Columbia Sportswear Company (COLM - Free Report) yesterday closed its joint venture with China’s Swire Resources by acquiring the remaining 40% stake in Shanghai’s Columbia Sportswear Commercial. We note that in April 2018, Columbia Sportswear had unveiled intentions to buy the remaining stakes in the joint venture with Swire. Let’s take a closer look at this move and see how it will impact the company.
Focus on Expansion in China
In 2014, Columbia Sportswear had acquired 60% stake in the venture with Swire. Since then the joint venture has bolstered Columbia Sportswear’s business in China. The partnership has established Columbia Sportswear’s brands in the nation through several brick-and-mortar stores as well as e-commerce platforms. By expanding the relationship with Swire, Columbia Sportswear intends to augment direct and dealer-based retail operations in China as well as boost brand capabilities.
We note that during third-quarter 2018, Columbia Sportswear’s operating results in China were sluggish. This led to a decline in net sales from the Latin America/Asia Pacific region. Since the Chinese market is an important component of the company’s overall revenues, management is undertaking initiatives to strengthen footing in the nation and bring it back on growth-track. In this respect, the company is focusing on extensive store renovations and upgrades. Moreover, by completing the buyout of the remaining stake in the joint venture with Swire, Columbia Sportswear’s market presence in China is likely to gain greater impetus.
Other Efforts to Strengthen Business
Apart from expanding in growth-oriented markets, the company is progressing well with the Project CONNECT program. The initiative focuses on connecting consumers, wholesale customers and international distributors with manufacturing partners and employees around the globe. Additionally, the company is optimistic about generating substantial financial value from the project in 2019 and beyond. Further, management is committed toward boosting sales across channels through brand awareness and expansion of digital capabilities. It is also striving to augment direct-to-consumer (DTC) business capabilities.
We note that Columbia Sportswear is grappling with rising SG&A costs, stemming from constant investments toward capability development as well as informational technology costs associated with the company’s strategic initiatives. This has also dented investors’ optimism, evident from the stock’s 9.6% decline in the past six months compared with the industry’s fall of 17.7%.
Apart from this, the company is also exposed to threats emerging from higher tariff expenses, thanks to volatilities in trading policies with China. This also raises the risk factor for the company’s expansion endeavors in the region.
Nevertheless, we expect that solid growth endeavors along with sustained business momentum are likely to help the company brave the aforementioned challenges. Such effective policies are expected to lift investors’ optimism in the Zacks Rank #3 (Hold) stock.
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