Columbia Sportswear (COLM) Q3 Earnings Top Estimates, View Dull
Columbia Sportswear Company COLM lowered its earnings and sales guidance for 2023 after posting third-quarter 2023 results. While the top line increased year over year, the bottom line declined in the quarter due to escalated SG&A expenses and higher taxes. Management also offered a cautious view for the first half of 2024. Shares of the company were down 3% in the after-market trading session on Oct 26.
Columbia Sportswear continued to operate amid a challenging U.S. landscape in the third quarter while focusing on lowering inventories. The company is gearing up for its crucial selling season by undertaking brand enhancements and other efforts to drive sales. However, management anticipates economic and geopolitical uncertainty for 2024. It expects the first half of 2024 to remain challenging.
Considering the near-term volatility, COLM is focused on undertaking measures to manage costs and offer innovation to its customers. The company emphasizes speeding up profitable growth, driving brand engagement and enhancing the consumer experience, among other strategic priorities. Columbia Sportswear remains encouraged by its innovation.
Quarter in Detail
This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted quarterly earnings of $1.70 per share, beating the Zacks Consensus Estimate of $1.68. The bottom line declined from $1.80 in the year-ago quarter.
Net sales advanced 3% (also at constant currency or cc) to $985.7 million, though it missed the consensus mark of $1,000 million. Sales growth was backed by balanced increases in the company’s direct-to-consumer (DTC) and wholesale businesses.
The gross margin increased 70 basis points (bps) to 48.7%, mainly caused by reduced inbound ocean freight costs and a better channel mix, somewhat offset by the company’s inventory curtailment efforts in the wholesale and DTC businesses.
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. We expected SG&A expenses to increase 13.7% and the corresponding rate to expand 300 bps year over year.
Columbia Sportswear’s operating income came in at $134.6 million, down 7% year over year. The operating margin contracted 150 basis points to 13.7%. We expected an operating margin contraction of 160 bps.
Columbia Sportswear Company Price, Consensus and EPS Surprise
Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote
Channels & Regional Segments
In the United States, net sales grew 5% to $635.4 million. Net sales tumbled 16% to $129.4 million in the EMEA. LAAP net sales remained flat at $115.4 million. In Canada, net sales jumped 33% to $105.5 million.
During the quarter, DTC sales rose 4% to $321.4 million. Wholesale channel sales went up by 3% to $664.3 million.
Sales by Product Category & Brand
Net sales in the Apparel, Accessories and Equipment category ascended by 1% to $731.7 million, while the same for Footwear jumped 11% to $254 million.
Columbia’s net sales gained 4%, and SOREL saw a 9% jump in sales. The prAna and Mountain Hardwear brands registered a sales decline of 18% and 9%, respectively.
Other Financial Updates
Columbia Sportswear ended the quarter with cash, cash equivalents and short-term investments of $214.8 million and shareholders’ equity of $1,895.3 million. The company had no borrowings on its balance sheet as of Sep 30, 2023.
During the nine months ended Sep 30, Columbia Sportswear’s cash provided by operating activities was $22.2 million, while capital expenditures were $41.4 million.
For 2023, COLM expects operating cash flow of nearly $500 million. Capital expenditures are envisioned in the band of $60-$70 million.
During the first nine months of 2023, the company repurchased 1,841,845 shares for $144.6 million. On Sep 30, Columbia Sportswear had $384.7 million available under its share buyback authorization. Management announced a quarterly cash dividend of 30 cents per share, which is payable on Nov 30, 2023, to shareholders of record as of Nov 16.
Guidance
Management’s guidance for the full-year 2023 considers estimates as of Oct 26, 2023 related to the impact of economic conditions. These include inflation, supply-chain headwinds, geopolitical tensions, changing consumer behavior and marketplace inventories.
For 2023, Columbia Sportswear now expects net sales to grow 0.5-2% to the $3.48-$3.53 billion band. The metric was earlier anticipated to rise 2-3.5% to the $3.53-$3.59 billion band.
The company expects foreign currency translation to hurt net sales growth by roughly 60 bps in 2023 compared with the prior expectation of around 30 bps.
Management continues to expect the gross margin to expand by nearly 40 bps to roughly 49.8%.
As a percentage of net sales, SG&A expenses are anticipated in the range of 40.2-40.6% now compared with the 40.1-40.5% expected earlier. In 2022, the metric came in at 37.7%.
For 2023, the operating income is expected in the band of $343-$363 million compared with the prior view of $348-$368 million. The operating margin is still expected in the range of 9.8-10.3%. In 2022, the company reported an operating margin of 11.3%.
Management envisions earnings per share (EPS) for 2023 in the range of $4.45-$4.70 now compared with the prior view of $4.40-$4.65. Columbia Sportswear expects foreign currency translation to hurt the EPS by nearly 7 cents now compared with 3 cents expected before.
For the fourth quarter of 2023, management expects net sales to decline 10-5% to the $1,054-$1,106 million range. The operating income is likely to come in the range of $146-$166 million, with the operating margin expected to be 13.8-15 %. This suggests growth from the operating margin of 13.3% reported in the fourth quarter of 2022. The quarterly EPS is envisioned in the band of $1.93-$2.18 compared with $2.02 reported in the year-ago period.
Preliminary Callouts for 2024
Management expects Spring 2024 to remain difficult. It expects a low-double-digit decline in wholesale net sales in the first half of 2024. 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 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 COLM’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.
This Zacks Rank #4 (Sell) stock has dropped 8.4% in the past three months compared with the industry’s decline of 2.94%.
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