Why Is Columbia Sportswear (COLM) Up 6.4% Since the Last Earnings Report?

It has been more than a month since the last earnings report for Columbia Sportswear Company COLM. Shares have added about 6.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Columbia Sportswear Cuts View Despite Q3 Earnings Beat

Columbia Sportswear Company posted better-than-expected top- and bottom-line results for the third quarter of 2017. Results were mainly fueled by solid sales growth at the company’s European wholesale and U.S. direct-to-consumer businesses.

In fact, sales improved across all international regions. However, the company’s higher expense expectation for 2017 in relation with Project CONNECT led management to lower its earnings view for 2017.

Highlights

The company’s third-quarter earnings came in at $1.25 per share, which surpassed the Zacks Consensus Estimate of $1.15 and rose 5.9% year over year. Notably, the bottom line included a 3-cent impact related to the Project CONNECT operating model.

Quarterly net sales amounted $747.4 million, which surpassed the Zacks Consensus Estimate of $734.9 million and climbed marginally by 0.2% from the prior-year sales of $745.7 million. On a constant currency basis, sales dropped less than 1%.

In fact, the top line benefited from sales growth across its geographic regions mainly in the EMEA region, Canada and LAAP region. These were partially offset by decline in the U.S. wholesale arena.

Gross profit increased 1% to $349.1 million driven by higher revenues and lower cost of sales. Also, gross margin increased 30 basis points (bps) to 46.7%. Further, the company reported operating income of $122.9 million, 0.5% lower than the operating income reported in the year-ago quarter. This was accountable to higher selling, general and administrative (SG&A) expenses. Also, operating margin declined 20 bps to 16.4%.

Regional Segments

United States: Net sales declined 6% to $456 million owing to decline in wholesale net sales, which was partially compensated by growth in direct-to-consumer net sales.

Europe/Middle East/Africa (EMEA): Net sales jumped 20% (up 15% on a constant currency basis) to $87.5 million, backed by solid performance at its European business (direct-to-consumer and wholesale) and growth in sales to EMEA distributors.

Canada: Net sales grew 8% (up 4% on a constant currency basis) to $80.9 million.

Latin America/Asia Pacific (LAAP): Net sales increased 9% (down 11% on a constant currency basis) to $123.0 million, mainly due to sales in China, Korea and to the LAAP distributors. These were partially countered by sales decline in Japan.

Category and Brand Segments

The increase in net sales was also driven by the strong performance of its Global Columbia brand, which registered a growth of 2% to reach $598.3 million.

However, Global SOREL brand sales declined 7% to $81.7 million. Also, Global prAna net sales declined 3% and Global Mountain Hardwear brands net sales declined 4% to reach $36.8 million and $29.4 million, respectively.

While, net sales in the Global Apparel, Accessories and Equipment category increased 1% to $580 million, the same in Global Footwear declined 2% to $167.4 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and short-term investments of $430.3 million versus $219.7 million in the year-ago period. Further, consolidated inventories amounted $558.6 million, down 5% from the year-ago quarter. Total equity as of Sep 30, totaled 1,658.4 million.

No share repurchases were made during the third quarter. However, at the end of the first nine months of 2017, the company’s total share repurchases totaled 665,095 at an aggregate price of $35.5 million.

As of Sep 30, the company had shares worth approximately $137.9 million available for repurchase.

Management also announced a 6% hike in its quarterly cash dividend to 19 cents per share. This is payable on Nov 30 to shareholders on record as of Nov 16, 2017.

Updated Guidance

Columbia Sportswear updated its earnings outlook for 2017. Earnings per share for 2017 are now projected in the band of $2.60-$2.70 per share compared with the previous anticipation of $2.74-$2.84. The lowered view highlights the company’s expected rise in expenses in relation with Project CONNECT.

However, management continues to anticipate net sales to grow nearly 3% year over year, which includes positive impacts of lower than 1% from currency translations.

The company now envisions 2017 gross margins to rise nearly 20 bps, down from the previous guidance of 30 bps. Moreover, SG&A expenses are expected to rise 5.4% year on year, due to expenses worth $15 million concerning Project CONNECT as well as anticipated increased spending for global demand creation.

Additionally, operating income is anticipated in the range of $243-$252 million for 2017 while operating margin is estimated to be roughly 10.3

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. While looking back an additional 30 days, we can see even more downward momentum. There have been seven moves down in the last two months. In the past month, the consensus estimate has shifted lower by 13.8% due to these changes.

Columbia Sportswear Company Price and Consensus

 

Columbia Sportswear Company Price and Consensus | Columbia Sportswear Company Quote

VGM Scores

At this time, Columbia Sportswear's stock has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. Charting a somewhat similar path, 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.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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