Why Is Columbia Sportswear (COLM) Down 16.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Columbia Sportswear (COLM). Shares have lost about 16.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Columbia Sportswear due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Columbia Sportswear Beats Earnings Estimates in Q4

Columbia Sportswear Company reported fourth-quarter 2019 results, with the top and bottom lines surpassing their respective Zacks Consensus Estimate. Also, the top line improved year over year.

Q4 in Detail

Earnings of this designer, marketer and distributor of outdoor and active lifestyle apparel, footwear and accessories came in at $1.67 per share, which beat the Zacks Consensus Estimate by a penny. Further, adjusted earnings were $1.68 in the year-ago quarter.

Net sales advanced 4% to $954.9 million. The top line surpassed the consensus mark of $951.5 million. This can be attributed to strength in the Columbia, Sorel and Mountain Hardwear brands.

In the reported quarter, DTC channels displayed sales growth of 4% (up 4% at cc) and wholesale net sales advanced 4% (up 5% at cc).

Gross profit inched up 0.9% to $478.7 million, whereas gross margin declined 160 basis points (bps) to 50.1%. Margin fell due to increased sales of closeout products in wholesale that generate lower gross margin. Also, unfavorable DTC product margins that reflect improved promotional activity and shifts in product mix acted as deterrent. Nevertheless, these downsides were partially offset by Project CONNECT benefits. Operating income amounted to $138.6 million, down 9% year over year. Operating margin also declined 210 bps to 14.5%.

Regional Segments

United States: Net sales increased 8% to $634 million, owing to growth across the DTC and wholesale businesses.

Latin America/Asia Pacific (LAAP): Net sales fell 4% to $171.6 million.

Europe/Middle East/Africa (EMEA): Net sales rose 7% (up 10% at cc) to $99.8 million. Growth in Europe direct sales was primarily driven by favorable DTC performance along with higher closeout sales in wholesale during the quarter.

Canada: Net sales were down 10% to $49.5 million mainly due to shift in timing of 2019 fall shipments.

Sales by Product Category & Brand

Net sales in the Apparel, Accessories and Equipment category inched up 1% to $698.3 million, while the same for Footwear rallied 12% to $256.6 million.

Further, the Columbia and SOREL brands registered growth of 3% to $751.1 million and 13% to $143.5 million, respectively. Moreover, net sales in Mountain Hardwear brands increased 4% to $27.2 million. However, net sales in the prAna brand declined 10% to $33.1 million.

Other Financial Updates

Columbia Sportswear ended the quarter with cash and cash equivalents of $686 million and total equity of $1,849.4 million. During 2019, the company generated cash from operating activities of $285.5 million, while it incurred capital expenditures of $123.5 million. In 2019, the company repurchased 1,243,872 shares for an aggregate of $121.2.2 million.

Guidance

Management intends to continue with its investments to create demand, drive brand awareness and enhance digital capabilities. It will also continue exploring growth opportunities in DTC business and improve support processes. However, the company is cautious about the recent outbreak of coronavirus although it has not been factored in the 2020 guidance.

For 2020, net sales are expected in the range of $3.18-$3.23 billion. The top-line view depicts growth of nearly 4.5-6% year over year. Further, gross margin is anticipated to improve approximately 30 bps to 50.1% in the same period. Operating income is estimated in the band of $399-$412 million in 2020. However, operating margin is projected in the range of 12.6-12.8%, which suggests 20-40 bps decline year over year.

Management expects earnings per share for 2020 to be $4.75-$4.90. The company had reported earnings of $4.83 per share in 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -24.5% due to these changes.

VGM Scores

At this time, Columbia Sportswear has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Columbia Sportswear has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.