Columbia sportswear

Columbia Sportswear (COLM) drops more than 10% in 3 months

Columbia sportswear company COLM was troubled by escalating cost headwinds. The company has seen an increase in SG&A costs for some time. Additionally, rising inbound freight costs have been a concern. Apart from this, volatile currency movements pose a threat to the business. During its second quarter earnings call, management lowered its guidance for 2022.

The Zacks consensus estimate for 2022 earnings per share (EPS) has fallen from $5.88 to $5.18 in the past 60 days. The consensus mark suggests a decline of 2.8% from the figure recorded a year ago. Shares of this Zacks Rank No. 4 (sell) company have fallen 12.2% in the past three months compared to the sector’s 7.5% decline.

Disadvantages

In the second quarter of 2022, Columbia Sportswear’s SG&A expenses increased 7% to $281.3 million. As a percentage of sales, the same increase went from 46.2% to 48.7%. The year-over-year increase in SG&A expenses can be attributed to higher personnel expenses resulting from increased headcount and higher salaries.

SG&A spending is expected to increase almost in line with sales growth. As a percentage of net sales, SG&A expense is expected to be in the range of 37.6-38%, compared to 37.3-37.7% previously projected and 37.8% in 2021. The company still expects demand creation (as a percentage of net sales) to be 6% in 2022 versus 5.9% in 2021.

Columbia Sportswear Company Price, Consensus and Surprise EPS

Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote

In the second quarter, COLM’s gross margin contracted by 240 basis points (bps) to 49.2%, mainly due to higher inbound freight costs and reduced wholesale product margins . For 2022, management expects the gross margin to contract by 210 to 180 basis points and now reach 49.5 to 49.8%. Previously, the metric was expected to contract around 130 basis points to nearly 50.3%. For the second half of 2022, the gross margin is expected to contract by 220 to 170 basis points.

For 2022, operating income is now expected in the range of $415-449 million, with an expected operating margin of 12.1-12.8%. Previously, operating profit was expected in the range of $477-502 million, implying an operating margin of 13.2-13.6%. In 2021, the operating margin stands at 14.4%.

Other than that, Columbia Sportswear expects foreign currency translation to hurt net sales growth by about 300 basis points in 2022, down from the 120 basis points previously forecast. Management expects foreign currency translation to hurt earnings by 15 to 20 cents in 2022.

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A look at Q2 and what’s to come

Columbia Sportswear released its second-quarter 2022 results, in which earnings of 11 cents per share fell sharply from 61 cents in the year-ago quarter. Management said rising interest rates, inflation and recessionary jitters are hurting consumer and retailer confidence in the United States. The company lowered its forecast for 2022, which takes into account the increased risk of order cancellations and more cautious direct expectations for consumers.

Other than that, the directions assume increased promotional activity to streamline inventory. Additionally, supply chain barriers remain high and are expected to persist throughout the year. That said, management is working to reduce supply chain issues by taking early orders from its retail partners and placing them early with its factory associates.

Management now sees EPS in the range of $5.00 to $5.40 for 2022, compared to the $5.70 to $6.00 range expected earlier. Second-half EPS is expected in the range of $3.85 to $4.25 compared to $3.91 reported in the same period last year. Management also lowered its 2022 sales forecast, although it still suggested year-over-year growth. For 2022, Columbia Sportswear now expects net sales to grow 10-12% to the $3.44-3.50 billion range. Previously, the metric was expected to increase by 16-18% to reach the $3.63-3.69 billion range.

Consumer Discretionary Stocks Are Worth Watching

Some higher ranked stocks are Big BJ club BJ, Hyatt Hotels Hand Marriott International TUE.

BJ’s Wholesale, which operates warehouse clubs, currently sports a Zacks Rank #1 (Strong Buy). BJ has a surprise on earnings for the last four quarters of 16.5% on average. You can see the full list of today’s Zacks #1 Rank stocks here.

Zacks’ consensus estimate for BJ’s Wholesale’s current fiscal year sales suggests growth of about 15% from the figure reported a year ago.

Hyatt, which operates as a hospitality business, currently carries a Zacks Rank #2 (Buy). H has a four-quarter earnings surprise of 798.8% on average.

Zacks’ consensus estimate for Hyatt’s current-year sales suggests growth of 89.1% over the corresponding figure for the prior year.

Marriott International, which operates, franchises and licenses hotel, residential and timeshare properties, currently carries a No. 2 Zacks ranking. Marriott International posted a surprise profit of 18.6% in the latest reported quarter.

Zacks’ consensus estimate for MAR’s current-year sales suggests growth of 46.1% from the figure reported a year ago.

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