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Columbia Sportswear (COLM) Raises View on Q2 Earnings Beat

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Columbia Sportswear Company (COLM - Free Report) pulled up its 2021 guidance on posting splendid second-quarter results. During the quarter, both earnings and sales advanced year over year and cruised past the respective Zacks Consensus Estimate. Despite witnessing escalated ocean freight costs and pandemic-led supply-chain bottlenecks, management raised its top and bottom-line guidance.

The company’s second-quarter show reflects the strong fundamental business revival. Results were backed by a better-than-expected performance in U.S. wholesale and the direct-to-consumer (DTC) brick & mortar businesses. Certainly, the company’s brands are resonating well with consumer trends. Columbia Sportswear remains well positioned to gain from the existing consumer and outdoor patterns.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted earnings of 61 cents per share against a net loss of 77 cents recorded in the year-ago period. Moreover, the bottom line crushed the Zacks Consensus Estimate, which was pegged at a loss of 12 cents.

Columbia Sportswear Company Price, Consensus and EPS Surprise

Columbia Sportswear Company Price, Consensus and EPS Surprise

Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote

Net sales soared 79% to $566.4 million, beating the consensus mark of $500 million. Sales were backed by a robust revival in the DTC brick & mortar and U.S. wholesale channels. Reduced pandemic-led headwinds and temporary store closures as compared with the second quarter of 2020 also fueled the top-line growth. Sales increased across all categories, regions, brands and channels.

In the reported quarter, the DTC channel displayed sales growth of 69% and wholesale net sales rose 89%. DTC e-commerce sales rose 5% in the quarter and formed 16% of the company’s total sales mix.

Gross margin increased 540 basis points (bps) to 51.6% on reduced inventory reserve provisions, better wholesale product margins and a decline in DTC promotional levels. These were somewhat negated by the adverse channel sales mix.

SG&A expenses escalated 20% to $261.8 million. As a percentage of sales, however, the same contracted from 68.7% to 46.2%. The year-over-year rise in SG&A can be accountable to the variable part of SG&A, which is related to the change in sales volume. Apart from this, higher global retail, demand creation, personnel and incentive compensation costs led to the upside, partly compensated by lower bad debt expenses and non-recurrence of pandemic-related costs. The company’s operating income came in at $35 million against an operating loss of $70.3 million a year ago.

Regional Segments

In the United States, net sales surged a whopping 107% to $379.1 million. Further, net sales jumped 52% to $88.5 million in Europe/the Middle East/Africa (EMEA). In Canada, net sales climbed 7.7% to $20.8 million. Latin America/Asia Pacific (LAAP) net sales advanced 16% to $78 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category ascended 86% to $453.1 million, while the same for Footwear surged 56% to $113.3 million. The Columbia, SOREL, prAna and Mountain Hardwear brands registered sales growth of 82%, 74%, 43% and 97%, respectively.

Zacks Investment Research
Image Source: Zacks Investment Research

Other Financial Updates

Columbia Sportswear ended the quarter with cash, cash equivalents and short-term investments of $820.9 million and shareholders’ equity of $1,861.7 million. The company had no borrowings on its balance sheet as of Jun 30, 2021. During the six months ended Jun 30, the company generated cash from operating activities of $117.2 million, while capital expenditures were $12.4 million. For 2021, Columbia Sportswear now expects an operating cash flow of $260-$280 million, while capital expenditures are envisioned in a band of $45-$60 million. Previously, management expected operating cash flow of $250-$270 million and capital expenditures of $60-$80 million.

During the quarter under review, the company repurchased 528,609 shares for $54.9 million. On Jun 30, 2021, the company had $427.4 million available under its share buyback authorization.  Additionally, management announced a quarterly cash dividend of 26 cents per share, which is payable on Aug 26, 2021, to shareholders of record as of Aug 12.

COVID-19 Update & Outlook

Most of the company-owned stores were open throughout the quarter, apart from some isolated temporary closures. Management highlighted that overall brick-and-mortar traffic was better but below the pre-pandemic level.

The company stated that it has been witnessing greater-than-expected ocean freight costs in recent months, which affected its full-year guidance. Apart from this, product availability and delivery could be hampered by increasing coronavirus cases in sourcing nations in southeast Asia. Also, port congestion and logistic hurdles are still negatively impacting inventory receipt and delivery timing.

For 2021, the company now expects net sales in the range of $3.13-$3.16 billion, indicating a 25-26.5% increase from the year-ago period’s reported figure. Earlier, the metric was envisioned to be $3.04-$3.08 billion, suggesting 21.5-23% growth.

Management now expects gross margin to expand 95-115 bps to reach 49.9-50.1%. The metric was earlier expected to increase 110-130 bps to 50-50.2%. In 2020, the company reported gross margin of 48.9%. The lowered 2021 view reflects additional ocean freight costs of nearly $40 million. We note that ocean freight rates have elevated majorly in the past 60 days.

SG&A expenses are anticipated to rise at a softer rate than sales growth. As a percentage of sales, SG&A expenses are anticipated to be 38.4-38.7% now compared with 38.7-39.1% expected before. In 2020, the metric was 43.9%. The company expects demand creation (as a percentage of net sales) to be 6% in 2021, in comparison with 5.7% in 2020.

For 2021, operating income is expected to be $365-386 million, implying an operating margin of 11.7-12.2%. Earlier, operating income was expected to be $347-369 million, indicating operating margin of 11.4-12%. In 2020, operating margin came in at 5.5%. Finally, management envisions earnings per share in the range of $4.30-$4.55 for the ongoing year compared with $4.05-$4.30 expected earlier.  The consensus mark is currently pegged at $4.35 per share.

For the second half of 2021, management projects net sales growth in the low-20 percent range. Management further commented that fall 2021 inventory receipts and wholesale shipments timing can largely impact quarterly financial results. As of the currently projected product delivery dates, net sales in both third and fourth quarters are likely to grow in the low-20 percent range.

Shares of this Zacks Rank #3 (Hold) company have gained 8.7% in the past six months compared with the industry’s growth of 12.5%.

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