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Columbia Sportswear (COLM) Up 6.1% Since Earnings Report: Can it Continue?

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It has been about a month since the last earnings report for Columbia Sportswear Company (COLM - Free Report) . Shares have added about 6.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is COLM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Columbia Sportswear Beats on Q1 Earnings, Ups '18 View

Columbia Sportswear posted impressive first-quarter 2018 results, with the top and the bottom line improving year over year and beating the Zacks Consensus Estimate. Notably, this marked Columbia Sportswear's 21st and fifth straight quarter of earnings and sales beat, respectively.

Q1 in Details

Quarterly earnings came in at 77 cents per share, which surpassed the Zacks Consensus Estimate of 55 cents and rose 48.1% year over year.

Net sales advanced 11.6% year over year to $607.3 million, surpassing the Zacks Consensus Estimate of $581 million. On a constant-currency basis (cc), net sales advanced 8%. Performance mainly gained from sturdy results witnessed across geographical segments and brands.

Further, gross profit improved 15.8% to $299.4 million. The company posted record gross margin of 49.3% that expanded 180 basis points (bps) year over year. Adjusted gross margin expanded 110 bps to 48.6%, primarily gaining from lower direct-to-consumer (DTC) promotions, favorable currency hedge as well as greater mix of higher margin businesses.

Also, adjusted operating income came in at $70.3 million, 43% higher than the year-ago quarter’s figure. Also, adjusted operating margin surged 260 bps to 11.7%.

Regional Segments

United States: Net sales ascended 9% (also at cc) to $492.6 million, owing to growth across the DTC and wholesale businesses.

Europe/Middle East/Africa (EMEA): Net sales climbed 30% to $71.8 million, up 15% at cc, backed by solid performance in its Europe-direct business and greater sales to EMEA distributors.

Canada: Net sales grew 11% (up 6% on cc basis) to $ 41.1 million, gaining largely from DTC business.

Latin America/Asia Pacific (LAAP): Net sales climbed 11% (up 5% at cc) to $131.6 million, courtesy of positive impacts from the new accounting standard.

Category and Brand Segments

The increase in net sales was also driven by the strong performance of the company’s Global Columbia, Global SOREL and Global prAna brands, which registered growth of 13% to $508.8 million, 13% to $30.8 million and 9% to $42.3 million, respectively. However, net sales of Global Mountain Hardwear brand declined 12% to reach $24.4 million.

Further, net sales in the Global Apparel, Accessories and Equipment category edged up 11% to $490 million, and Footwear sales rose 13% to $117.3 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and cash equivalents of $717.2 million and total equity of 1,691.4 million. Consolidated inventories rose 2% to $406 million as of Mar 31, 2018.

During the quarter, cash flow from operating activities amounted to $77.4 million, while the company incurred capital expenditures of $12.3 million.

Further, Columbia Sportswear paid dividends worth $15.5 million and repurchased 235,497 shares for nearly $18.1 million during the first quarter. At the end of Mar 31, 2018, the company had shares worth approximately $119.8 million available for repurchase.

Additionally, the board authorized quarterly dividend of 22 cents per share, payable on May 31 to shareholders of record as on May 17.

Guidance

Management is impressed with its better-than-expected quarterly performance. Performance during the first quarter mainly gained from strong DTC and wholesale businesses. Moreover, results benefitted from growth witness across all segments. Further, positive currency rates, solid gross margin growth and disciplined SG&A expense management drove the quarterly results.

For the rest of 2018, the company expects higher sales during the fall season to boost second-half performance, while operating expenses are likely to be spread equally throughout. Management stated that the company will continue with its strategic investments to enhance demand creation and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business alongside improving supporting processes.

Given these factors and focus on strategic initiatives, Columbia Sportswear raised its sales and earnings outlook for 2018. Net sales growth is now expected in the range of 8-10% year on year, compared to the prior view of 5.5-7.5%.

The company continues to envision 2018 adjusted gross margin to rise nearly 60 bps. Adjusted SG&A expenses are likely to deleverage by 30-50 bps (compared with the previous range of 40-50 bps) excluding costs related to Project CONNECT, changes in revenue accounting standards and discrete costs. Adjusted operating income is estimated between $299 and 308 million, up from the prior guidance of $290-300 million. Adjusted operating margin is expected in a range of 11.4-11.5%, depicting an improvement from the earlier range of 11.3-11.5%.

Full-year effective tax rate is estimated at nearly 22%, courtesy of benefits from tax reforms.

All said, management raised its bottom-line projection for 2018. Adjusted earnings per share for 2018 are now projected in the band of $3.27-$3.37, compared with the previous view of $3.17 to $3.27.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, COLM has a subpar Growth Score of D, though it is lagging a bit on the momentum front with an F. The stock was also allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise COLM has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.




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