Columbia Sportswear Is a Long-Term Play — Here’s Why Analysts Think the Company Is Poised for Growth

Even in the face of pandemic-related pressures and supply chain challenges, Columbia Sportswear Co. managed to post a solid earnings and sales beat in the fourth quarter — and market watchers are indicating their confidence in the company’s resilience in the next fiscal year and beyond.

During the fourth quarter, the Portland, Ore.-based group posted profits that declined 16% to $95.8 million, or $1.44 per diluted share, compared with the prior year’s profits of $114 million, or $1.67 per diluted share. Sales also fell 4% to $915.7 million, however, a number of analysts cheered the company’s performance, which trumped Wall Street’s forecasts of earnings per share of 46 cents and revenues of $609.09 million.

At Cowen, managing director and retail research analyst John Kernan raised his price target to $116 from $100, indicating that Columbia could be “well positioned to deliver mid-single digit top- and bottom-line growth over the next five years” — led by top brands Columbia and Sorel.

“With the implementation of Project Connect [the transformation plan launched back in 2017] and strategic investments supporting supply chain, distribution and digital, COLM could see sustained gross margin expansion post FY20E and potential for EBIT margin recovery towards pre-COVID-19 levels if sales momentum re-accelerates post COVID-19,” Kernan added.

For the three months ended Dec. 31, sales at Columbia — by far the biggest brand in the group’s portfolio — fell 7% to $699.7 million. The company attributed the decrease to earlier actions that were made to curtail inventory purchases in conjunction with order cancellations.

“Consumer demand ultimately exceeded our expectations, resulting in strong wholesale reorders and sell-through rates,” chairman, president and CEO Tim Boyle explained in the Q4 2020 conference call. “While a warm start to winter in the U.S. reduced early season outerwear sell-through, trends improved in December as colder weather arrived… Overall, strong season-to-date sell-through rates and cold weather in early 2021 are helping retailers exit the season with clean inventory positions. This creates a favorable backdrop for the fall 2021 order book and season.”

What’s more, Sorel revenues rose 5% to $150 million, while prAna advanced 11% to $36.9 million and Mountain Hardwear improved 7% to $29.1 million. In a distribution note, Baird Equity Research senior research analyst Jonathan Komp maintained his outperform rating on Columbia, with a new $120 price target versus the prior $98.

“We believe the COLM portfolio of brands remains positioned to drive longer-term market share gains over time via effective marketing and product innovation, especially following investments aimed to enhance consumer connections and e-commerce/omnichannel interactions,” he wrote. “Additionally, we are encouraged by signs of a healthy fundamental inflection in Q4 amid cleaner inventories, improving sell-throughs and healthy order book indications for 2021.”

CL King and Associates managing director and director of research Steven Marotta, who maintained a neutral rating, commended Columbia’s ability to withstand COVID-19-related challenges during the holidays across its geographies and channels. In the fourth quarter, the company faced sales pressures in the Europe-Middle East-Africa region, the United States and the Latin America-Asia Pacific area, which dipped a respective 14%, 6% and 5%, while revenues in Canada increased 36%. On the other hand, wholesale was down 5% and its direct-to-consumer business dropped 3%, although owned e-commerce (part of overall DTC) jumped 41% in the period.

“The resilience of both the brands across the portfolio and regional global geographies in the teeth of a uniquely challenging selling season was remarkable,” Marotta said. “A confluence of favorable conditions, e.g., weather, a lower-than-expected promotional environment for outdoor gear and a comparatively robust consumer than otherwise would have been anticipated with required social distancing guidelines in place, drove the better-than-expected results.”

However, as it enters the new year, Columbia’s chief executive outlined several operational headwinds related to the pandemic. In the conference call, he explained that the company is contending with supply chain and logistics capacity constraints, which have resulted in later receipts and customer deliveries of spring 2021 products. Plus, brick-and-mortar traffic trends are likely to “remain depressed” — particularly at its stores in destination locations and tourist-dependent markets.

“2019 was a record year for COLM, with sales surpassing $3 billion and momentum continuing in its Columbia and Sorel brands; that said, the COVID-19 outbreak has impacted global supply chains and effectively frozen global demand,” BTIG managing director Camilo Lyon said. “On a positive note, COLM has a strong balance sheet with adequate cash and funding sources to weather these temporary difficulties.”

As of Dec. 31, Columbia had cash, equivalents and short-term investments totaling $791.9 million. Unlike many companies in the retail space, it provided an outlook for the 2021 fiscal year: It predicted sales of $2.95 billion to $3 billion — representing a growth of 18% to 20% — and operating income of $320 to $346 million. Diluted earnings per share are anticipated to be in the range of $3.75 to $4.05.

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