Columbia sportswear

Columbia Sportswear (COLM) DTC Business Aids, High Costs Hurt – June 1, 2022

Columbia sportswear company (COLM Free Report) is benefiting from the strength of its direct-to-consumer (DTC) business. The company is on track with brand enhancement initiatives that are paying off. These factors contributed to Columbia Sportswear’s first quarter 2022 results, with net sales and earnings increasing year over year. The strong performance reflects the strength of the company’s brand.

Given the impressive start to the year and the reduction in the number of shares, management recently raised its earnings per share (EPS) forecast for 2022. The company maintained its previous view of net sales, despite the removal of future sales to Russia-based distributors for the remainder of 2022. For 2022, Columbia Sportswear expects net sales to increase 16-18% to $3.63-3.69 billion. The company now sees EPS in the range of $5.70 to $6.00 for 2022, down from the $5.5 to $5.80 expected earlier. That being said, rising costs are likely to continue to hurt Columbia Sportswear’s performance.

Let’s take a closer look.

Image source: Zacks Investment Research

What works for Columbia Sportswear?

Zacks Rank #3 (Hold) is committed to growing and improving its global DTC business through accelerated investment. During the first quarter of 2022, the company’s DTC and wholesale businesses grew by 22% each. Within the DTC business, brick and mortar grew 22% and e-commerce grew 21%. On its latest earnings call, management said it was impressed with the recent sale of DTC. DTC e-commerce has seen strong momentum with more and more consumers opting for online shopping. This channel will likely continue to perform well in future periods as stores reopen and many consumers prefer to shop online. Incidentally, management is on track to expand DTC’s global operations.

The company remains focused on its strategic priorities. To this end, it intends to continue its demand creation investments, which aim to increase brand awareness and promote sales. Additionally, the company remains committed to improving consumer experience and digital capability across all networks and regions. He will also continue to explore growth opportunities in the DTC business and improve support processes. Finally, the company wants to invest in its employees and optimize its organization through its brand portfolio.

Columbia Sportswear undertakes unique branding and marketing initiatives that further strengthen its presence in the apparel industry. Management continued to innovate with various new product technologies, such as ODX mesh fabric in outerwear and lightweight technical plush padding in footwear during the first quarter. The company highlighted that its Spring 2022 product portfolio includes the launch of many new technologies and differentiated products. Certainly, the continuous focus on innovation helps the company attract more consumers and boost sales.

Obstacles in the way

During the first quarter of 2022, Columbia Sportswear’s gross margin contracted by 170 basis points (bps) to 49.7%, primarily due to higher inbound freight costs, negative changes in a year-over-year inventory charges, unfavorable regional sales mix and reduced wholesale product margins. . For 2022, management expects gross margin to contract by approximately 130 basis points and reach nearly 50.3%. The company expects an operating margin of around 13.2 to 13.6%, compared to 14.4% in 2021.

Columbia Sportswear has seen higher SG&A costs for some time. During the quarter, its SG&A expenses increased 18% to $299.1 million. The year-over-year increase in general and administrative expenses can be primarily attributed to costs incurred to support business growth and investments to fuel brand-led, consumer-focused strategies. The increase in the metric also reflects increases in demand creation, global retail and personnel spending. On its most recent earnings call, management stressed that SG&A spending is expected to grow at a slightly slower pace than net sales growth in 2022.

That said, let’s see if these benefits can help Columbia Sportswear overcome the aforementioned hurdles. COLM’s stock is down 19.7% over the past six months, compared to a 35.6% decline in the industry.

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