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Bull of the Day: Columbia Sportswear (COLM)

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Columbia Sportswear Company (COLM - Free Report) continues to post record quarters as athleisure remains hot. This Zacks Rank #1 (Strong Buy) beat again in Q1 and raised full year guidance.

Columbia Sportswear is a specialty retailer in apparel, footwear, accessories and equipment. Its brands are sold in 90 countries through its own stores and web sites.

It isn't just the Columbia brand, however, as its three other main brands also includes Mountain Hardwear, SOREL and prAna.

Another Big Beat in the First Quarter

On Apr 25, Columbia reported its first quarter results and again posted a big earnings beat. Earnings were $1.07 versus the Zacks Consensus Estimate of $0.84. That's a 27.4% beat.

Sales were up another 8% to a record $654.6 million.

Gross margin expanded 210 basis points, also to a record of 51.4%, compared to just 49.3% in the first quarter of 2018.

The momentum of the prior year extended in the first quarter as it finished strong in its Fall 2018 sales season and had a good early season sell-through of its Spring 2019 assortment.

SOREL continued to be a hot brand, rising 28% worldwide.

The large namesake brand, Columbia, also saw double-digit growth in the US across both direct-to-consumer and wholesale distribution channels.

Raised Full Year Guidance

The strong first quarter coupled by strong advance orders of its Fall 2019 product line, gave the company enough confidence to raise its full year guidance.

Full year sales are now expected to be between the range of $2.98 to $3.04 billion up from prior guidance of $2.97 to $3.03 billion. That's sales growth of 6.5% to 8.5%, up from the prior guidance of 6% to 8%.

Additionally, earnings per share are now expected in the range of $4.40 to $4.55, up from the prior forecast of $4.30 to $4.45.

It's no surprise, then, that the analysts raised estimates to come in line with the company's new guidance.

Over the last 60 days, 5 estimates have been raised for 2019 which has pushed the Zacks Consensus Estimate up to $4.55 from $4.38. That's at the very top of the company's range and would be earnings growth of 13.5% as the company made $4.01 last year.

It would also be a new company record as 2018 was already a record year.

Analysts are bullish on 2020 as well as 5 estimates were raised for next year in the last 2 months. The 2020 Zacks Consensus Estimate rose to $5.04 from $4.96 in that time. That's another 10.9% earnings growth.

Best Balance Sheet in Retail

Who says all retailers are debt-ridden and struggling?

Columbia has over $700 million in cash and short-term investments with no long-term debt.

It pays a dividend, currently yielding about 1%.

Tariff Impacts

Columbia has been open about the impact of the Chinese tariffs on its business.

While it has been trying to mitigate the impact, and has a diverse supply chain with partners in 23 countries, it will still see a heavy impact if the final traunch of tariffs is enacted.

On June 24, Columbia testified as to the extent in DC:

“In 2018, apparel and footwear imports accounted for 4% of all imports, but 30% of all duties paid, according to the U.S. International Trade Commission,” said Katie Tangman, Columbia’s Director of Global Customs and Trade.

“Apparel and footwear importers pay, on average, double digit import taxes for apparel and footwear products. For example, some of Columbia’s products are subject to import taxes as high as 37.5%. Adding a tariff of up to 25% on goods from China means that our import taxes would be as high as 62.5%, an untenable amount," she said.

It likely means higher prices for consumers.

Shares Still Soaring?

Columbia has had one of the best 5-year runs in retail. It's shares are up 148% during that time, which easily outpaced competitors like VF Corp. (VFC - Free Report) which owns North Face and Timberland.

But over the last year, they have seen just 8% gains as the retail stocks have been more volatile on trade worries.

Columbia is now trading with a forward P/E of 22x. It's not cheap.

But for investors looking for a retailer with a great balance sheet and strong brands, along with double-digit earnings growth, Columbia should be on your short list.

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