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How's Columbia Sportswear (COLM) Placed Ahead of Q4 Earnings?

Zacks Equity Research

Columbia Sportswear Company COLM is slated to report fourth-quarter 2019 results on Feb 6. This active lifestyle apparel, footwear and accessories provider delivered a positive earnings surprise of 12.9% in the last reported quarter. Further, its earnings have outperformed the Zacks Consensus Estimate significantly, on average, in the trailing four quarters.

The Zacks Consensus Estimate for fourth-quarter earnings has been stable at $1.65 per share over the past 30 days. This suggests a decline of 1.8% from the year-ago period’s reported figure. Nonetheless, the consensus mark for revenues stands at $952 million, indicating a rise of 5.9% from the figure reported in the year-ago period. The Zacks Consensus Estimate for 2019 earnings per share stands at $4.81, suggesting a rise of almost 20% from the year-ago period’s $4.01. The consensus mark for revenues stands at $3.04 billion.

Columbia Sportswear Company Price, Consensus and EPS Surprise

Key Factors to Note

Columbia Sportswear has been benefiting from solid continued investments in the direct-to-consumer or DTC business, as well as its brand-enhancing initiatives. Within the DTC business, both the brick-and-mortar and e-commerce businesses have been strong.  Further, Columbia Sportswear’s brand enhancing and unique marketing initiatives have been working well, and the Columbia brand is steadily gaining market share. The company earlier stated that it expects continued growth from the SOREL brand, courtesy of constant upgrades and effective strategies.

Apart from this, Columbia Sportswear’s top line has been gaining from its solid international presence. Net sales outside the United States increased 11% during the third quarter of 2019 with growth in all international regions. The consensus mark for fourth-quarter sales in Canada, EMEA and LAAP is pegged at $60 million, $96 million and $177 million, compared with $55 million, $94 million and $179 million, respectively, reported in the year-ago period. However, due to exposure in international markets, Columbia Sportswear is prone to currency fluctuations. Management expects foreign currency headwinds of 90 bps to weigh on net revenue growth in 2019. Net sales in 2019 are envisioned in the range of $3.01-$3.04 billion, which suggests growth of 7.5-8.5% year over year.

Additionally, Columbia Sportswear is progressing well with its Project CONNECT program, which is aimed at driving sales and earnings alongside strengthening its financial position. Project CONNECT focuses on connecting consumers, wholesale customers and international distributors with its global manufacturing partners and employees. During the third quarter, Project CONNECT aided the company’s gross and operating margin growth. The company is optimistic about generating substantial financial value from this project in 2019 and beyond. For 2019, management expects earnings per share of $4.70-$4.80.

However, Columbia Sportswear has been witnessing high SG&A costs due to increased investments to improve global DTC operations, project-related expenses and other demand creation spending. Management is on track with such investments, which may have led to higher costs in the quarter under review. Also, the fourth quarter is likely to see a sharp deceleration in the rate of sales growth sequentially, as the company shipped a large portion of the fall 2019 order book during the third quarter. Also, the company expects fourth-quarter earnings of $1.55-$1.65, down from $1.68 per share reported in the year-ago period. Management highlighted that the prior-year quarter had gained from a favorable retail scenario as well as ideal winter weather.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Columbia Sportswear this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Columbia Sportswear carries a Zacks Rank #3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

The Gap, Inc. GPS currently has an Earnings ESP of +5.43% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crocs, Inc. CROX presently has an Earnings ESP of +30.00% and a Zacks Rank #3.

Adidas ADDYY currently has an Earnings ESP of +1.06% and a Zacks Rank #3.

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Click to get this free report The Gap, Inc. (GPS) : Free Stock Analysis Report Adidas AG (ADDYY) : Free Stock Analysis Report Columbia Sportswear Company (COLM) : Free Stock Analysis Report Crocs, Inc. (CROX) : Free Stock Analysis Report To read this article on Zacks.com click here.