A month has gone by since the last earnings report for Columbia Sportswear (COLM). Shares have added about 0.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Columbia Sportswear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Columbia Sportswear Q1 Earnings Miss on Coronavirus Woes
Columbia Sportswear reported dismal first-quarter 2020 results, wherein both top and bottom lines deteriorated year over year and fell short of the Zacks Consensus Estimate. Also, management withdrew its first half and 2020 guidance on account of the uncertainties and disruptions related to coronavirus. The company expects net sales and operating loss to be significantly marred by the pandemic in the second quarter.
The company posted breakeven earnings compared with the year-ago period’s reported figure of $1.07. The Zacks Consensus Estimate stood at 45 cents. Net sales dropped 13% to $568.2 million and fell short of the consensus mark of $594 million. Sales declined across all brands, categories, channels and regions.
In the reported quarter, DTC channels displayed a sales decline of 17%, while wholesale net sales fell 10%. Gross margin declined 360 basis points (bps) to 47.8% due to coronavirus-led impacts. These include reduced DTC product margins due to elevated promotional activities and increased inventory obsolescence provisions related to unsold inventory.
SG&A expenses rose 10% to $27.8 million. As a percentage of sales, the same escalated from 38.5% to 48.7%. The company reported an operating loss of $2 million against an operating income of $88 million in the year-ago period. The current period loss includes increased bad-debt expenses and escalated inventory obsolescence provision of $21.5 million and $9.2 million, respectively.
Regional Segments & Sales by Product Category & Brand
In the United States, net sales fell 9% to $375.9 million. Latin America/Asia Pacific (LAAP) net sales fell 23% (down 22% at cc) to $102.6 million. Further, net sales dropped 22% (down 20% at cc) to $55.8 million in Europe/Middle East/Africa (EMEA). In Canada, net sales were down 11% to $33.9 million.
Net sales in the Apparel, Accessories and Equipment category declined 14% to $452.2 million, while the same for Footwear fell 10% to $116 million. Further, the Columbia and prAna brands saw sales declines of 15% and 11%, respectively. Meanwhile, sales dropped 2% each at Mountain Hardwear and Sorel brands.
Other Financial Updates
Columbia Sportswear ended the quarter with cash, cash equivalents and short-term investments of $706.9 million and total equity of $1,696.6 million. The company also had short-term borrowings of $174.4 million in its balance sheet. During the quarter, the company generated cash from operating activities of $12.8 million, while it incurred capital expenditures of $9.5 million. Further, the company paid out dividends of $17.2 million and repurchased 1,557,184 shares for an aggregate of $132.9 million during the first three months of 2020. However, management has suspended share buyback activities and quarterly dividend payments for the time being, as part of its efforts to preserve capital amid the COVID-19 crisis.
First-quarter results were largely affected by COVID-19, which kept increasing throughout the quarter. Coronavirus adversely impacted performance in China in late January, Japan and Korea at the beginning of February, and North America and Europe in March. While retail store closures in North America and Europe were commenced in mid-March, traffic started declining from the early days of the month.
As of Apr 30, 2020, most of the stores reopened in China and Korea, though many of them work for limited hours. While retail traffic is improving in these regions, it is still well below the pre-coronavirus level. However, stores remain closed in North America and most parts of Europe. Nonetheless, the company’s e-commerce platform has been largely operational during the pandemic, except for some distribution center closures.
The company is taking several actions to curtail costs and fortify capital position in the wake of this crisis. To this end, it has suspended dividend payouts and share buybacks, reduced operating and discretionary expenses, among others, and reduced planned inventory purchases for fall 2020. The company expects its sales and margins to be hurt by elevated promotions to clear off excess inventory. It is also battling supply-chain disruptions, primarily due to temporary raw material and finished goods supplier shutdowns in Asia.
How Have Estimates Been Moving Since Then?
Estimates revision followed a downward path over the past two months. The consensus estimate has shifted 13.54% due to these changes.
Currently, Columbia Sportswear has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Columbia Sportswear has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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