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Columbia Sportswear's (COLM) Solid Brands & DTC Business Aid
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Strength in the direct-to-consumer (DTC) business has been favoring Columbia Sportswear Company (COLM - Free Report) for a while now. The company’s focus on brand enhancement initiatives is noteworthy. That being said, Columbia Sportswear is not immune to an inflationary environment.
Let’s delve deeper.
Image Source: Zacks Investment Research
DTC Business – Major Driver
Columbia Sportswear 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 increased 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 for online shopping. 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.
Strategic Initiatives Driving Growth
The Zacks Rank #3 (Hold) company remains focused on its strategic priorities. To this end, it intends to continue its demand creation investments to drive brand awareness and boost 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.
Cost Hurdles on the Way
Columbia Sportswear has been seeing higher SG&A costs for a while now. In first-quarter 2022, its SG&A expenses increased 18% to $299.1 million. The year-over-year rise in SG&A expenses is primarily caused by 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.
During the quarter, 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, 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.
That said, focus on the aforementioned upsides is likely to offer some respite. Although, COLM’s stock has decreased 23.1% in the past six months, it has outpaced the industry’s 35.2% 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 earnings per share (EPS) suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.
Steven Madden (SHOO - Free Report) is involved in designing, sourcing, marketing and selling private label footwear, handbags and accessories for women, men, and children. It currently flaunts a Zacks Rank #1. SHOO has a trailing four-quarter earnings surprise of 44%, on average.
The Zacks Consensus Estimate for Steven Madden’s current financial year’s sales and earnings suggests growth of almost 15% and 19.2%, 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 97.5%, on average.
The Zacks Consensus Estimate for G-III Apparel 's current financial-year sales suggests growth of 12.9%, while the same for EPS indicates a rise of 10.4% from the respective year-ago reported figures.
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Columbia Sportswear's (COLM) Solid Brands & DTC Business Aid
Strength in the direct-to-consumer (DTC) business has been favoring Columbia Sportswear Company (COLM - Free Report) for a while now. The company’s focus on brand enhancement initiatives is noteworthy. That being said, Columbia Sportswear is not immune to an inflationary environment.
Let’s delve deeper.
Image Source: Zacks Investment Research
DTC Business – Major Driver
Columbia Sportswear 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 increased 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 for online shopping. 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.
Strategic Initiatives Driving Growth
The Zacks Rank #3 (Hold) company remains focused on its strategic priorities. To this end, it intends to continue its demand creation investments to drive brand awareness and boost 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.
Cost Hurdles on the Way
Columbia Sportswear has been seeing higher SG&A costs for a while now. In first-quarter 2022, its SG&A expenses increased 18% to $299.1 million. The year-over-year rise in SG&A expenses is primarily caused by 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.
During the quarter, 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, 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.
That said, focus on the aforementioned upsides is likely to offer some respite. Although, COLM’s stock has decreased 23.1% in the past six months, it has outpaced the industry’s 35.2% 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 earnings per share (EPS) suggests growth of 14.6% and 45.8%, respectively, from the year-ago period's reported numbers.
Steven Madden (SHOO - Free Report) is involved in designing, sourcing, marketing and selling private label footwear, handbags and accessories for women, men, and children. It currently flaunts a Zacks Rank #1. SHOO has a trailing four-quarter earnings surprise of 44%, on average.
The Zacks Consensus Estimate for Steven Madden’s current financial year’s sales and earnings suggests growth of almost 15% and 19.2%, 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 97.5%, on average.
The Zacks Consensus Estimate for G-III Apparel 's current financial-year sales suggests growth of 12.9%, while the same for EPS indicates a rise of 10.4% from the respective year-ago reported figures.