Columbia sportswear company COLM released second quarter 2022 results, in which both the upper and lower results exceeded the Zacks consensus estimate and the former rose year over year. The second quarter is typically the quarter with the lowest sales volume, with performance trends varying widely by region. Several markets saw solid sales growth, while others suffered from external impediments and shipping delays.
Management remains encouraged to launch its innovative product as it enters the fall season. She remains encouraged to accelerate brand awareness, improve customer experience and digital capabilities, and expand global direct-to-consumer (“DTC”) operations.
However, as 2022 progresses, the operational landscape has become more challenging. Given the current scenario, management has lowered its forecast for 2022.
Columbia Sportswear Company Price, Consensus and Surprise EPS
Columbia Sportswear Company price-consensus-eps-surprise-chart | Columbia Sportswear Company Quote
Quarter in detail
The designer, marketer and marketer of outdoor and active lifestyle apparel, footwear and accessories reported earnings of 11 cents per share, down sharply from 61 cents in the year-ago quarter. However, net income exceeded Zacks’ consensus estimate of 4 cents per share.
Net sales increased 2% year-over-year to $578.1 million, driven by growth in the US, Canada, direct Europe, Japan and Korea somewhat offset by a significant drop in sales from distributors based in Russia and China. At constant exchange rates or cc, net sales increased by 4%. However, net sales missed Zacks’ consensus estimate of $592 million.
DTC sales jumped 5%, while wholesale sales fell 1%. Within the DTC business, brick and mortar was up 11%, while e-commerce was down 5%, the latter resulting from reduced product sales and e-commerce in China.
Gross margin contracted by 240 basis points (bps) to 49.2%, mainly due to higher inbound freight costs and lower wholesale product margins. These were somewhat offset by improved channel and regional sales mix.
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.
Columbia Sportswear’s operating profit was $8.8 million, down 75% from $35 million in the year-ago quarter. The operating margin fell from 6.2% to 1.5%.
Image source: Zacks Investment Research
In the United States, net sales jumped 9% year-over-year to $412.5 million. Net sales decreased 7% to $72.8 million in Latin America and Asia Pacific. In the EMEA region, net sales fell 35% to $57.6 million. In Canada, net sales jumped 69% to $35.2 million.
Sales by product category and brand
Net sales in the Apparel, Accessories & Equipment category increased 3% to $468.4 million and the same for Footwear decreased 3% to $109.7 million. Columbia brand sales were flat year over year at $485.9 million. The SOREL, prAnaand and Mountain Hardwear brands recorded sales growth of 24%, 3% and 18% respectively.
Other Financial Updates
This Zacks Tier 3 (Hold) company ended the quarter with cash, cash equivalents and short-term investments of $414.2 million and equity of $1,731.7 million. The Company had no borrowings on its balance sheet as of June 30, 2022. For the six months ended June 30, 2022, net cash used by operating activities was $112.7 million. Capital expenditures were $29 million during this period. For 2022, COLM expects operating cash flow of approximately $150 million, while capital expenditures are expected in the $80-100 million range.
During the six months ended June 30, the company repurchased 3,235,327 shares for $286.9 million. As of June 30, 2022, the company had $529.4 million available under its current stock repurchase authorization.
Columbia Sportswear declared a quarterly cash dividend of 30 cents per share. This amount is payable on August 31, 2022 to shareholders of record as of August 17.
Management has updated its guidance for 2022, which takes into account the recent weakening in market conditions and the economic landscape, particularly in the United States. This, in turn, negatively impacts the retail space and business operations. Management’s guidance takes into account estimates as of July 27, 2022 of the impact of the pandemic on its operations as well as economic conditions such as inflation, supply chain headwinds, labor shortages. work, limitations and expenses, among others.
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. The company expects foreign currency translation to hurt net sales growth by about 300 basis points in 2022, compared to 120 basis points previously forecast.
Management expects gross margin to contract 210-180 basis points to 49.5-49.8%. Previously, the metric was expected to contract around 130 basis points to nearly 50.3%.
SG&A spending is expected to grow almost in line with sales growth from a slightly lower rate than previously expected net 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.
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%.
Management now sees earnings per share (EPS) in the range of $5.00 to $5.40 for 2022, down from the $5.70 to $6.00 range expected earlier. The company expects foreign currency translation to hurt earnings by 15 to 20 cents.
For the second half of 2022, the company expects net sales growth of 9-12%. Gross margin is expected to contract by 220 to 170 basis points and SG&A expenses are expected to increase roughly in line with net sales growth in the second half. The company expects flat to modest SG&A leverage. Finally, second-half EPS is expected to be in the range of $3.85 to $4.25 compared to $3.91 reported in the same period last year.
Shares of COLM have fallen 15.4% over the past three months, compared to a 22.8% drop in the industry.
3 Consumer Discretionary Stocks to Note
GIII Clothing GIII, which designs, sources and markets clothing for women and men, sports a Zacks #1 (Strong Buy) rank. GIII Apparel has a last four quarter earnings surprise of 97.5%, on average. You can see the full list of today’s Zacks #1 Rank stocks here.
The Zacks consensus estimate for GIII’s current year EPS suggests growth of 28.2% over the figure reported a year ago.
lululemon athletic LULU, which designs, distributes and retails athletic apparel and accessories, carries a Zacks rank No. 2 (purchase). lululemon has a four-quarter earnings surprise of 14.9% on average.
The Zacks consensus estimate for LULU’s current-year earnings suggests growth of 12.7% from the figure reported a year ago.
Vince Holding VNCE, which designs, markets and sells luxury apparel and accessories, currently carries a Zacks Rank #2. Vince Holding has a four-quarter negative earnings surprise of around 49%, on average.
The Zacks consensus estimate for VNCE’s current-year earnings suggests considerable growth from the figure reported a year ago.
Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report