Columbia Sportswear Company (COLM Quick QuoteCOLM - Free Report) has been benefiting from its strategic priorities. Apart from this, the company’s direct-to-consumer or DTC business has been aiding, while elevated SG&A costs and ocean freight costs have been concerning. The company’s shares have dropped 8.5% in the past six months compared with the industry’s decline of 15%.

Key Headwinds

Columbia Sportswear has been seeing high SG&A costs and elevated ocean freight costs for a while now. The year-over-year rise in SG&A expenses can be attributed to costs for supporting business growth, which include increased global retail, incentive compensation, demand creation and personnel costs. SG&A expenses are anticipated to rise at a softer rate than net sales growth in 2022. COLM expects demand creation (as a percentage of net sales) of 6% in 2022 compared with 5.9% in 2021. Apart from this, in its fourth-quarter 2021 earnings release, Columbia Sportswear said that demand for ocean vessels and containers remained high compared with its available capacity, thus causing a massive spike in ocean freight costs.
 
Though the company’s gross margin increased year over year in the fourth quarter, it was partly affected by increased inbound freight expenses. Management expects the gross margin to contract about 160 basis points (bps) and reach nearly 50% in 2022. For 2022, the operating margin is expected at 13-13.5%, indicating a decline from 14.4% recorded in 2021. For the first half of 2022, the gross margin is likely to contract more than 300 bps.

Upsides

Management remains focused on its strategic priorities. It intends to continue with its demand creation investments, which are aimed at driving brand awareness and aiding sales. Further, Columbia Sportswear remains committed to enhancing consumers’ experiences and its digital capacity in all networks and regions. It will also continue exploring growth opportunities in the DTC business and improving support processes. Finally, the company is keen on investing in its people and optimizing its organization across its brand portfolio.

Apart from this, Columbia Sportswear undertakes brand-enhancing and unique marketing initiatives that further strengthen its presence in the apparel industry. Even amid the pandemic, COLM remains committed to undertaking innovation. The company launched its fifth annual Star Wars collection in December 2020. The company’s 2020 collection based on the hit Disney series helped generate a spectacular consumer response. On its fourth-quarter earnings call, management stated that it remains encouraged about the successful global launch of Omni-Heat Infinity. A continued focus on innovation helps the company attract more consumers and drive sales.

Columbia Sportswear remains committed to expanding and enhancing its global DTC business through accelerated investments. In the fourth quarter, the DTC channel displayed sales growth of 33% and wholesale net sales rose 13%. DTC’s brick-and-mortar net sales jumped 39%. DTC’s e-commerce net sales rose 25% in the quarter. In 2021, DTC’s e-commerce sales contributed 18% to the company’s total sales. DTC e-commerce has been seeing robust momentum, with more consumers opting to shop online. This channel is likely to continue performing well in the forthcoming periods as with stores reopening, many consumers prefer to shop online. Management’s 2022 sales growth guidance includes the continued strength in the DTC business.

For 2022, this Zacks Rank #3 (Hold) company expects net sales to grow 16-18% to the $3.63-$3.69 billion range. The net sales increase is anticipated to be broad-based across brands, channels and regions, with SOREL likely to be the fastest growing. Management envisions earnings per share (EPS) in the range of $5.5-$5.80 for 2022, suggesting growth from $5.33 recorded in 2021. For the first half of 2022, management projects net sales growth between the high teens and low 20% range compared with the first half of 2021.

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A Renowned Consumer Discretionary Stock

A popular pick from the broader Zacks Consumer Discretionary sector is Crocs, Inc. (CROX Quick QuoteCROX - Free Report) , which has been benefiting from its focus on product innovation and marketing and digital capabilities. Potential gains from the HEYDUDE buyout also bode well. Crocs, which designs, develops, manufactures, markets and distributes casual lifestyle footwear and accessories, currently carries a Zacks Rank #3. Shares of CROX have decreased 46% in the past six months. The Zacks Consensus Estimate for Crocs’ current financial-year EPS suggests growth of 22.1% from the year-ago reported figure.

Let’s Check These Solid Bets

Some better-ranked stocks are Funko, Inc. (FNKO Quick QuoteFNKO - Free Report) and Gildan Activewear Inc. (GIL Quick QuoteGIL - Free Report) .

Funko, the pop culture consumer products company, currently sports a Zacks Rank #1 (Strong Buy). Shares of Funko have declined 3.5% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Funko’s 2022 sales and EPS suggests growth of 22.7% and 26.8%, respectively, from the year-ago reported figure. FNKO has a trailing four-quarter earnings surprise of 96.2%, on average.

Gildan Activewear, which manufactures and sells various apparel products, carries a Zacks Rank #2 (Buy) at present. Shares of Gildan Activewear have dipped 1.5% in the past six months.

The Zacks Consensus Estimate for Gildan Activewear’s 2022 sales and EPS suggests growth of 8.9% and 3.3%, respectively, from the year-ago reported figure. GIL has a trailing four-quarter earnings surprise of 66.6%, on average.