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Columbia Sportswear (COLM) Cuts View Despite Q3 Earnings Beat

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Columbia Sportswear Company (COLM - Free Report) posted better-than-expected top- and bottom-line results for the third quarter of 2017. Results were mainly fueled by solid sales growth at the company’s European wholesale and U.S. direct-to-consumer businesses.

In fact, sales improved across all international regions. However, the company’s higher expense expectation for 2017 in relation with Project CONNECT led management to lower its earnings view for 2017.

Earnings Detail

The company’s third-quarter earnings came in at $1.25 per share, which surpassed the Zacks Consensus Estimate of $1.15 and rose 5.9% year over year. Notably, the bottom line included a 3-cent impact related to the Project CONNECT operating model.

Notably, Columbia Sportswear's earnings have surpassed estimates for 19 straight quarters. The positive earnings surprise history has aided the company’s share price performance. Shares of this Zacks Rank #3 (Hold) company have rallied 11% in the last year, outperforming the industry’s decline of 1.5%.

 

Third-Quarter Highlights

Quarterly net sales amounted $747.4 million, which surpassed the Zacks Consensus Estimate of $734.9 million and climbed marginally by 0.2% from the prior-year sales of $745.7 million. On a constant currency basis, sales dropped less than 1%.

In fact, the top line benefited from sales growth across its geographic regions mainly in the EMEA region, Canada and LAAP region. These were partially offset by decline in the U.S. wholesale arena. 

Gross profit increased 1% to $349.1 million driven by higher revenues and lower cost of sales. Also, gross margin increased 30 basis points (bps) to 46.7%. Further, the company reported operating income of $122.9 million, 0.5% lower than the operating income reported in the year-ago quarter. This was accountable to higher selling, general and administrative (SG&A) expenses. Also, operating margin declined 20 bps to 16.4%.

Regional Segments

United States: Net sales declined 6% to $456 million owing to decline in wholesale net sales, which was partially compensated by growth in direct-to-consumer net sales.

Europe/Middle East/Africa (EMEA): Net sales jumped 20% (up 15% on a constant currency basis) to $87.5 million, backed by solid performance at its European business (direct-to-consumer and wholesale) and growth in sales to EMEA distributors.

Canada: Net sales grew 8% (up 4% on a constant currency basis) to $80.9 million.

Latin America/Asia Pacific (LAAP): Net sales increased 9% (down 11% on a constant currency basis) to $123.0 million, mainly due to sales in China, Korea and to the LAAP distributors. These were partially countered by sales decline in Japan.

Category and Brand Segments

The increase in net sales was also driven by the strong performance of its Global Columbia brand, which registered a growth of 2% to reach $598.3 million.

However, Global SOREL brand sales declined 7% to $81.7 million. Also, Global prAna net sales declined 3% and Global Mountain Hardwear brands net sales declined 4% to reach $36.8 million and $29.4 million, respectively.

While, net sales in the Global Apparel, Accessories and Equipment category increased 1% to $580 million, the same in Global Footwear declined 2% to $167.4 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and short-term investments of $430.3 million versus $219.7 million in the year-ago period. Further, consolidated inventories amounted $558.6 million, down 5% from the year-ago quarter. Total equity as of Sep 30, totaled 1,658.4 million.

No share repurchases were made during the third quarter. However, at the end of the first nine months of 2017, the company’s total share repurchases totaled 665,095 at an aggregate price of $35.5 million.

As of Sep 30, the company had shares worth approximately $137.9 million available for repurchase.

Management also announced a 6% hike in its quarterly cash dividend to 19 cents per share. This is payable on Nov 30 to shareholders on record as of Nov 16, 2017.

Updated Guidance

Columbia Sportswear updated its earnings outlook for 2017. Earnings per share for 2017 are now projected in the band of $2.60-$2.70 per share compared with the previous anticipation of $2.74-$2.84. The lowered view highlights the company’s expected rise in expenses in relation with Project CONNECT.

However, management continues to anticipate net sales to grow nearly 3% year over year, which includes positive impacts of lower than 1% from currency translations.

The company now envisions 2017 gross margins to rise nearly 20 bps, down from the previous guidance of 30 bps. Moreover, SG&A expenses are expected to rise 5.4% year on year, due to expenses worth $15 million concerning Project CONNECT as well as anticipated increased spending for global demand creation.

Additionally, operating income is anticipated in the range of $243-$252 million for 2017 while operating margin is estimated to be roughly 10.3%.

Stocks to Consider

Investors may also consider stocks such as lululemon athletica inc (LULU - Free Report) , PVH Corp (PVH - Free Report) and V.F. Corporation (VFC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

lululemon athletica delivered an average positive earnings surprise of 8.5% in the trailing four quarters. It has a long-term earnings growth rate of 11.9%.

PVH Corp pulled off an average positive earnings surprise of 3.6% in the trailing four quarters. It has a long-term earnings growth rate of 13.1%.

V.F. Corporation came up with an average positive earnings surprise of 3.4% in the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

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