Columbia Sportswear (COLM) Beats on Q3 Earnings, Raises View
Columbia Sportswear Company COLM reported better-than-expected third-quarter 2019 results, wherein both the top and bottom lines continued to improve year over year. Impressive performance prompted management to raise full-year projection. The company lifted the low-end of net sales view and raised operating margin and earnings per share outlook for the full year.
Growth witnessed across geographic segments, channels and product categories contributed to the results. During the quarter, the company shipped a large portion of Fall 2019 order book. Notably, rise in advance orders and earlier shipments contributed to double-digit growth in the Columbia and SOREL brands. The company’s net sales growth and Project CONNECT margin benefits drove the bottom line.
Notably, the company has continued with its positive earnings and sales surprise streak in all the three quarters of 2019. Meanwhile, shares of this Zacks Rank #1 (Strong Buy) company have advanced 11.1% so far in the year, almost in-line with the industry’s growth.
Q3 in Detail
Adjusted earnings of this designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories came in at $1.75 per share, which beat the Zacks Consensus Estimate of $1.55. Further, quarterly earnings rose 24% year over year.
Net sales advanced 14% (up 15% on a constant-currency or cc basis) to $906.8 million. The top line surpassed the consensus estimate of $886.8 million. This can be attributed to strength in the Columbia and Sorel brands.
In the reported quarter, DTC channels depicted sales growth of nearly 3% (up 4% at cc) and wholesale net sales advanced 19% (up 20% at cc).
Gross profit grew 16% to $446.7 million, whereas gross margin expanded 110 bps to 49.3%. Margin improved on account of Project CONNECT that comprises design to value, assortment optimization and manufacturing efficiency endeavors. Operating income came in at $152 million, reflecting a rise of almost 21% year over year. Operating margin also increased 100 bps to 16.8%.
Columbia Sportswear Company Price, Consensus and EPS Surprise
United States: Net sales jumped 17% to $581.3 million, owing to growth across the DTC and wholesale businesses.
Latin America/Asia Pacific (LAAP): Net sales improved 4% (up 5% at cc) to $123.2 million.
Europe/Middle East/Africa (EMEA): Net sales grew 4% (up 8% at cc) to $104.4 million.
Canada: Net sales increased 21% (up 22% at cc) to $97.9 million.
Sales by Product Category & Brand
Net sales at the Apparel, Accessories and Equipment category improved 11% to $684.7 million and Footwear sales surged 25% to $222.1 million.
Further, the Columbia and SOREL brands registered growth of 14% to $729.5 million and 27% to $116.1 million, respectively. Moreover, net sales in the prAna and Mountain Hardwear brands fell 4% to $38.5 million and 1% to $22.7 million, respectively.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and cash equivalents of $239.3 million and total equity of $1,747.1 million. During the first nine months of 2019, the company used cash from operating activities of $198.2 million, while it incurred capital expenditures of $104.5 million. In the aforementioned period, the company repurchased 1,191,684 shares for an aggregate of $116.2 million. At the end of the quarter, the company had $220 million remaining under the existing share repurchase authorization.
Management is impressed with the sales and profitability momentum achieved in the third quarter. The company expects to continue reaping financial gains from Project CONNECT. Further, management intends to continue with its investments to create demand, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business and improve support processes.
Columbia Sportswear raised view for 2019. Net sales are expected in the range of $3.01-$3.04 billion compared to the earlier prediction of $3.00-$3.04 billion. The revised top-line view depicts growth of nearly 7.5-8.5% year over year. Adverse currency movements are likely to hurt sales growth by nearly 90 bps. Management envisions mid to high-single digit growth in net sales during the first half of 2020.
Further, gross margin is anticipated to improve approximately 60 bps to 50.1%. Operating income is estimated in the band of $392-$401 million compared with $388-$396 million projected earlier. Operating margin is envisioned to be 13-13.2% versus prior view of 12.9-13%.
Management expects earnings per share for 2019 to be $4.70-$4.80, up from the prior view of $4.65-$4.75. The Zacks Consensus Estimate for earnings for 2019 is currently pegged at $4.78. The company had reported adjusted earnings of $4.01 per share in 2018.
As the company shipped a large portion of Fall 2019 order book during the third quarter, management now expects low to mid single digit growth in net sales in the final quarter. The company expects fourth-quarter earnings in the band of $1.55-$1.65, down from $1.68 per share reported in the year-ago period. The Zacks Consensus Estimate for earnings for the fourth quarter currently stands at $1.81.
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