Columbia Sportswear CompanyCOLM delivered robust results for third-quarter 2018, as both the top and the bottom line improved year over year and came ahead of the Zacks Consensus Estimate. Moreover, the sturdy performance encouraged management to raise its outlook for 2018, while it also announced a dividend hike.
Markedly, the top line marked its seventh straight quarter of beat and the bottom line delivered positive surprise for 23 quarters in a row, now. Columbia Sportswear's sturdy surprise history has clearly been a treat to investors. Evidently, this Zacks Rank #1 (Strong Buy) stock has rallied close to 38% in a year, outperforming the industry 's growth of 18%.
Q3 in Detail
Quarterly adjusted earnings came in at $1.41 per share, comfortably outpacing the Zacks Consensus Estimate of $1.27. Also, quarterly earnings rose nearly 11% year over year. Earnings in this quarter gained from a lower effective tax rate. Incidentally, adjusted effective income tax rate was 21.5% in the third quarter of 2018, lower than 26.7% in the third quarter of 2017.
Columbia Sportswear Company Price, Consensus and EPS Surprise
Columbia Sportswear Company Price, Consensus and EPS Surprise | Columbia Sportswear Company Quote
Consolidated net sales advanced nearly 6% year over year to $795.8 million, which surpassed the Zacks Consensus Estimate of $791 million. On a constant-currency (cc) basis, net sales grew 7%. Performance gained from sturdy results witnessed across all product categories and most brands.
Adjusted gross profit grew almost 8% to $376.8 million. Adjusted gross margin expanded 110 basis points (bps) to 47.8%.
Also, adjusted operating income came in at $99.3 million, which remained nearly flat year over year.
United States: Net sales ascended 9%, owing to growth across the DTC and wholesale businesses. Columbia Sportswear operated 135 U.S. retail stores as of Sep 30, 2018.
Europe/Middle East/Africa (EMEA): Net sales surged 15% to $85 million, backed by solid performance in its Europe-direct business. Sales to EMEA distributors remained flat year over year.
Canada: Net sales remained flat (up 3% at cc), gaining largely from DTC business.
Latin America/Asia Pacific (LAAP): Net sales dropped 4% (down 3% at cc), owing to softness in China, somewhat compensated by strength in Japan and Korea.
Category and Brand Segments
The increase in net sales was also driven by strong performance of the company's Global Columbia, Global SOREL and Global prAna brands, which registered growth of 4% to $640.9 million, 12% to $91.2 million and 8% to $39.9 million, respectively. However, net sales of Global Mountain Hardwear brand slumped 22% to $23 million.
Further, net sales in the Global Apparel, Accessories and Equipment category increased 6% to $617.6 million, and Footwear sales also rose 6% to $178.2 million.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and short-term investments of $451.5 million and total equity of 1,681.6 million. Consolidated inventories advanced 10% to $617.2 million as of Sep 30, 2018.
During the first nine months of 2018, the company used cash flow from operating activities of $98.1 million, while it incurred capital expenditures of $45.2 million.
Further, Columbia Sportswear paid dividends worth $46.2 million to its shareholders and repurchased 1,260,186 shares for nearly $107.2 million during the first three quarters of 2018. As of Sep 30, the company had shares worth approximately $230.7 million available for repurchase.
Additionally, management announced a 9% hike in its quarterly dividend, taking it to 24 cents per share. This is payable on Nov 29 to shareholders of record as on Nov 15.
Management is pleased with its third-quarter and year-to-date results, which marked its strongest ever performance. The company is particularly gaining from performance of its Columbia brand in the U.S. region. Further, robust DTC performance across both e-commerce and brick-and-mortar networks reflects Columbia Sportswear's brand strength and consumers' favorable response to its innovative products.
Management stated that the company will continue with its strategic investments to aid demand creation, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business, alongside improving support processes. Notably, the company expects higher sales during the fall season, which along with an upbeat quarterly show and record year-to-date performance encouraged it to raise its outlook for 2018.
Net sales growth is now expected to be 11-11.5% year over year compared with the prior view of 9-10.5%. On an adjusted basis, net sales are anticipated to grow 9.5-10% compared with the previous guidance of 7.5-9%.
The company envisions 2018 adjusted gross margin to rise nearly 90 bps, up from 60 bps expected earlier. Adjusted SG&A expenses are likely to deleverage by 25-35 bps (compared with the prior view of 20-40 bps), excluding costs related to Project CONNECT, changes in revenues accounting standards and discrete costs. Adjusted operating income is estimated between $319 million and $324 million, up from the prior guidance of $306-$315 million. Adjusted operating margin is expected to be 11.8-11.9%, depicting an improvement from the earlier range of 11.5-11.7%.
Full-year effective tax rate is still estimated at nearly 22%, courtesy of benefits from tax reforms.
All said, management raised its bottom-line projection for 2018. Adjusted earnings per share for 2018 is now projected to be $3.57-$3.62 compared with the prior outlook of $3.37-$3.47.
Given the optimistic view for 2018, focus on strategic priorities and expected gains from Project CONNECT, management expects net sales in 2019 to grow at a high-single-digit rate. Further, the company envisions net income to rise low-double digits.
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