Zacks Investment Research upgraded Columbia Sportswear Company (COLM) to a Zacks Rank #1 (Strong Buy) on Jul 4. Columbia Sportswear's acquisition of PrAna lifestyle apparel brand in June and better-than-expected earnings in the first quarter of 2014 led to the upgrade.
Why the Upgrade?
Last month, Columbia Sportswear - a leading apparel and footwear designer – completed the acquisition of California based PrAna lifestyle apparel brand for $190 million. PrAna is now a wholly-owned subsidiary of Columbia Sportswear and is headquartered in Carlsbad, CA. The acquisition is expected to be accretive in full fiscal 2015.
The acquisition is a strategic fit for Columbia’s strategic priority to expand into complementary consumer segments. PrAna will also complement Columbia’s portfolio of authentic, active outdoor brands, which include Columbia, Mountain Hardwear, Sorel and Montrail.
In April, Columbia Sportswear reported strong first quarter 2014 results wherein both earnings and sales beat expectations. The company also raised its outlook for fiscal 2014. First quarter earnings of 63 cents increased a significant 80% from the year-ago adjusted earnings backed by strong sales.
Net sales of this retailer increased 22% to $424.1 million and came ahead of the Zacks Consensus Estimate of $398 million, driven by strong demand for Columbia and Sorel brands, especially across U.S. wholesale and direct-to-consumer channels and the new China joint venture. The company also witnessed solid demand for its fall 2014 products in many key markets globally. However, results were partly offset due to unfavorable currency fluctuations.
Following better-than-expected first quarter results, the company raised its fiscal 2014 outlook. Columbia Sportswear’s net sales for 2014 are now expected to grow 16% to 18% compared with 2013 levels, as against the previous expectation of 15% to 17% growth. Net sales growth expectation for 2014 excludes the impact of the pending prAna acquisition. The company also continues to expect North American direct-to-consumer sales to grow at a double-digit rate in 2014.
Compared to the prior year, management envisions its full-year operating income to grow 25%, leading to operating margin of approximately 8.25%, higher than the prior forecast of 8%.
This apparel retailer witnessed sharp upward estimate revisions after announcing its first quarter 2014 results. Most of the estimates for 2014 and 2015 increased over the past 60 days.
Columbia Sportswear is likely to post a positive earnings surprise in the second quarter of 2014, since it has both a Zacks Rank #1 and a positive Earnings ESP of +11.96%. The second quarter results are expected on Jul 24.
Other Stocks to Consider
Some other stocks in the textile apparel sector that warrant a look include Hanesbrands Inc. (HBI), Vince Holding Corp. (VNCE) and Michael Kors Holdings Ltd. (KORS). While Hanesbrands and Vince Holding carry a Zacks Rank #1, Michael Kors holds a Zacks Rank #2 (Buy).