Columbia Sportswear (COLM) Navigates a Complex Landscape
Columbia Sportswear Company COLM appears troubled due to a difficult macroeconomic landscape. The company has been bearing the brunt of inflation, which has been pinching consumers’ budgets, thereby leading them to cut down their spending on discretionary products like apparel.
On its last earnings call, management stated that it anticipates economic and geopolitical uncertainty for 2024. Apart from this, the company has been incurring high SG&A expenses. Volatility in currency movements has also been a concern for this Zacks Rank #4 (Sell) company.
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has gone down by 1.8% to $4.79 over the past 60 days.
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Navigating a Tough Landscape
Columbia Sportswear has been operating in a challenging U.S. landscape. On its last earnings call, the company stated that consumer demand for soft goods, including apparel and footwear, remains sluggish.
Management expects the first half of 2024 to remain challenging, including a low-double-digit decline in wholesale net sales in the said period. This is likely to be somewhat compensated by ongoing growth in the company’s global DTC operations. Consequently, overall net sales are likely to decline by the mid-single-digits in the first half of 2024.
The decline is mainly accountable to the challenges likely to impact the Spring season order book. These include consumer and category hurdles, retailer cautiousness and the company’s transition to products designed without perfluoroalkyl and polyfluoroalkyl substances (or PFAS). In the full year 2024, the company expects to achieve some modest growth in net sales and operating margin, while it will continue to depend on the abovementioned factors affecting the Spring season.
Columbia Sportswear has been seeing higher SG&A costs for a while now. In the third quarter of 2023, SG&A expenses escalated by 10% to $351.6 million. As a percentage of sales, the same expanded 230 bps to 35.7%. The year-over-year rise in SG&A expenses can be attributed to elevated costs related to the supply chain, demand creation and DTC. The persistence of these factors is likely to spike up SG&A costs going forward as well.
Additionally, Columbia Sportswear is prone to currency fluctuations due to its exposure to international markets. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the United States. An increase in prices may have an adverse impact on demand for the products.
Strategic Plans Offer Respite
Columbia Sportswear has been on track with its strategic priorities, including undertaking demand creation investments to drive brand awareness, enhancing consumers’ experience and its digital capacity in all networks and regions, exploring growth opportunities in the direct-to-consumer business and improving support processes. Also, the company has been keen on investing in its people and optimizing its organization across its brand portfolio.
A focus on these upsides has been helping the company in the face of the obstacles on its way. However, let’s see if Columbia Sportswear’s strategic priorities can keep it shielded in 2024.
Shares of COLM have risen 8.8% in the past three months compared with the industry’s growth of 27.3%.
3 Impressive Picks
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The Zacks Consensus Estimate for G-III Apparel’s current financial-year earnings indicates growth of 39.3% from the year-ago reported number.
Abercrombie & Fitch ANF, a specialty retailer, currently sports a Zacks Rank #1.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 13.3% from the year-ago reported number. ANF’s bottom line has outpaced the Zacks Consensus Estimate by a wide margin in the trailing four quarters, on average.
lululemon athletica inc. LULU, which designs, distributes and retails athletic apparel, footwear and accessories, currently carries a Zacks Rank #2 (Buy). LULU has a trailing four-quarter earnings surprise of 9.2%, on average.
The Zacks Consensus Estimate for lululemon’s current financial-year sales and earnings indicates growth of 18.2% and 23.2%, respectively, from the year-ago reported numbers.
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