Columbia Sportswear Company (COLM) Q2 2020 Earnings Report, Transcript and Summary

Greetings, and welcome to Columbia Sportswear Second Quarter 2020 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Robert Burns, Director of IR. Thank you, sir. You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company’s Second Quarter Results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our results and updates regarding COVID-19 impacts and the company’s response. The CFO commentary is available on our Investor Relations website, investor.columbia.com. With me today on the call are Chairman, President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Operating Officer, Tom Cusick; Senior Vice President and Chief Financial Officer, Jim Swanson; and 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 and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia’s SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements actual results or changes in our expectations. I’d also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results including a reconciliation of GAAP to non-GAAP measures and an explanation of management’s rationale for referencing 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 will host a Q&A period during which we will limit each caller to two questions so we can get to everyone by the end of the hour. Now I’ll turn the call over to Tim.

Thanks, Andrew. Good afternoon, everyone. While second quarter sales and profitability declines clearly reflect the global effects of the ongoing pandemic, I am encouraged by the improvement in trends over the course of the quarter. Net sales declined 40% year-over-year with declines moderating as the quarter progressed. To put this into perspective, April net sales were down nearly 60% and June net sales were down 20%. Despite these challenges, there were several bright spots in the quarter. Our DTC e-commerce business surged over 70% year-over-year and there 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, who are enabling efficient 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, while also continuing 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 clear that the consumer interest in outdoor experiences has surged during the pandemic and 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 pandemic. 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, sustaining places and promoting responsible practices. Before discussing financial matters, I’d like to acknowledge recent tragedies. I was sickened by the killing of 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 form. This has been and will continue to be a cornerstone of our values. As a company founded by immigrants fleeing Nazi Germany, we truly understand that diversity and inclusion is one of the greatest strengths of our global business. We have taken several actions to further strengthen our diversity initiatives and support social justice causes, but 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 reopen, 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 in 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 owned stores as well as wholesale partners and international distributors doors were closed. As the quarter progressed, store reopening gained momentum in May and June with nearly all of our owned 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 travel is restricted, our consumers choose to shop closer to home and online. As of today, nearly all of our stores remain open. We are 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 surged and stores remain open, traffic trends have deteriorated. With 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% of global net sales during the quarter. In the US, including our own e-commerce site and wholesale partners online businesses, we estimate the Columbia brand’s second quarter online penetration was around 40%. 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 in comparison to last year before any incremental extraordinary expenses related to the pandemic. 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 in mind, we are evaluating all areas of our business and anticipate taking further actions in order to right size our ongoing expense structure in 2021 and beyond. We are also evaluating the reallocation of resources to enable long-term growth and execution of our strategic priorities. These actions will include the permanent closure of a small number of underperforming retail stores. We are also engaging with landlords in lease discussions, which we believe will result in rent abatement and reductions of ongoing lease costs. I’ll 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 has 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 e-commerce platform, experience first, or X1, 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 X1 across 10 countries in Europe-direct and for the prAna brand in the US. 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 at exceptional value. Our apparel innovation pipeline is robust, starting with Omni-Heat Black Dot this fall and continuing into next year with several new launches planned for spring and fall 2021. Our investments to enhance our footwear product engine across both SOREL and Columbia are fueling our 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 as taking a disciplined approach to 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. While 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 US, retailer spring 2020 inventory positions are much cleaner than we would have anticipated when the outbreak began. Operational execution in our distribution centers is also an important area of focus for the team. We have made investments and adjustments to adapt to new safety protocols and the higher volume of e-commerce sales. We are also actively preparing to support anticipated higher volumes of e-commerce sales during the heavier sales volume periods in the latter part of the year. On the credit front, we are experiencing a few bankruptcies in the US, Canada and Europe during the quarter and continue to 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 weaker position brands retrench and consumers seek out high value products from the brands they trust. I also believe our global team of dedicated employees, our 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 in 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 LAAP region, net sales decreased 32% in constant currency. Korea was the lone 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. In 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 COVID-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 e-commerce sales, which generally carry higher gross margins and lower volumes of off-price wholesale sales compared to last year. SG&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 $0.77 compared to operating profit of $16.4 million and diluted earnings per share of $0.34 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, accessories and PFG sportswear. Our PFG franchise remains a highly differentiating component of our product line and once again is 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’s Silver Ridge Cargo Pant and the Women’s Saturday Trail Pant in their article on essential camping gear. Men’s Journal featured the PFG Slack Tide Camp Shirt noting that Columbia has established itself as the Rad Dad of Riverwear with the revamp of this classic fishing shirt. People Magazine featured an exclusive article on the Columbia PFG Freezer Dress calling it a game changing cooling dress perfect for every type of summer activity. Columbia’s focus on footwear was evident this spring with the launch of several new franchises, including the Vitesse, Pivot and PFG Low Drag. Most recently, we launched Facet, a lightweight, high performance hiker collection with a disruptive aesthetic. In addition to these new styles which broaden our assortment and reach to new customers, our iconic styles like the Newton Ridge, remain a 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 foil space blankets, Omni-Heat is one of the bestselling winter technologies in the world. In fall 2020, Columbia is launching the next evolution of warmth 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 columbia.com this fall. During the quarter, we continue to emphasize digital storytelling including our outdoor guide collection of stories that educate and inspire the outdoor community as well as highlight our innovative technologies. Our PFG ambassador and country music star, Luke Combs live stream concert was watched by over 40,000 fans live and has garnered over one million views since then. Combined with our Tougher 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 in the Newsweek’s best in state customer service study. Columbia earned 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. SOREL is 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 e-commerce growth on sorel.com and wholesale partners online businesses. SOREL’s position as a year-round fashion footwear brand is evident in the strong demand for women’s spring styles led by the new kinetic sandal, Joan [ph] Wedge and the new roaming flat sandal collections. prAna net sales declined 28% in the second quarter, primarily reflecting the impact of wholesale partner door closures. Partially offset by robust e-commerce growth that included excellent new customer acquisition trends. Top performing categories online included women’s loungewear styles and yoga products as consumers adapted to their at home routine. prAna’s 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 a live Mat Pilates class and Instagram surprise and delight giveaway. Brand continues to embody its clothing for a positive change message by taking a stand and actively engaging with consumers on timely diversity issues. Mountain Hardwear’s net sales declined 44% of the second quarter, primarily reflecting the impact of wholesale partner door closures, partially offset by strong e-commerce growth. During the second quarter, top performing categories online included sportswear and equipment. Top selling styles like the Dynamo Women’s Hiking Pant as well as a robust sale of tents, sleeping bags and backpacks, all suggest consumers are eager to gear up for their next outdoor venture. In fact, Outside Magazine’s Gear of the Year Award winning tent, The Mineral King, completely sold out. Now turning to our outlook. As previously announced, we withdrew our 2020 financial outlook and are not providing a 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, our liquidity and operating discipline provide us confidence as we enter the second half of the year. Our long-term commitment to driving sustainable and profitable growth has not changed, and our strategic priority remain to drive 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?

[Operator Instructions] Our first question comes from Bob Drbul with Guggenheim. Please proceed with your question.

I guess couple of questions, just wondered if you might elaborate on a bit. I think the first one is, on the order book, I guess, from the last time you spoke, can you just talk about the trends that you’re seeing? How much improvement you’ve seen, I don’t know, 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 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 planned receipts? I don’t know if you could maybe just give us a little bit of flavor in terms of how you think that’s going to materialize or it is materializing as we speak. Thanks.

Certainly. Well, our order book was essentially complete in January of 2020 for fall, prior to the pandemic -- hit in Europe and North America. And since then, that order book has compressed slightly, not a tremendous amount. But what we’ve seen is frankly, an opportunity where we have inventory present where we believe that, frankly, later in the season, there will be a likely shortage of inventory in winter products. Many of our competitors canceled all orders for merchandise coming in from Asia in winter. And we were very selective in terms of how we work that effort. And so my feeling is we’re in the right position with inventories today matching our order book. If you remember, I think we -- last time we spoke, we talked at length about how we basically reworked our order book to match our inventories, which were existing in country, whether that’s Europe or North America or wherever and match those orders, move the orders around so that 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 changed to be more aligned. If you remember, pre-pandemic, the company’s balance sheet was so strong that we could purchase merchandise 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 had -- that was the best use of cash for the company. Since the pandemic hit and 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 they’ll be right sized, I would say, is going to be determined by the weather and the results of the pandemic and when the virus begins to subside or when a cure is found. But it’s an area that we focus on inventories, while in the prior period were less important to us; they’re now becoming more important.

Got it, okay. Thanks very much, Tim.

Our next question comes from Laurent Vasilescu with BNP Paribas. Please proceed with your question.

If I heard right, I think it was mentioned that June was down about 20%. If possible, could you possibly parse that out between wholesale? Did you see sequential monthly improvement across the four regions over the quarter? I think I heard the US was called out. And are there any other factors that could weigh on any region’s sequential improvement for the second half outside of COVID?

Well, I would say that the recovery in traffic and purchasing power in brick-and-mortar has been lumpy and really a result of consumers’ comfort level going into stores and getting out and about. I would say, if I look globally, frankly, Korea and Europe have improved quicker than the United States. Japan, as you know, opened and was stronger, then closed again, opened. And so that area was more lumpy. And then the US, across the 50 states is really dependent on any: a, how seriously the virus is taken by the locals and then what’s happening with the various rules and regulations on closure. So I would say, it’s a geographic conundrum in terms of what’s going on and 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 2021, 2022. I think it was called out rent expense 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 over the long-term, after the dust settles with the pandemic, should we think about this business still as a double-digit EBIT margin business?

Yes, Laurent, this is Jim. We’re in the midst of cost containment efforts both this year and we’re well on track in terms of what we’ve described with $100 million of targeted savings between variable cost and cost containment in 2020. And on the same token, given the impacts of the pandemic, the uncertainty in our business, we’re looking out beyond this year from a cost management standpoint. I would say, essentially, everything is on the table as we look at it. Tim called out a couple of specific examples as it relates to our retail store fleet and closing potential underperforming stores. But we’re really looking at the entire business and right sizing the cost structure and really seeking to strike the right balance as we do that. Certainly, we remain focused on with a 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 the cost side of the equation.

Very helpful, thank you very much.

Our next question comes from John Kernan with Cowen. Please proceed with your question.

This is Krista, on for John. First, as we think about the $100 million in cost containment initiatives for fiscal 2020, how should that flow through in the second half of 2020 versus first half? Should it be more weighted to Q3 or Q4 or pretty uniform? And I have one follow-up. Thank you.

Yes. Krista, so looking at the -- let me answer it this way. In terms of looking at the second quarter, and that $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 COVID costs that we incurred in the quarter as well as bad debt expense, our year-over-year SG&A was down about $40 million. And that $40 million, about two thirds of that is variable based and the other third is cost containment. And so as we get into the back half of the year knowing that we’ve seen about $40 million of lower SG&A in the second quarter, the balance of that will come through in the back half and will be dependent upon what we see in part on the top line. And I’d anticipate, while we’ve seen the cost containment activities that we’ve achieved in the second quarter that we continue to see those in the back half of the year, I think there’s a fair amount of discipline. I think our teams are doing a great job worldwide of managing our spend, be it people cost or discretionary spend. So we’ll keep that focus as we move forward in the back half of the year.

Great. And then just following up on your earlier comments on where you think the inventory levels will continue to improve sequentially through the year. How should we think about gross margin? Is there a potential to turn or I guess recover to flat, if not positive expansion by the end of the year say fourth quarter, considering where you think your inventory levels are going to be? Thank you very much.

I think it’s going to be largely dependent upon 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 COVID related. Among them were 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 are 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 is weather is always a significant component to our business in the latter part of the year and can go either way.

Great, thank you.

Our next question comes from Chris Svezia with Wedbush. Please proceed with your question.

So I guess just first on the -- I want to go back to e-commerce for a moment. The low 80% increase for the quarter, it seems like that accelerated throughout Q2. I am just curious, as you stepped into Q3, your stores are now more or less open. Your wholesale partner is largely open. Has there been any moderation in that e-commerce trajectory? Or how should I think about that as you kind of roll forward into the back half of the year?

Yes. The e-commerce levels, frankly, are in the same range generally. And as we mentioned in the comments earlier, we’re launching really the only capital expenditure project that survived the COVID constraint, which is our X1 reformatting of our e-commerce platform, which should allow for some expansion in that business on the columbia.com and other brand sites this year. So the expectation is that over this year, it will improve. And I think consumers are becoming more comfortable 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 X1.

Okay. And just on the loyalty program or loyalty initiatives, rewards initiatives, any update on that as it pertains to X1 as well?

Certainly. Well, we have a loyalty program and it’s 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 our utilization of that tool. And X1 will allow us -- now that we have other deficiencies in the e-comm business more settled, we can move on to loyalty and other areas of consumer matching with inventory in a better, more automated way. So our expectation is that the continued investment in that part of the business will reap big rewards.

Got it. And just lastly, I guess just going back to inventory and sort of a back half thought process, wholesale and your own direct-to-consumer business, how do I just think about if, by any chance, we have a normalized winter, everyone has cut back production pretty significantly. You’ll probably hold off some inventory and products probably for another season. And I guess you’ve cut back on made for products to your outlet business. 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, the promotional cadence, is it fair to say that, that could be relatively benign, if that kind of plays out in that fashion?

Well, again, it’s hard to know because the weather and the pandemic are 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 unless less promotional activity.

Okay. Got it. And just last point of clarification. Made for inventory for the outlet segment year-over-year, is that down because you’ve transitioned inventory that was for wholesale customers to the outlet business?

Yes.

Yes, 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. And so that’s as a result of carrying over some of the fall 2019 inventory and the fact that we’ll leverage those outlets for that purpose.

Okay, all right. Thank you very much and [indiscernible].

Our next question comes from Jonathan Komp with Baird. Please proceed with your question.

This is Steven Nowotarski, on for John. I guess my first one would just be, there’s been some signs across the industry really about as you mentioned kind of a surge in outdoor interest, outdoor recreation. Are you guys thinking about the length of that trend? Is that something that’s pretty short term or do you think it lasts a while? And anything more you can share there? Is it new customers coming into the industry or present customers buying more? Just any detail around that.

Yes. I think, frankly, the virus’ impact on people’s activity levels are going to be dramatically different and longer lasting. I think the restaurant and bar business is going to be impacted negatively and the outdoor business will be positively impacted because a lot less people are operating together, working together and a lot more outdoor activities. And when you’re outdoors, you don’t know what the weather is going to be you need to have the right protective apparel.

Great. And then maybe just one more. Big picture, stepping back, how are you thinking about balancing a defensive approach? You obviously have a really good balance sheet with -- at some point, shifting to offense and some of the strategic growth initiatives investing behind those?

Yes. Well, as I said, really the only surviving capital project that we funded fully really was our X1 digital commerce initiative. And that would include, obviously, expanded use of our photo studios to get products in line. And then frankly a 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 sell them through a third-party retailer, they can’t give them the kinds of do 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 X1. It allows us to tell our stories better and be more expansive. And frankly, I think it will help the brand be much stronger in the future.

Got it, thanks.

Our next question comes from Paul Lejuez with Citigroup. Please proceed with your question.

It’s Tracy Kogan, filling in for Paul. I was wondering if you guys could talk a little bit more about your store fleet. I know you mentioned you expect to close a small number of 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 the 120 outlets you have right now? And then secondly, can you just give us a sense as to the number of leases you have coming due in each of the next several years? Thanks.

As it relates to the store fleet, I think your accounts are roughly right. As it relates 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 a higher concentration on the outlet side. And then specifically, as it relates to the leases and these comments are going to be mostly US related, I think we’ve got somewhere in the neighborhood of eight to 10-ish leases, which is in line with 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 renewals. And then as it relates to these stores that are closing, as Tim touched on, these have been underperforming stores. And so as we look at the impact of those, certainly, there’s a top line, but from an overall bottom line perspective, it’s an accretive business decision for us.

Got it. And so in terms of your outlet store count, you don’t expect much change in that overall fleet size?

Not in the near term. As we look across the portfolio of products that we have, again, there are many other complexes that have a high degree of innovation and require an explanation and you can do that much more effectively digitally than you can even with a highly trained sales force.

Got it, thank you.

Our next question comes from Camilo Lyon with BTIG. Please proceed with your question.

This is Mackenzie Boydston, I’m on for Camilo. My first question is just about any channel differences that you’re seeing with your wholesale partners, sporting goods versus department stores? And how that might be impacting your deliveries?

Certainly. Well, we have a broad range of customers, not only in the US, but globally. And I would say our sporting goods customers are doing quite well, especially those that have a high percentage of fishing in the spring because we have a unique apparel line called PFG, which includes footwear, and that’s been one of the stellar performers. So and we have sporting goods operations with big fishing componentry[ph] that’s -- we’re doing quite well with that product. The department store channel has been important for us, but frankly, is a little bit more dependent on the activities that 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 their levels of investment in that digital part of the business.

Okay. Thanks. And then just another question. I know you spoke during your prepared remarks just about kind of innovation remaining paramount, particularly with Columbia. But could you just speak about if you’ve deferred any new innovation until next year, particularly amid an uncertain kind of promotional environment? Or have you maintained your calendar of kind of new introductions? Thanks.

Certainly. Well, as you know, that’s one of the key points of differentiation for the company’s products is the innovative approach to keeping people warm, dry, cool and protected. And as it relates to dry and cool, we have launched a number of products using our OutDry product membrane, where the membrane is on the outside, that’s been very effective. And we also have cooling apparel and sun protective apparel with our Omni-Freeze ICE and Omni-Free Sun Deflector products. For fall 2021, we will launch a brand new enhancement to our already super popular Omni-Heat franchise, which is highly differentiated and will be in my opinion, one of the strongest launches we’ve ever had in 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 -- at the end of third quarter likely and for fall 2021, and that’s when we can start talking to investors about this stuff.

Okay. Will that be on premium products introduction or?

I’m sorry, I didn’t understand that.

Will that be a more premium product introduction or similar to the existing products?

So it will be more premium and allow us a greater margin opportunity with pricing power.

Great, thank you. Good luck with the rest of the year.

At this time, I would like to turn the call back over to management for closing comments.

Well, thank you very much for listening in. We’re all hopeful that we have an opportunity 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 look forward to talking to you soon again about these topics.

Thank you, ladies and gentlemen. This does conclude today’s teleconference. You may disconnect your lines at this time and thank you for your participation.