Columbia Sportswear (COLM) Stock Down Despite Q2 Earnings Beat
Columbia Sportswear Company COLM saw its shares decline about 6% in the after-hours trading session on Aug 1, despite posting solid second-quarter 2023 results. During the quarter, both the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. However, management lowered its guidance for 2023.
Columbia Sportswear operated amid a dynamic landscape in the second quarter. While some International markets like China performed well, the company battled increased hurdles in the United States. Due to year-to-date results and ongoing business trends, management remains conservative about the rest of the year.
Considering the near-term volatility, COLM is focused on undertaking measures to manage costs and look for growth-oriented opportunities. The company is focused on accelerating profitable growth, driving brand engagement and enhancing the consumer experience, among other strategic priorities. Columbia Sportswear remains encouraged about its innovation.
Quarter in Detail
This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted quarterly earnings of 14 cents per share, crushing the Zacks Consensus Estimate of 2 cents. The bottom line increased from 11 cents in the year-ago quarter.
Columbia Sportswear Company Price, Consensus and EPS Surprise
Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote
Net sales advanced 7% (up 9% at constant currency or cc) to $620.9 million and surpassed the consensus mark of $586 million. Sales growth was backed by strength in the EMEA and Latin America Asia Pacific ("LAAP") regions, which were mainly backed by earlier Fall 2023 distributor shipments and increased sales in China. This was partly negated by softness in the United States and Canada.
The gross margin increased 140 basis points (bps) to 50.6%, mainly caused by reduced inbound ocean freight costs and favorable inventory provisions, somewhat offset by a rise in clearance and promotional activity. Our estimate for the gross margin was pegged at 50.2%.
SG&A expenses escalated by 11% to $312.5 million. As a percentage of sales, the same expanded from 48.7% to 50.3%. The year-over-year rise in SG&A expenses can be attributed to elevated costs related to the supply chain, direct-to-consumer (DTC) and technology.
Columbia Sportswear’s operating income came in at $6.2 million, down 29% year over year. The operating margin contracted from 1.5% to 1%.
Channels & Regional Segments
In the United States, net sales fell 3% to $399.1 million. Net sales soared 75% to $100.8 million in the EMEA. LAAP net sales advanced 28% to $93.3 million. In Canada, net sales tumbled 21% to $27.7 million.
During the quarter, DTC sales rose 5% to $292.6 million compared with our estimate of 4.2% growth. Wholesale channel sales went up by 9% to $328.3 million.
Sales by Product Category & Brand
Net sales in the Apparel, Accessories and Equipment category ascended by 4% to $488.9 million, while the same for Footwear jumped 20% to $132 million.
Columbia’s net sales gained 11%, and SOREL saw a 32% jump in sales. The prAna and Mountain Hardwear brands registered a sales decline of 32% and 19%, respectively.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and short-term investments of $302.8 million and shareholders’ equity of $1,874.7 million. The company had no borrowings on its balance sheet as of Jun 30, 2023.
During the six months ended Jun 30, Columbia Sportswear’s cash provided by operating activities was $9.7 million, while capital expenditures were $22.8 million.
For 2023, COLM expects operating cash flow in the band of $550-600 million. Capital expenditures are envisioned in the band of $60-$70 million.
During the first half of 2023, the company repurchased 953,269 shares for $78.7 million. On Jun 30, 2023, Columbia Sportswear had $450.7 million available under its share buyback authorization. Management announced a quarterly cash dividend of 30 cents per share, which is payable on Sep 5, 2023, to shareholders of record as of Aug 22.
Guidance
Management’s guidance for the full-year 2023 considers estimates as of Aug 1, 2023 related to the impact of economic conditions. These include inflation, supply-chain headwinds, geopolitical tensions, changing consumer behavior and increased marketplace inventories.
For 2023, Columbia Sportswear now expects net sales to grow 2-3.5% to the $3.53-$3.59 billion band. The metric was earlier anticipated to rise 3-6% to the $3.57-$3.67 billion range. The company expects foreign currency translation to hurt net sales growth by roughly 30 bps in 2023.
Management expects the gross margin to expand by nearly 40 bps to roughly 49.8% compared with the earlier view of increasing 60 bps to nearly 50%.
As a percentage of net sales, SG&A expenses are anticipated in the range of 40.1-40.5% now compared with the 39-39.2% expected earlier.
For 2023, the operating income is expected in the band of $348-$368 million, with the operating margin expected at 9.8-10.3%. Earlier the operating income was expected in the range of $413-$432 million, with the operating margin expected at 11.6-11.8%. In 2022, the company reported an operating margin of 11.3%.
Management envisions earnings per share (EPS) for 2023 in the range of $4.40-$4.65 now compared with the prior view in the band of $5.15-$5.40. Columbia Sportswear expects foreign currency translation to hurt the EPS by nearly 3 cents.
For the third quarter of 2023, management expects net sales growth of 4-6% to the $995-$1,010 million range. The operating income is likely to come in the range of $132-$138 million, with the operating margin expected to be 13.2-13.6%. This suggests a decline from the operating margin of 15.2% reported in the third quarter of 2022. The third-quarter EPS is envisioned in the band of $1.60-$1.70 compared with $1.80 reported in the year-ago period.
This Zacks Rank #3 (Hold) stock has dropped 4.5% in the past three months compared with the industry’s decline of 2.9%.
Take a Look at These Solid Picks
Three better-ranked stocks include G-III Apparel Group, Ltd. GIII, Ralph Lauren Corporation RL and Crocs, Inc. CROX.
G-III Apparel, which designs, sources and markets women's and men's apparel, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GIII’s current financial-year revenues and EPS suggests growth of 1.9% and 0.4%, respectively, from the year-ago reported figure. G-III Apparel has a trailing four-quarter earnings surprise of 47.4%, on average.
Ralph Lauren, which is a lifestyle product company, currently carries a Zacks Rank #2 (Buy). The expected EPS growth rate for three to five years is 13.8%.
The Zacks Consensus Estimate for Ralph Lauren’s current financial-year sales and earnings suggests growth of 2.8% and 13.1% from the year-ago period. RL has a trailing four-quarter earnings surprise of 17.4%, on average.
Crocs, which offers casual lifestyle footwear and accessories, carries a Zacks Rank #2.
The Zacks Consensus Estimate for Crocs’ current financial-year sales and earnings suggests growth of 12.9% and 10.3% from the year-ago period. CROX has a trailing four-quarter earnings surprise of 19.9%, on average.
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Columbia Sportswear Company (COLM) : Free Stock Analysis Report
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