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Columbia Sportswear (COLM) Beats on Q1 Earnings, Raises View

Zacks Equity Research

Columbia Sportswear Company COLM reported robust first-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 ninth straight quarter of beat and the bottom line delivered positive surprise for 25 quarters in a row. Management also raised its view for 2019.

We note that Columbia Sportswear’s solid surprise history has been a treat to investors. Shares of this Zacks Rank #3 (Hold) company have rallied close to 19.3% in the past three months compared with the industry’s rise of 13.2%.



Q1 in Detail

Quarterly adjusted earnings came in at $1.07 per share, which beat the Zacks Consensus Estimate of 84 cents. Also, quarterly earnings rose nearly 39% year over year.

Net sales advanced nearly 8% to $654.6 million. On a constant-currency (cc) basis, net sales grew almost 10%. The top line surpassed the consensus estimate of $642.9 million. Performance was mainly driven by strength in the Columbia and Sorel brands.

Columbia Sportswear Company Price, Consensus and EPS Surprise

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

In the reported quarter, DTC channels depicted sales growth of nearly 12% (up 14% at cc) and wholesale net sales advanced 4% (up 6% at cc).

Gross profit grew almost 12.5% to $336.7 million. Gross margin expanded 210 basis points (bps) to 51.4%, mainly driven by benefits from Project CONNECT, higher product mix in wholesale category, favorable currency hedge rates and improved DTC sales mix.

Also, operating income came in at $88 million, depicting a rise of almost 48.2% year over year. Also operating margin came in at 13.4%, up 360 bps.

Regional Segments

United States: Net sales jumped 14% to $412.2 million, owing to growth across the DTC and wholesale businesses.

Europe/Middle East/Africa (EMEA): Net sales declined 1% (up 5% at cc) to $71.3 million.

Canada: Net sales declined 7% (down 1% at cc) to $38.2 million.

Latin America/Asia Pacific (LAAP): Net sales improved 1% (up 4% at cc) to $132.9 million.

Category and Brand Segments

The Columbia and SOREL prAna brands registered growth of 9% to $552.2 million and 28% to $39.5 million, respectively. However, net sales in the Global Mountain Hardwear and prAna brands slumped 11% to $21.7 million and 3% to $41.2 million, respectively.

Further, net sales at the Apparel, Accessories and Equipment category increased 7% to $526 million and Footwear sales rose 10% to $128.6 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and cash equivalents of $430.4 million and total equity of $1,720.6 million. Inventories advanced 28% to $520.6 million as of Mar 31, 2019.

During the first quarter, the company generated cash flow from operating activities of $58.6 million, while it incurred capital expenditures of $25.2 million.

Further, in the quarter, Columbia Sportswear paid dividends worth $16.4 million to shareholders and repurchased 195,681 shares for nearly $19.1 million.

Additionally, on Apr 19, 2019, management announced quarterly dividends of 24 cents per share, payable May 30 to shareholders of record as on May 16.

Guidance

Management is impressed with the sales and profitability momentum achieved in the first quarter. The company expects to continue reaping financial gains from Project CONNECT. Further, management intends to continue with its strategic 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.

That said, management raised its view for 2019. Net sales are expected in the range of $2.98-$3.04 billion compared to the earlier prediction of $2.97-$3.03 billion. The revised top-line view depicts growth of nearly 6.5-8.5% year over year. Adverse currency movements are likely to impede sales by nearly 70 bps.

Further, operating income is estimated in the band of $378 million to $391 million compared with $369-$382 million projected earlier. Operating margin is expected to be 12.7-12.9%.

Management expects earnings per share for 2019 to be $4.40-$4.55, up from the prior view of $4.30-$4.45. The Zacks Consensus Estimate for earnings for 2019 is currently pegged at $4.43.

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