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A Tough Competitor Means Cold Cash for You

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According to the Farmers Almanac, a colder than usual winter they call  "The Days of Shivery" is upon us. This is great news for outerwear companies, as warmer winters hit sales.

One tough mother
Outerwear company Columbia Sportswear (NASDAQ: COLM  ) is one to check out now. A family business, the company is run by CEO Tim Boyle, but his mother and Chairman of the Board, Gert Boyle, has powered the company since 1970. Her driving motto was, "Early to bed, early to rise, work like hell, and advertise." Gert Boyle starred in the company's iconic "One Tough Mother" advertising campaigns.

Gert Boyle headshot

(source Columbia Sportswear Investor Relations)

Columbia owns five brands: Columbia, Sorel, Mountain Hardwear, Outdry, and Montrail selling in 100 countries with a recently signed agreement with Chogori India Retail Ltd in India.  A joint venture commencing in China with Swire Resources Ltd. brings 80 direct-to-consumer branded stores to China alone.

Columbia had a dismal second quarter; net sales were down 3% year over year, and management guided for operating margin contraction of 300 or more basis points and a 6.5% drop in net sales. But this company is a survivor and pays you a 1.50% dividend to wait for cold weather.

Gert almost sold the business for $1,400 in 1970,but since built it into a company with a $2.2 billion market cap and 2012 net sales of $1.67 billion. The Boyles run a debt-free tight ship with cash and short-term investments of $430.6 million, up from $228.5 million year over year, adding up to $12.51 in cash-per-share.

One tough competitor
Columbia's main competition is V.F. Corporation (NYSE: VFC  ) , which obtains 17% of its revenue from The North Face, its main outdoor apparel brand. According to Bloomberg, The North Face has lost its standing with serious outdoor enthusiasts.

V.F. Corp has a big market cap of $21 billion. V.F. Corporation's trailing P/E at 19.00 is similar to Columbia, but the stock offers a slightly higher yield at 1.80%. Other apparel brands provide 83% of V.F. Corporation's revenue, like its nine brands of outdoors-wear and its fashion brands of Nautica, Wrangler, and more.

V.F. Corporation has a larger fashion component bringing more risk of consumer fickleness, especially for expensive brands like 7 For All Mankind.

V.F. Corporation has debt, not unmanageable, but it can't be as nimble as a debt-free family business (66% insider ownership at Columbia compared to 22% at V.F. Corporation).

With its proprietary fashion technologies, Columbia has advantages over V.F. Corporation like its Omni-Freeze Zero, which works with your own sweat to cool you down. CEO Boyle has said building up warm weather business is key. The company rolled out its largest advertising campaign ever to support Omni Freeze.

Rival Under Armour's  (NYSE: UA  )  main demographic is competitive athletes and weekend warriors. It has an outdoors recreational segment, but Columbia remains the go-to-brand for the seriously outdoorsy.

At over thrice the trailing P/E, at 62.30 to Columbia's 18.83, a price to sales ratio of 4.0, more than triple Columbia's 1.20, and no yield, Under Armour isn't cheap.

Under Armour's sales growth has been impressive at a five year rate of 23.64%, better than Columbia's 5.94% and V.F. Corporation's 8.46%. Analysts expect a five year earnings-per-share growth rate of 20.68% compared to Columbia's 8.20% and V.F. Corporation's 11%.

Under Armour's trailing net profit margin is 6.62% to Columbia's 6.40%, but the back half of the year should expand margins at Columbia. Under Armour's third quarter when college and high school sports start in earnest is their most profitable historically. Both pale in comparison to V.F. Corporation's trailing profit margin of 10.21%.

Finally, Columbia has the lowest price to free cash flow at 18.50 to Under Armour's 117.50 and V.F. Corporation's 27.60.

A tough decision
Columbia's management is strongly aligned with shareholders offering yield and no debt. Overseas expansion in India and China along with Omni-Freeze are breakout catalysts.

Under Armour isn't cheap. A third quarter disappointment could tackle the stock. V.F. Corporation is a good choice as a big cap retailer with higher yield, reasonable valuation, and decent margins, but doesn't have Columbia's catalysts.

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