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Columbia Sportswear (COLM) Q3 Earnings Lag Estimates, Fall Y/Y

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Zacks Equity Research
·7 min read
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Columbia Sportswear Company COLM) reported dismal third-quarter 2020 results, with the top and bottom lines declining year over year and falling short of the Zacks Consensus Estimate. Results were affected by the pandemic-led woes.

Though results were significantly down year over year, sales and profits improved sequentially. Further, management expects continued enhancements in the fourth quarter and 2021. During the third quarter, e-commerce remained a driver, with sales up 55%. Notably, management concluded the deployment of X1 (its new e-commerce platform) in the quarter, implementing it in North America for Columbia, SOREL and Mountain Hardwear brands. Prior to this, the company had successfully deployed X1 across Europe and prAana in 2019. The renewed websites are offering improved consumer experience just in time for the main holiday season.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted earnings of 94 cents per share, which slumped 46% year over year. Further, the bottom line came below the Zacks Consensus Estimate of $1.22.

Columbia Sportswear Company Price, Consensus and EPS Surprise

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

Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote

Net sales tumbled 23% to $701.1 million and missed the consensus mark of $757 million. Sales declined across all brands, categories, channels and regions. Excluding roughly $45 million worth of Fall 2020 shipments (shifting into the fourth quarter), net sales dropped 18%.   

In the reported quarter, the direct-to-consumer (DTC) channel displayed a sales decline of 10%, while wholesale net sales tumbled 28%. Within the DTC channel, e-commerce sales surged 55%, though brick-and-mortar traffic and sales were below year-ago levels. DTC e-commerce sales formed 12% of the company’s total sales, reflecting a major improvement from the prior-year period.

Gross margin declined 40 basis points (bps) to 48.9%. SG&A expenses dropped 13% to $261.2 million. As a percentage of sales, the same escalated from 33% to 37.3%. During the quarter, Columbia Sportswear generated SG&A savings of $45 million from reduced variable costs and other saving efforts.

The company’s operating income of $85.6 million declined 44% year over year. The operating margin contracted from 16.8% to 12.2%.

Regional Segments

In the United States, net sales fell 23% to $445.6 million. Latin America/Asia Pacific (LAAP) net sales fell 26% to $90.9 million. Further, net sales dropped 5% to $99.2 million in Europe/the Middle East/Africa (EMEA). In Canada, net sales were down 33% to $65.4 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category declined 25% to $510.2 million, while the same for Footwear fell 14% to $190.9 million.

Further, the Columbia and Mountain Hardwear brands registered sales declines of 23% and 15%, respectively. prAna and Sorel brand sales plunged 21% each.

Other Financial Updates

Columbia Sportswear ended the quarter with cash, cash equivalents and short-term investments of $314.5 million and shareholders’ equity of $1,722.8 million. The company had no short-term borrowings on its balance sheet as of Sep 30. In fact, it had total liquidity (including committed and uncommitted credit lines) of about $1 billion at the quarter-end. During the nine months ended Sep 30, the company used cash from operating activities of approximately $198 million, while it incurred capital expenditures of $25.2 million.

Management had earlier suspended share buyback activities and quarterly dividend payments as part of its efforts to preserve capital amid the COVID-19 crisis. As of the quarter-end, the company had $82.2 million available under its current share buyback authorization. 

COVID-19 Update & Outlook

Most of the company-owned stores were open throughout the third quarter, apart from some isolated temporary closures due to local regulations or safety factors. However, management highlighted that brick-and-mortar traffic was much below the year-ago period’s level. Traffic has been most affected in stores and destination locations, as well as stores operating in markets dependent on tourists. The company expects traffic in these regions to remain soft till the resumption of tourism activities. Apart from this, the pandemic has resulted in several supply-chain hurdles in terms of production, distribution and logistics. Nonetheless, the company is on track to expand sales volumes.

Columbia Sportswear is on track to optimize its store fleet and has decided to permanently shut a small number of locations. So far this year, the company has permanently shuttered eight U.S. stores and one European store. Management remains on track with assessing the company’s portfolio and shutting down underperforming stores. Also, the company is focused on enhancing store labor efficacy, among other things, to improve store profitability.  

The company is impressed with Fall 2020’s early sell-through as well as reorder patterns in the U.S. wholesale channel. The company has several marketing and social media events planned for its best-selling winter technology (Omni-Heat) in the fourth quarter. Further, it plans to build on this momentum for fall 2021, with its latest innovation — Omni-Heat Infinity. Apart from this, the company’s innovative products keep it well placed to cater to the growing demand related to higher outdoor recreational activities amid the pandemic.

Management intends to continue its investments to create demand, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in the DTC business and improving support processes. Given its spring order book for 2021 and anticipations of returning to growth in its DTC business, management expects net sales growth at high-teens rate in the first half of 2021.  

For the fourth quarter of 2020, the company expects net sales in the range of $850-$880 million, indicating an 8-11% decline from the year-ago period. Operating income is expected to be $91-$112 million, reflecting operating margin of 10.7-12.7%. Finally, management envisions earnings per share in the range of $1.07-$1.32.  The consensus mark is currently pegged at $1.56 per share.

Shares of this Zacks Rank #2 (Buy) company have rallied 26.9% in the past three months compared with the industry’s growth of 11.7%.

Looking for More High-Performance Stocks? Here’re a Few

Hanesbrands HBI has an expected long-term earnings growth rate of 3.3% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Guess? GES, a Zacks Rank #2 stock, has a trailing four-quarter earnings surprise of 10.1%, on average.

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