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Columbia Sportswear Likely to Bounce Back: Should You Hold?

Zacks Equity Research

Columbia Sportswear Company COLM has been grappling with multiple issues of late. Currency headwinds, soft sales in the U.S. and Canada along with a lackluster performance of the Columbia brand are plaguing the company at the moment.

What’s Wrong with the Stock?

Columbia Sportswear is facing macroeconomic challenges in Russia. Additionally, slow growth in the China business is hampering the overall sales growth of the company. Columbia and prAna brands are also suffering setbacks in South Korea as there is a general shift of consumer preference away from outdoor sector apparel in the region. The company anticipates the industry wide glut to persist and makes a recovery very unlikely, at least in 2017.

Further, unusually warm weather in several parts of the U.S. for the past few years has prevented people from spending time outdoors, consequently hampering the sales growth of the athleisure category.

However, these headwinds are transitory and the company is expected to rebound in the long run. Further, the company has taken several strategic initiatives which if fruitful will make the Zacks Rank #3 (Hold) company worthy of a place in portfolio.

Initiatives to Boost Sales

Columbia Sportswear boasts of a strong portfolio of brands like Columbia and pRAna. Further, it works on brand enhancing initiatives in the form of product innovation and marketing campaigns. The OutDry Extreme raingear launched by the company during 2016 was accepted well by consumers. Moreover, it supported the launch with the aid of marketing campaigns. Additionally, Tested Tough brand global campaign, now in its second year continues to outpace several outdoor apparel companies’ social media campaigns.

Solid Earnings Trend

Moreover, Columbia Sportswear has an impressive earnings trend. The company has been able to report positive earnings surprises in all the trailing four quarters resulting in an average earnings surprise of positive 16.3%.

If we look at the share price movement of the company, we find that the stock has declined 8% in the past three months, narrower than the Zacks categorized Textile-Apparel Manufacturing industry which has witnessed a plunge of 24.4%.

Strong International Presence

Columbia Sportswear has a solid international presence, with global sales accounting for 40% of revenues in 2016. The company sells products in more than 100 countries. Consequently, soft sales in some parts like the U.S., Canada and Korea were offset by decent performance in regions like Europe and China.

Dewinterizing Sorel Brand

Columbia Sportswear’s sales growth was partly offset due to unusually warm winters for the past few quarters. The company’s Sorel brand is the most weather sensitive of all its apparel brands. Hence, the company took an important step toward dewinterizing the Sorel business during 2016 with a successful pilot launch of a spring line of apparels. Moreover, the spring lineup has been well received by consumers.

Taking the pros and cons into consideration we recommend investors to wait and watch if the company’s strategic initiatives can help it to offset the headwinds.

Stock Picks

Better-ranked stocks in the broader consumer discretionary sector include:

Hasbro Inc. HAS, Lululemon Athletica Inc. LULU and Netflix Inc. NFLX. All these three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Lululemon Athletica has an expected earnings growth rate of 16%, Hasbro and Netflix has an expected earnings growth rate of 13% and 23.8%, respectively.

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