It has been about a month since the last earnings report for Columbia Sportswear (COLM - Free Report) . Shares have added about 9.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Columbia Sportswear 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 Q4 Earnings
Columbia Sportswear Company delivered robust fourth-quarter 2018 results, with the top and the bottom-line improving year over year as well as beating the Zacks Consensus Estimate. Moreover, management provided its view for 2019.
Q4 in Detail
Quarterly adjusted earnings came in at $1.68 per share, which beat the Zacks Consensus Estimate of $1.27. Also, quarterly earnings rose nearly 27% year over year. The bottom line benefited from broad based growth in the DTC as well as wholesale channels and was primarily propelled growth in the United States.
Net sales advanced nearly 18% year over year to $917.6 million. On a constant-currency (cc) basis, net sales grew 19%. Further, adjusted sales increased 16% (up 17% at cc) to $899.3 million. The top line surpassed the Zacks Consensus Estimate of $850.3 million. Performance gained from sturdy results in all product categories and most brands. We note that during the quarter, DTC channels depicted sales growth of nearly 23% (up 24% at cc) and wholesale net sales advanced 14% (up 15% at cc).
Gross profit grew almost 27.8% to $474.6 million. Gross margin expanded 380 basis points (bps) to 51.7%. On an adjusted basis, gross margin surged 280 bps to 50.7%, backed by improved product margins, sales mix and foreign currency hedge rates.
Also, adjusted operating income came in at $154.5 million, depicting a rise of almost 34% year over year. Also adjusted operating margin came in at 17.2%, up 230 bps.
Adjusted effective income tax rate was 25% in the fourth quarter of 2018, higher than 20% in the year-ago quarter.
United States: Net sales ascended 20% to $589.3 million, owing to growth across the DTC and wholesale businesses. Columbia Sportswear operated 136 U.S. retail stores as of Dec 31, 2018.
Europe/Middle East/Africa (EMEA): Net sales surged 12% to $93.7 million, backed by solid performance in the Europe-direct business and EMEA distributors.
Canada: Net sales increased 21% to $55.3 million, gaining primarily from DTC business.
Latin America/Asia Pacific (LAAP): Net sales improved 16% to $179.3 million, driven by strength in Japan, China and Korea as well as the new revenue accounting standard.
Category and Brand Segments
The increase in net sales was also driven by strong performance of Columbia, SOREL and prAna brands, which registered growth of 21% to $727.8 million, 11% to $126.9 million and 21% to $36.7 million, respectively. However, net sales in the Global Mountain Hardwear brand slumped 8% to $26.1 million.
Further, net sales in the Apparel, Accessories and Equipment category increased 19% to $688.8 million and Footwear sales rose 16% to $228.8 million.
Other Financial Updates
Columbia Sportswear ended the quarter with cash and cash equivalents as well as short-term investments of $700.6 million and total equity of 1,690.3 million. Consolidated inventories advanced 14% to $521.8 million as of Dec 31, 2018.
During 2018, the company generated cash flow from operating activities of $289.6 million, while it incurred capital expenditures of $65.6 million.
Further, Columbia Sportswear paid dividends worth $62.7 million to shareholders and repurchased 2,349,036 shares for nearly $201.6 million in 2018. In Feb 2019, management provided an additional $200 million share repurchase authorization. The company currently has $130 million remaining under the earlier stock repurchase authorization.
Additionally, on Jan 25, 2019, management announced quarterly dividends of 24 cents per share, payable on Mar 18 to shareholders of record as on Mar 7.
Management is impressed with fourth-quarter and 2018 results. Even amid economic uncertainties and trade related worries, the company expects consistent growth in 2019 on the back of strong brands and sales channels. The company also expects to continue reaping financial gains from Project CONNECT. Further, management intends to continue with its strategic investments related to demand creation, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business and improve support processes.
That said, management provided view for 2019. Net sales are expected in the range of $2.97-$3.03 billion, up nearly 6-8% year on year. Notably, the company expects higher sales during the spring and fall season. The company also envisions 2019 adjusted gross margin to rise nearly 70 bps to nearly 50.2%.
Adjusted SG&A expenses are likely to be deleveraged by 90-110 bps to 38%-38.2%. Further, operating income is estimated in the band of $369-$382 million. Operating margin is expected to be 12.4-12.6%, depicting a contraction of 10bps to an expansion of 10 bps. Adjusted operating margin is expected to contract 30-50 bps. Full-year effective tax rate is estimated at nearly 22%. All said, management expects earnings per share (EPS) for 2019 to be $4.30-$4.45.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
Currently, Columbia Sportswear has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Columbia Sportswear has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.