Columbia Sportswear CompanyCOLM continued with its robust show in second-quarter 2018, which also encouraged management to raise its outlook for the year. During the second quarter, both the top and bottom lines improved year over year and came ahead of the Zacks Consensus Estimate. While top line marked its sixth straight quarter of beat, the bottom line has delivered positive surprise for 22 quarters in a row, now.
Columbia Sportswear's sturdy surprise history also helped this Zacks Rank #2 (Buy) stock rally almost 51% in a year, outperforming the industry 's growth of 43%.
Q2 in Detail
Quarterly adjusted earnings came in at 16 cents per share, significantly better than the Zacks Consensus Estimate of a loss of 10 cents. Also, quarterly earnings fared much better than the year-ago period adjusted loss of 13 cents per share. Earnings in this quarter gained from a lower effective tax rate, thanks to the U.S. tax reforms. Incidentally, effective income tax rate was 16.6% in the second quarter of 2018, considerably lower than 28.6% in the second 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 21% year over year to $481.6 million, which surpassed the Zacks Consensus Estimate of $447 million. On constant-currency basis, net sales grew 19%. Performance gained from sturdy results witnessed across all geographical segments, product categories and most brands.
Adjusted gross profit jumped 22.2% to $221.1 million. Adjusted gross margin expanded 130 basis points (bps) to 46.6%.
Also, adjusted operating income came in at $11.6 million, against an adjusted operating loss of $13.2 million recorded in the year-ago period.
United States: Net sales ascended 18% (also on a constant-currency basis) to $280.2 million, owing to growth across the DTC and wholesale businesses. Columbia Sportswear operated 134 U.S. retail stores as of Jun 30, 2018.
Europe/Middle East/Africa (EMEA): Net sales surged 26% to $85 million, up 21% on a constant-currency (cc) basis, backed by solid performance in its Europe-direct business and greater sales to EMEA distributors.
Canada: Net sales grew 12% (up 7% on cc basis) to $15.6 million, gaining largely from DTC business.
Latin America/Asia Pacific (LAAP): Net sales jumped 27% (up 22% at cc) to $100.8 million, courtesy of strength in LAAP distributors, China and Japan, somewhat negated by a softness in 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 22% to $414.8 million, 90% to $11.4 million and 9% to $38.1 million, respectively. However, net sales of Global Mountain Hardwear brand dipped 1% to reach $16 million.
Further, net sales in the Global Apparel, Accessories and Equipment category increased 20% to $394.4 million, and Footwear sales rose 26% to $87 million.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and cash equivalents of $510.7 million and total equity of 1,654.4 million. Consolidated inventories rose 2% to $570.5 million as of Jun 30, 2018.
During the first six months of 2018, cash flow from operating activities amounted to $99.3 million, while the company incurred capital expenditures of $29.6 million.
Further, Columbia Sportswear paid dividends worth $30.9 million and repurchased 500,290 shares for nearly $40.1 million during the first half of 2018. As of Jun 30, 2018, the company had shares worth approximately $97.8 million available for repurchase.
Additionally, the board authorized quarterly dividend of 22 cents per share, payable on Aug 30 to shareholders of record as on Aug 16.
Management remains pleased with its upbeat second-quarter performance as well as robust results for the first half of 2018. Markedly, Columbia Sportswear's first-half revenues exceeded $1 billion for the first time ever, courtesy of strength in the company's Columbia brand. Columbia brand has been gaining from solid U.S. performance across all channels along with robust international growth, owing to sturdy Europe-direct business. First-half results of prAna and SOREL brands were also impressive.
The company expects higher sales during the fall/winter season to boost second-half performance, while operating expenses are likely to be spread equally throughout. 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.
Buoyed by these factors and encouraged by a spectacular first half, management raised its outlook for 2018.
Net sales growth is now expected in the range of 9%-10.5% year over year compared to the prior view of 8%-10%. On an adjusted basis, net sales are anticipated to grow in the range of 7.5%-9% now, in comparison to the previous guidance of 6.5%-8.5%.
The company continues to envision 2018 adjusted gross margin to rise nearly 60 bps. Adjusted SG&A expenses are likely to deleverage by 20-40 bps (compared with the prior view of 30-50 bps), excluding costs related to Project CONNECT, changes in revenue accounting standards and discrete costs. Adjusted operating income is estimated between $306 million and $315 million, up from the prior guidance of $299 and 308 million. Adjusted operating margin is expected in a range of 11.5%-11.7%, depicting an improvement from the earlier range of 11.4%-11.5%.
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 in the band of $3.37-$3.47 compared with the prior outlook of $3.27-$3.37.
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