Back to top

Image: Bigstock

Columbia Sportswear's (COLM) DTC Business Aids, High Costs hurt

Read MoreHide Full Article

Columbia Sportswear Company (COLM - Free Report) is benefiting from strength in its direct-to-consumer (DTC) business. The company is on track with brand enhancement initiatives, which are yielding. These factors drove Columbia Sportswear’s first-quarter 2022 results, with net sales and earnings increasing year over year. The solid performance reflects the company’s brand strength.

Taking into account the impressive beginning to the year and reduced share count, management recently raised its 2022 earnings per share (EPS) guidance. The company maintained its earlier net sales view, despite removing future sales to Russian-based distributors for the rest of 2022. For 2022, Columbia Sportswear expects net sales to grow 16-18% to the $3.63-$3.69 billion range. The company now envisions EPS in the range of $5.70-$6.00 for 2022 compared with $5.5-$5.80 expected earlier. That being said, escalated costs are likely to keep hurting Columbia Sportswear’s performance.

Let’s take a closer look.

Zacks Investment Research
Image Source: Zacks Investment Research

What’s Working for Columbia Sportswear?

The Zacks Rank #3 (Hold) company is committed to expanding and enhancing its global DTC business through accelerated investments. During the first quarter of 2022, the company’s DTC and wholesale businesses rose 22% each. Under the DTC business, brick-and-mortar rose 22% and e-commerce was up 21%. In its last earnings call, management highlighted that it is impressed with the recent DTC sell-through. DTC e-commerce has been seeing robust momentum, with more consumers opting to shop online. This channel will likely continue performing well in the forthcoming periods as stores reopen and many consumers prefer to shop online. Incidentally, management is on track to expand global DTC operations.

The company remains focused on its strategic priorities. To this end, it intends to continue with its demand creation investments, which aim to drive brand awareness and aid sales. Further, the company remains committed to enhancing consumers’ experience and 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.

Columbia Sportswear undertakes brand-enhancing and unique marketing initiatives that further strengthen its presence in the apparel industry. Management continued with innovation with various new product technologies, like the ODX mesh fabric in outerwear and tech light plush cushioning in footwear during the first quarter. The company highlighted that its spring 2022 product pipeline includes the launch of many new differentiated technologies and products. Certainly, continued focus on innovation helps the company attract more consumers and drive sales.

Hurdles on Way

During the first quarter of 2022, Columbia Sportswear’s gross margin contracted 170 basis points (bps) to 49.7%, mainly due to increased inbound freight costs, negative year-over-year changes in inventory provisions and unfavorable regional sales mix and reduced wholesale product margins. For 2022, management expects gross margin to contract about 130 bps and reach nearly 50.3%. The company expects an operating margin in the range of 13.2-13.6% compared with 14.4% reported in 2021.

Columbia Sportswear is seeing higher SG&A costs for a while now. During the quarter, its SG&A expenses increased 18% to $299.1 million. The year-over-year rise in SG&A expenses can mainly be attributed to costs incurred to support business growth and investments to fuel brand-led consumer-focused strategies. The rise in the metric also reflects increased demand creation, global retail and personnel expenses.In its last earnings call, management highlighted that SG&A expenses are anticipated to rise at a slightly softer rate than net sales growth in 2022.

That said, let’s see if these upsides can help Columbia Sportswear counter the aforementioned hurdles. COLM’s stock has decreased 19.7% in the past six months compared with the industry’s 35.6% decline.

Top 3 Picks

Delta Apparel, Inc. (DLA - Free Report) , an activewear and lifestyle apparel products company, sports a Zacks Rank #1 (Strong Buy). DLA has a trailing four-quarter earnings surprise of 41.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Delta Apparel's current financial year’s sales and EPS suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.

G-III Apparel Group, Ltd. (GIII - Free Report) , a women's and men's apparel company, currently carries a Zacks Rank of 2 (Buy). GIII has a trailing four-quarter earnings surprise of 160.6%, on average.

The Zacks Consensus Estimate for G-III Apparel 's current financial-year sales suggests growth of almost 10%, while the same for EPS indicates a rise of 5.5% from the respective year-ago reported figures.

PVH Corp. (PVH - Free Report) , a leading apparel company, currently carries a Zacks Rank of 2. PVH has a trailing four-quarter earnings surprise of 83.8%, on average.

The Zacks Consensus Estimate for PVH Corp.’s current-year sales suggests growth of 2.5%, from the year-ago period’s corresponding readings.