Technology

Why Is Columbia Sportswear (COLM) Down 11.4% Since Last Earnings Report?

A month has gone by since the last earnings report for Columbia Sportswear (COLM). Shares have lost about 11.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Columbia Sportswear due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Columbia Sportswear Q2 Earnings Top, ’19 View Raised

Columbia Sportswear Company reported robust second-quarter 2019 results, with revenues and earnings improving year over year, as well as beating the Zacks Consensus Estimate. Notably, the top line marked its 10th straight quarter of beat and the bottom line delivered positive surprise for 26 quarters in a row. Management also raised its view for 2019.

Q2 in Detail

Quarterly adjusted earnings came in at 23 cents per share, which beat the Zacks Consensus Estimate of 1 cent. Also, quarterly earnings rose nearly 44% year over year.

Net sales advanced nearly 9% to $526.2 million. On a constant-currency (cc) basis, net sales grew almost 11%. The top line surpassed the consensus estimate of $507.4 million. Performance was mainly driven by strength in the Columbia, Mountain Hardwear and Sorel brands.

In the reported quarter, DTC channels depicted sales growth of nearly 6% (up 7% at cc) and wholesale net sales advanced 12% (up 14% at cc).

Gross profit grew 10.9% to $253.6 million. Gross margin expanded 70 basis points (bps) to 48.2%, mainly driven by benefits from Project CONNECT.

Also, operating income came in at $16.4 million, depicting a rise of almost 68% year over year. Operating margin came in at 3.1%, up 110 bps.

Regional Segments

United States: Net sales jumped 13% to $315.5 million, owing to growth across the DTC and wholesale businesses.

Europe/Middle East/Africa (EMEA): Net sales grew 8% (up 11% at cc) to $91.6 million.

Canada: Net sales increased 12% (up 17% at cc) to $17.5 million.

Latin America/Asia Pacific (LAAP): Net sales improved 1% (up 5% at cc) to $101.6 million.

Category and Brand Segments

The Columbia and SOREL brands registered growth of 10% to $454.9 million and 32% to $15.1 million, respectively. Moreover, net sales in the Global Mountain Hardwear and prAna brands increased 9% to $17.5 million and 2% to $38.7 million, respectively.

Further, net sales at the Apparel, Accessories and Equipment category improved 10% to $432.2 million and Footwear sales rose 8% to $94 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and cash equivalents of $386.2 million and total equity of $1,655.2 million. Inventories advanced 33% to $756.4 million as of Jun 30, 2019.

During the first half of 2019, the company generated cash flow of $2.6 million from operating activities, while it incurred capital expenditures of $50.8 million.

Further, Columbia Sportswear paid out dividends worth nearly $33 million to shareholders and repurchased 1,032,972 shares for nearly $100.4 million in the first half of 2019.

Guidance

Management is impressed with the sales and profitability momentum achieved in the second quarter. The company expects to continue reaping financial gains from Project CONNECT. Further, management intends to continue with its investments related to demand creation, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business and improve support processes.

Management raised its view for 2019. Net sales are expected in the range of $3.00-$3.04 billion compared to the earlier prediction of $2.98-$3.04 billion. The revised top-line view depicts growth of nearly 7-8.5% year over year. Adverse currency movements are likely to impede sales by nearly 90 bps.

Further, operating income is estimated in the band of $388-$396 million compared with $378-$391 million projected earlier. Operating margin is expected to be 12.9-13%. Management expects earnings per share for 2019 to be $4.65-$4.75, up from the prior view of $4.40-$4.55.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months. The consensus estimate has shifted -5.98% due to these changes.

VGM Scores

Currently, Columbia Sportswear has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Columbia Sportswear has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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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.