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Columbia Sportswear (COLM) Tops Q1 Earnings Estimates, Ups View

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Columbia Sportswear Company COLM reported robust first-quarter 2021 results, wherein both top and bottom lines increased year over year and exceeded the Zacks Consensus Estimate. Further, management raised guidance for 2021, though it remains cautious about the operational hurdles amid the pandemic.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted earnings of 84 cents per share compared with breakeven earnings per share in the year-ago period. Moreover, the bottom line came easily surpassed the Zacks Consensus Estimate of 33 cents.

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 advanced 10% to $625.6 million, beating the consensus mark of $583 million. Sales were backed by direct-to-consumer (DTC) e-commerce growth, along with better-than-expected enhancement in DTC brick & mortar trend (on a sequential basis). Sales increased across all categories, regions and channels. Brand-wise, sales improved for Columbia and SOREL, while the same declined for prAna and Mountain Hardwear.

In the reported quarter, the direct-to-consumer (DTC) channel displayed sales growth 20% and wholesale net sales rose 3%. Notably, e-commerce sales surged 35% in the quarter and formed 20% of the company’s total sales mix.

Gross margin increased 360 basis points (bps) to 51.4% on reduced reserve provisions, better channel and regional sales mix and a decline in DTC promotional levels. SG&A expenses declined 8% to $254.4 million. As a percentage of sales, the same contracted from 48.7% to 40.7%. The decline in SG&A can be accountable to lower bad debt expense, somewhat negated by increased incentive and personnel expenses. The company’s operating income came in at $70.5 million against an operating loss of $2 million a year ago.

Regional Segments

In the United States, net sales increased 9% to $408.6 million. Further, net sales jumped 27% to $70.8 million in Europe/the Middle East/Africa (EMEA). In Canada, net sales climbed 1% to $34.2 million. Latin America/Asia Pacific (LAAP) net sales advanced 9% to $112 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category jumped 4% to $468.9 million, while the same for Footwear surged 35% to $156.7 million.

The Columbia and SOREL brands registered sales growth of 12% and 20%, respectively whereas Mountain Hardwear and prAna brand sales fell 4% and 14%, respectively.

Other Financial Updates

Columbia Sportswear ended the quarter with cash, cash equivalents and short-term investments of $874.6 million and shareholders’ equity of $1,868.8 million. The company had no borrowings on its balance sheet as of Mar 31, 2021. During the first quarter, the company generated cash from operating activities of $110.9 million, while capital expenditures were $3.9 million. For 2021, Columbia Sportswear expects operating cash flow in a range of $250-$270 million and capital expenditures are anticipated to be $60-$80 million.

During the quarter under review, the company repurchased 108,987 shares for $11.2 million. On Mar 31, 2021, the company had $471 million available under its share buyback authorization. Additionally, management announced quarterly cash dividend of 26 cents per share, which is payable on Mar 27, 2021, to shareholders of record as on Mar 13.

COVID-19 Update & Outlook

Most of the company-owned stores were open throughout the first quarter, apart from some isolated temporary closures. Management highlighted that overall brick-and-mortar traffic remained below the year-ago period’s level. Additionally, first-quarter performance includes impacts of port congestion and logistic hurdles, which led to delayed Spring 2021 inventory deliveries and receipts. Management updated its 2021 outlook, which is based on the company’s estimates as of Apr 29 related to the pandemic’s impact on its operations, supply-chain and logistics capacity hurdles, geopolitical headwinds and changing consumer confidence. Further, the guidance takes into account quarter-over-quarter revival in brick-and-mortar retail traffic and sales all through 2021.

For 2021, the company now expects net sales in the range of $3.04-$3.08 billion, indicating a 21.5-23% increase from the year-ago period. Earlier, the metric was envisioned to be $2.95-$3 billion, suggesting 18-20% growth.

For the first half of the year, management now projects net sales growth in mid to high-20 percent range, up from high-teens percent to low-20 percent range expected before. The raised view is based on solid first-quarter results, growth plans for the global DTC businesses (as the company marks anniversary of temporary store closures a year ago) and advance Spring 2021 wholesale orders. Management also pointed that its second-quarter sales growth (by channel) is likely to be affected by the anniversary of last year’s temporary store closures and heightened DTC e-commerce net sales penetration amid the pandemic. Notably, the second quarter is usually the company’s lowest volume sales quarter. Also, profitability has been challenging for the company in the second quarter due to its fixed cost structure.

Coming back to 2021, management expects gross margin to expand 110-130 bps to 50-50.2% of sales compared with nearly 50% anticipated before. SG&A expenses are anticipated to rise at a softer rate than sales growth. As a percentage of sales, SG&A expenses are anticipated to be 38.7-39.1% now. Earlier it was expected to be 39.2-39.7%.

In 2021, operating income is expected to be $347-369 million, reflecting operating margin of 11.4-12%. Earlier, operating income was expected to be $320-346 million, reflecting operating margin of 10.8-11.5%. Finally, management envisions earnings per share in the range of $4.05-$4.30 for the ongoing year compared with $3.75-$4.05 expected earlier. The consensus mark is currently pegged at $4.08 per share.

Shares of this Zacks Rank #3 (Hold) company have gained 52% in the past six months compared with the industry’s growth of 38.6%.

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