Why Columbia Sportswear Can Deliver Improving Returns
Columbia Sportswear Co. (NASDAQ:COLM) has investment appeal after its 35% decline over the past year.
The clothing, footwear and outdoor equipment manufacturer is investing in new technology to improve the shopping experience of its customers and is seeking to become more efficient through reducing costs.
Consumer investment
The company is increasing its investment in its direct-to-consumer segment. This is where it bypasses third-party retailers and wholesalers to sell directly to consumers on its website and through its stores. Its investment in this area contributed to the business reporting 30% sales growth in its DTC segment between 2017 and 2019.
Columbia Sportswear's growing DTC sales could help to improve its levels of customer loyalty since it will have a direct relationship with more of them. It also plans to use a larger amount of data on their past purchases to make personalized recommendations.
The company's investment in its DTC segment may also lead to higher margins for the business. Selling a larger portion of its products directly to customers means it may receive higher average prices for its products compared to selling them to retailers.
New technology
The business is investing in new technology to enhance the shopping experience of its customers. For example, it expects to roll out its new mobile app across North America in fiscal 2020. This could make the process of buying online easier for its customers through its app offering improved navigation and additional features.
In addition, the company is upgrading its store layout to incorporate greater amounts of updated technology. For example, in China it is using new technology to speed up the checkout process, which could improve the satisfaction rates of its customers and widen its economic moat.
Efficiencies
The company is seeking to improve its efficiency through reducing costs. For example, in fiscal 2019, it rolled out automation within its distribution centers to reduce the amount of time it takes to ship products to customers. This could reduce its costs through lowering the number of staff required across its fulfilment network.
Additionally, Columbia Sportswear plans to increase the capacity within its distribution centers in 2020. This may allow it to manage its inventory more efficiently and could lead to greater availability across its range of products.
Potential challenges
The coronavirus outbreak could hurt the company's financial performance in the near term. Columbia Sportswear closed all of its stores in the U.S. on March 16 and does not expect to open them until at least March 27. Although it still has a website from which people can order products, an uncertain outlook for the U.S. economy could mean that consumers postpone their spending on non-essential items. This may cause investors to adopt a cautious stance toward the company's stock in upcoming quarters.
Columbia Sportswear's financial position suggests it can overcome its short-term financial challenges. For example, its debt-to-equity ratio of 24% is lower than 68% of the companies within its sector. In addition, its cash-to-debt ratio of 1.58 is higher than 72% of its industry peers, suggesting it has a solid balance sheet.
The company's exposure to international economies such as China and Korea could catalyze its future performance. These countries are currently reporting lower numbers of new coronavirus cases than in the U.S, which could mean that consumer spending levels in China and Korea return to normal sooner. In turn, this may boost Columbia Sportswear's sales performance in fiscal 2020.
Outlook
Market analysts forecast the business will report a 10% increase in its earnings per share in fiscal 2021. Its forward price-earnings ratio of 15.2 suggests it offers good value for money based on its growth strategy.
Disclosure: The author has no positions in any stocks mentioned.
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This article first appeared on GuruFocus.
