guess, you've cut back on made for product outlet business. So is it I'm just kind of curious about all those dynamics and as we think about the back half how potentially if it's a normalized season.
On the promotional cadence is a fair to say that that could be relatively benign.
That kind of plays out in that fashion.
Well again, it's hard to know because the weather and the pandemic or both.
Difficult to control, but it's our view that.
Our competitors have been.
More conservative than we have been in terms of their approach to inventories.
And I think if it's a normal winter there will be a shortage in us less promotional activity.
Okay.
Got it and Dodger just let's just put a competition may for inventory for the outlet segment year over year or is that is that down because your transition inventory that was for wholesale customers.
To to the outlet business.
Yes, yes, thats right, that's right, Chris we bought far less inventory for the outlets relative to what we've done over the last two to three years until Thats as the result of carrying over some of the fall 19 inventory and the fact, we will leverage those outlets for that purpose.
Okay, Alright, thank you very much and continued success.
Yes.
Our next question comes from Jonathan Komp with Baird. Please proceed with your question.
Yeah, Hi, this is Steve no tricky on for John Thanks for taking my questions. That's my first one would just be.
Theres been some signs across the industry really about as you mentioned kind of a surge and outdoor interest outdoor recreation are you guys thinking about.
You know the length of that trend is that something that's pretty short term rethink it at last awhile and anything where you can share there that new customers coming into the industry or are providing customers buying more just any detail around that.
Yeah, I think frankly the hub.
The viruses impact on People's activity levels.
On to be dramatically difference and longer lasting.
Through the restaurant bar business.
It is going to be.
Impacted negatively and the outdoor business will be positively impacted because.
Yes.
People.
Operating together working together and a lot more outdoor activities.
We are outdoors, you never know what the weather's going to be we'd have the right protective apparel.
Great. Thanks, and then maybe just one more.
Big picture stepping back how are you thinking about.
Balancing a defensive approach, obviously really good balance sheet with at some point shifting to off thanks, and some of the strategic growth initiatives investing behind those.
Yeah, So as I said, the really the only surviving capital project a that we've funded.
Fully really was a was our X one.
Digital Commerce initiative.
And that would include obviously.
Expanded use of our photo studios to get products in line and then frankly.
Better way to tell the stories about our products, which.
Frankly are quite complex and have a lot of technology and innovation in them and oftentimes when we when we sell them through a third party retailer they can't give them the kinds of.
Due to.
To be able to explain to consumers about these innovations and so I think.
It was a great approach for us to continue to invest in the in the X one that allow us to tell our story is better and be more expansive and and frankly I think it will help the brand.
Being much stronger in the future.
Got it thanks.
Thanks.
Our next question comes from Paul Lejuez with Citigroup. Please proceed with your question.
Thanks, its Tracy Kogan filling in for Paul I was wondering if you guys can talk a little bit more that your store fleet. I know you mentioned you expect the coal small number.
Underperforming stores, but I'm wondering what do you see as your ideal fleet size I guess relative to the 20 full price and I guess 120 outlets you have right now and then secondly can you just give us a fair number of leases you have coming due mainly to the next several years. Thanks.
As it relates to the store fleet I think your counts are roughly right as it relates to specifically to store closures those are mostly going to be in the branded.
Store area, So, we'll see a little bit of a shift between higher concentration on a on the outlet side and specifically as it relates to the leases and these comments are going to be mostly U.S. related I think we've got somewhere in the neighborhood of eight to 10 ish leases, which is in line.
The store opening plans that we've executed on each of the last several years. So that's about the run rate you're going to see in terms of lease renewal.
And then and then as it relates to these stores that are closing is Tim touched on these have been underperforming stores and so as we look at.
The impact of those certainly there's a topline but from an overall bottom line perspective, it's an accretive business Division fourth.
Hi, Joe in terms of your Albert store Count you don't expect much change in that in that overall from side.
Not in the near term as as we look across the.
Portfolio products that we have again there there are many that are complex that have a high degree of.
Innovation and require an explanation that you can do that much more effectively digitally than you can even with a.
For the highly trained salesforce.
Got it thank you.
Our next question comes from coming online with BTI Ji. Please proceed with your question.
Great. Thank you that's been Mackenzie point, then onset Camilo Lyon, thanks for taking your question.
My first question is just about.
Any channel different than that you're seeing with your wholesale partners sporting goods persons apartment sorry.
The impact here Tonight. Thanks.
Certainly.
Well, we have you know a broad range of customers I'm not going to you last but globally and I would say our sporting goods customers are doing quite well I'm, especially those that have.
A high percentage of.
Fishing.
In the spring because.
We have a unique.
Apparel line called PNG, which includes footwear and that's been one of a stellar performance. So we have sporting goods operations with big fishing componentry that they're doing quite well with that product.
The Department store channel has been important for us, but frankly is.
It's a little bit more dependent on on the activities.
They are each involved with in terms of their store openings and.
Whether or not they have.
Order online pick up in store installed or are there levels of investment in that digital part of the business.
Okay. Thanks.
Then.
Just another question.
Okay and your go better prepared remarks, just about kind of innovation or meaning parent paramount, particularly with Colombia, but can you speak about deferred any new innovation until next year, particularly and then answer kind of promotional environment or.
How do you maintained your calendar.
Thanks.
Certainly well.
As you know that Thats, what are the key points of differentiation for the company's products is the innovative approach to two keeping people warm dry cool and protected and as it relates to dry and cool we have.
Launched a number of products using our outright.
The product.
Membrane, where the members on the outside that's been very effective and we also have a cooling apparel and sun protective apparel with our omni freeze pace and an omni freeze Sun deflector products.
For full 21, we've launched we will launch a brand new.
Enhancement to our already Super popular omni heat.
Franchise, which is highly differentiated and we'll we'll be in my opinion, what one of the strongest launches we've ever had an a product. So we're not ready to talk about further other than the opportunity that exists. So we'll begin talking to our retail partners.
In the next.
Prior to the at the end of third quarter likely and for for fall 21, and that's when we can start talking to investors about this stuff.
Yes, a PDF premium products.
One more.
I'm, sorry, I didnt understand that.
Will that be more premium product introduction or.
Thank you the existing.
It will be yes, it will be more premium and allow us greater margin opportunity with pricing power.
Great. Thank you good luck with that yeah.
Thank you.
At this time I would like to turn call back over to management for closing comments.
Well. Thank you very much for listening in we're hopeful that we have.
An opportunity to to put this virus behind us and until then we're going to focus on.
Structuring the business properly for.
The highest degree of profitability.
And efficiency that we can so we're talking to you.
Soon again about these topics.
Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines. This time and thank you for your participation.