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Columbia Sportswear (COLM) Posts Lower-than-Expected Q2 Loss

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Columbia Sportswear Company (COLM - Free Report) reported a loss of 17 cents per share in the second quarter of 2017, which was narrower than the Zacks Consensus Estimate of a loss of 20 cents.

The reported loss was 41.7% wider than the loss of 12 cents in the prior-year quarter. The reported loss also includes expenses of 4 cents per share accounting for the company’s operating model assessment.

Shares of the company have outperformed the industry over the past six months. This Zacks Rank #3 (Hold) stock rallied 6.5% compared with the industry’s gain of 1.1%.

Q2 Highlights

Quarterly net sales came in at $398.9 million that beat the Zacks Consensus Estimate of $394.1 million by 1.2% and increased 3% year over year. The increase in net sales was primarily driven by the strong performance of its SOREL brand and growth in its Europe-direct business. The Europe-direct business delivered another stellar quarter of mid-teens growth by the Columbia brand. This growth also led to a double-digit rise across the company’s wholesale, brick-and-mortar and e-commerce channels.

Gross profit during the quarter increased 0.6% to $180.7 million driven by higher revenues, offset by higher cost of sales. Also, gross margin fell 90 basis points (bps) to 45.3%. Further, the company reported operating loss of $17.3 million, 46.6% wider from the operating loss reported in the year-ago quarter.

During the quarter, the company focused on the second phase of the initiative 'Project CONNECT', which would further accelerate its performance as a brand and consumer focused organization.

Columbia Sportswear Company Price, Consensus and EPS Surprise


Regional Segments

U.S.: Net sales increased 4% to $238.2 million owing to mid-teen percentage growth in direct-to-consumer net sales. This was partially offset by decline in wholesale net sales by a high-single-digit percentage.

Europe/Middle East/Africa (EMEA): Net sales jumped 14% (up 16% on a constant currency basis) to $67.3 million, backed by solid performance at its Europe-direct business and growth in sales to EMEA distributors.

Canada: Net sales grew 2% (up 5% on a constant currency basis) to $13.9 million.

Latin America/Asia Pacific (LAAP): Net sales declined 9% (down 8% on a constant currency basis) to $79.5 million, mainly due to lower sales in Korea and China.

Category and Brand Segments

Net sales in the Global Apparel, Accessories and Equipment segments as well as in Global Footwear increased 3% to $329.7 million and $69.2 million, respectively. Global Columbia brand’s net sales edged up 2% to $340.5 million, SOREL brand net sales surged 71% to $6 million and prAna brand net sales increased 9% to $35.0 million. However, Mountain and Hardwear brand net sales declined 5% to $16.1 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and short-term investments of $622.2 million versus $428.8 million in the year-ago period. Further, consolidated inventories came in at $559.5 million, down 14% from the year-ago quarter. Total equity as of Jun 30, totaled 1,572 million.

Notably, the company bought back 48,943 shares worth $2.5 million in the second quarter. This led to a total share repurchase of 665,095 shares at an aggregate price of $35.5 million. As per the stock repurchase authorization, approximately $137.9 million are available for purchase as of Jun 30.

Management also declared a quarterly cash dividend of 18 cents per share, payable on Aug 31, 2017 to shareholders on record as of Aug 17.

Updated Guidance

Columbia Sportswear updated its earnings outlook for 2017. Earnings per share for 2017 are now projected in the band of $2.74–$2.84 per diluted share compared to the earlier anticipated range of $2.72–$2.82. The company expects higher sales in the second half of the year, resulting in higher profitability.

The management reiterated its net sales, gross margin and operating margin related outlook. It anticipates net sales to grow nearly 3% over sales of $2.38 million in 2016, mainly driven by its U.S. direct-to-consumer business. Further, it anticipates 2017 gross margins to rise nearly 30 bps. Moreover, the selling, general and administrative expenses (SG&A) are expected to rise marginally above the expected sales growth that will result in roughly 30 bps of SG&A expense deleverage. In addition, operating income is also anticipated to rise about 3% in the range of $256–$265 million for 2017 while operating margin is estimated to be roughly 10.8%.

Stocks to Consider

Better-ranked stocks in the same industry include Time Warner Inc. (TWX - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) and Hasbro, Inc. (HAS - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Time Warner has an average positive earnings surprise of 16.5% over the past four quarters, with a long-term earnings growth rate of 9.5%.

Deckers Outdoor Corporation has an average positive earnings surprise of 74.1% over the past four quarters, with a long-term earnings growth rate of 9.8%.

Hasbro has an average positive earnings surprise of 19% over the past four quarters, with a long-term earnings growth rate of 11.7%.

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