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Columbia Sportswear (COLM) Q3 Earnings Top Estimates, Sales Up

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Columbia Sportswear Company (COLM - Free Report) posted third-quarter 2021 results, with the top and the bottom line rising year over year. While earnings surpassed the Zacks Consensus Estimate, net sales missed the same. During the quarter, the company saw increased consumer demand for its products. However, it encountered unprecedented supply chain disruptions.

Owing to better gross margin projection and updated operating expense assumptions, the company is raising its 2021 earnings per share guidance.

Quarter in Detail

This designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories posted an earnings of $1.52 per share compared with 94 cents per share recorded in the year-ago quarter. The bottom line came ahead of the Zacks Consensus Estimate, which was pegged at $1.31 per share.

Net sales rose 15% year over year to $804.7 million, driven by direct-to-consumer (DTC) growth and increased Fall 2021 wholesale orders as the company cycled year-ago pandemic-inflicted disruptions. That said, supply chain bottlenecks leading to late inventory receipts and lower wholesale shipments were a downside. Net sales missed the Zacks Consensus Estimate of $868 million.

In the reported quarter, the DTC channel displayed sales growth of 25% and wholesale net sales rose 10%. DTC e-commerce net sales rose 6% in the quarter and contributed11% to the company’s total sales mix.

Gross margin increased 180 basis points (bps) to 50.7% on reduced DTC promotional levels and positive wholesale product margins. These were somewhat negated by increased inbound freight expenses, non-recurrence of inventory provision activity that benefited the year-ago quarter as well as unfavorable channel sales mix.

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

 

SG&A expenses escalated 7% to $280.1 million. As a percentage of sales, the same contracted from 37.3% to 34.8%. The year-over-year rise in SG&A can be attributed to increased global retail, incentive compensation, demand creation and personnel costs. These were somewhat countered by gains from a lease termination liability settlement and the absence of last year’s pandemic-related costs.

The company’s operating income came in at $133.5 million, up 56% from $85.6 million reported in the year-ago quarter.

Regional Segments

In the United States, net sales increased 15% to $510.5 million. Net sales increased 10% to $109.2 million in Europe/the Middle East/Africa (EMEA). In Canada, net sales rose 26% to $82.3 million. Latin America/Asia Pacific (LAAP) net sales advanced 13% to $102.7 million.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category ascended 22% to $621.1 million, while the same for Footwear fell 4% to $183.6 million. The Columbia, prAna and Mountain Hardwear brands registered sales growth of 16%, 19% and 48%, respectively. Net sales in SOREL brand declined 4%.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and cash equivalents and short-term investments of $600.6 million as well as shareholders’ equity of $1,880.3 million. The company had no borrowings on its balance sheet as of Sep 30, 2021. During the nine months ended Sep 30, net cash flow used in operating activities came in at $15.6 million. Capital expenditures were $20.4 million during this time. For 2021, Columbia Sportswear expects an operating cash flow of $250-$270 million, while capital expenditures are envisioned in the band of $45-$50 million. Previously, management expected operating cash flow of $260-$280 million and capital expenditures of $45-$60 million.

During the nine months ended Sep 30, the company repurchased 1,254,081 shares for $127.2 million. On Sep 30, 2021, the company had $355 million available under its current share buyback authorization.  Additionally, management announced a quarterly cash dividend of 26 cents per share, which is payable on Dec 2, 2021, to shareholders of record as of Nov 18.

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COVID-19 Update

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 increased year over year but still remained below the pre-pandemic level.

Government-mandated factory closures in Vietnam caused disruptions across the company’s manufacturing partners’ operations, which impacted production of Fall 2021 and Spring 2022 items. Challenges related to supply chain continued to negatively impact operations. Further, management highlighted that demand for ocean vessels and containers remained high compared with its available capacity, thus causing massive spike in ocean freight costs.

Outlook

For 2021, the company now expects net sales in the range of $3.04-$3.08 billion. The projection indicates a 21.5-23% increase from the year-ago period’s reported figure. Earlier, the metric was envisioned to be $3.13-$3.16 billion, suggesting 25-26.5% growth. In 2020, the company reported net sales of $2.50 billion.

Management now expects gross margin to expand 190-210 bps and reach 50.8-51%. The metric was earlier expected to increase 95-115 bps to 49.9-50.1%. In 2020, the company reported gross margin of 48.9%.

SG&A expenses are anticipated to rise at a softer rate than net sales growth. As a percentage of net sales, SG&A expenses are anticipated to be 38.5-38.8% now compared with 38.4-38.7% 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, suggesting a rise from 5.7% in 2020.

For 2021, operating income is expected to be $384-405 million, implying an operating margin of 12.6-13.2%. Operating income was previously guided in the range of$365-386 million, indicating operating margin of 11.7-12.2%. In 2020, operating margin came in at 5.5%. Management envisions earnings per share in the range of $4.55-$4.80 for the ongoing year compared with $4.30-$4.55 expected earlier.  

For the fourth quarter of 2021, management projects net sales of $1.04 billion to $1.08 billion, implying net sales growth of 14-18%. Earnings per share in the quarter are anticipated in the range of $1.60-$1.85.

The company further stated that its Spring 2022 wholesale sales forecast reflects more than 30% growth. Management also expects ongoing supply chain disruptions to affect the timing of receipts and shipments of Spring 2022 inventory. Based on the business momentum, management expects to witness mid-teens percent or better net sales growth for 2022. Based on the company’s current product view, freight costs and more-normalized promotional environment, it expects gross margin to be under pressure in 2022. The company does not expect planned price increases to fully offset inflationary headwinds in the year.

Shares of this Zacks Rank #4 (Sell) company have declined 5.8% in the past six months against the industry’s growth of 1.7%.

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