Columbia Sportswear (COLM) Q3 Earnings: Is DTC a Driver?

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Columbia Sportswear CompanyCOLM is slated to release third-quarter 2018 results on Oct 25. This lifestyle apparel, footwear, accessories and equipment company has delivered an average positive earnings surprise of 79.3% in the trailing four quarters. Let's see if the company can keep its robust streak alive this time around.

Columbia Sportswear Company Price and EPS Surprise

Columbia Sportswear Company Price and EPS Surprise | Columbia Sportswear Company Quote

DTC, International Business Solid

Columbia Sportswear is likely to gain from its solid international presence, which provides the company a robust business foundation and enables it to seek new opportunities. In fact, the company's advancement in the EMEA region has been impressive lately, especially due to Europe-direct business and greater sales to EMEA distributors. Sales from the international markets remained strong in the second quarter and was up 9% in the first half of 2018. Results were backed by strength in Europe-direct, Japan and China businesses. Columbia Sportswear is also committed toward expanding and enhancing its global direct-to-consumer (DTC) business, through accelerated investments. Notably, this constituted 40% of the company's total revenues in 2017, wherein DTC sales increased at a high single-digit rate year over year. Encouragingly, management expects DTC revenue growth to outpace growth at wholesale channels in 2018. Courtesy of strength in the DTC business and enhanced wholesale business, Columbia Sportswear's U.S. business witnessed growth of 13% in the first half of 2018.

Key Strategies, Project CONNECT on Track

Columbia Sportswear continues to execute on its four key strategies. The company is focused on driving brand awareness, and boosting sales growth in both wholesale and direct-to-consumer channels by concentrating on creating demand. Second, management plans to enrich customers' experience and digital operations. Further, Columbia Sportswear intends to improve and solidify global direct-to-consumer networks. Finally, the core strategies include making customer-centric investments and optimizing organization.

Further, Columbia Sportswear is progressing well with its Project CONNECT program, which is likely to drive sales and earnings growth, alongside strengthening the company's financial position. The program is expected to enhance revenues, capture cost of sales efficiencies, improve marketing efforts and lessen SG&A expenses. Additionally, the company is optimistic about generating substantial financial value from this project in the near future.

Higher Costs a Threat

Columbia Sportswear's SG&A costs escalated 10.8% to $222.2 million. Further, management expects SG&A growth rate to increase in the second half of 2018 on account of greater demand creation costs, sustained investments in the company's DTC business and capability development, and informational technology costs associated with the company's strategic initiatives. Evidently, adjusted SG&A expenses are now expected to deleverage by 20-40 basis points (bps) in 2018. Though the company is on track with Project CONNECT, these expenses are expected to weigh on Columbia Sportswear's operating margin in the second half of this year. Apart from this, tariffs stemming from the trade war may have a detrimental impact on Columbia Sportswear's business, vendors and consumers in future.

What to Expect?

Nevertheless, we expect Columbia Sportswear's strong growth drivers to help it combat these hurdles and continue with its stellar growth record. Markedly, the company's first-half revenues exceeded $1 billion for the first time ever, courtesy of strength in the company's Columbia brand.   These factors and expectations of a strong second half encouraged management to raise its outlook for 2018. Clearly, this gives out positive signals for the quarter to be reported.

The Zacks Consensus Estimate for the quarter under review has remained stable over the past 30 days at $1.27 compared with $1.25 per share reported in the year-ago period. Further, the consensus mark for revenues stands at $791 million, reflecting nearly 6% growth on a year-over-year basis.

What the Zacks Model Unveils

Our proven model shows that Columbia Sportswearis likely to beat bottom-line estimates this quarter.  For this to happen, the stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Columbia Sportswear's Zacks Rank #1 combined with an Earnings ESP of +0.97% makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat:

Lululemon Athletica Inc. LULU , a Zacks #1 Ranked stock, has an Earnings ESP of +1.95%. You can see  the complete list of today's Zacks #1 Rank stocks here .

Ralph Lauren Corporation RL , a Zacks #2 Ranked company, has an Earnings ESP of +0.23%.

PVH Corp. PVH has an Earnings ESP of +0.30% and a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: LULU , RL , COLM , PVH

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