Columbia Sportswear Still Faces Headwinds Despite Upbeat Q1

Columbia Sportswear Company (NASDAQ:COLM) began 2017 on a solid note, wherein both its top and bottom lines outpaced estimates and rose year over year. Despite posting stellar results, shares of this Zacks Rank #3 (Hold) company fell 8.8% since it reported first-quarter 2017 results.

Further, shares of Columbia Sportswear declined 4% over the past three months compared with the Zacks categorized Textile–Apparel Manufacturing industry’s loss of 3%. The industry is currently placed at bottom 29% (183 out of 256) of the Zacks Classified industries.

Deeper Insight

In the first quarter, results gained from robust sales in the Europe-direct business coupled with higher margins. Moreover, double-digit increase in the company’s wholesale, brick-and-mortar as well as e-commerce businesses was witnessed. Also, SOREL brand’s net surged 50% in the quarter.

However, management lowered 2017 sales growth guidance from 4% over 2016 sales to 3%. This was due to sluggishness in the U.S. wholesale business and negative impact of currency translations. Of late, Columbia Sportswear has also been facing challenges in the U.S. region, especially in its U.S. wholesale front, where several of its customers have announced store closures, bankruptcies, or plans to restructure or liquidate. This has led to lower-than-expected advance orders for fall 2017 from U.S. wholesale customers, leading to the 1% reduction in the full year 2017 expectations of sales compared with the previous outlook.

Though management expects 2017 earnings to grow 4% year over year, it reiterated the same in the range of $2.72–$2.82 per share. The Zacks Consensus Estimate for 2017 is pegged within the guided range at $2.81. Notably, the Zacks Consensus Estimate for the second quarter has widened from a loss of 15 cents per share to a loss of 20 cents over the last 30 days.

Additionally, the company is facing tough geopolitical conditions in Korea that is hurting its results for now. Currency headwinds also remain a concern for the company.

Nevertheless, Columbia Sportswear boasts a stellar earnings history as its earnings have outpaced the Zacks Consensus Estimate for seventeen straight quarters. Further, the company undertakes brand-enhancing initiatives that strengthen its presence in the apparel industry. In fact, its recent launch of in-house European, Columbia and SOREL brand eCommerce businesses in ten countries also seem to be encouraging. Going forward, the company is geared to expand its market share through strategic agreements as well.

Bottom Line

We believe that the afore-mentioned hurdles will be efficiently overcome by the company backed by its strategic initiatives. Also, its VGM Score of “A” coupled with a long-term earnings growth rate of 9.3% looks promising.

Meanwhile, investors can count on some better-ranked stocks in the same industry that include Cherokee Inc. (NASDAQ:CHKE) , Gildan Activewear Inc. (TO:GIL) and PVH Corp. (NYSE:PVH) .

Cherokee, with a long-term earnings growth rate of 15% has increased 10.8% in the past three months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Gildan Activewear rose 10.5% over the last three months. Also, it has a long-term earnings growth rate of 12.3%. On the other hand, shares of PVH Corp. has jumped 9.8% year to date. Also, it has a long-term earnings growth rate of 10.7%. Both stocks carry a Zacks Rank #2 (Buy).

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