Columbia Sportswear Is Set for Brighter Days

Columbia Sportswear (NASDAQ: COLM  ) is a household name likely coming out of storage for the winter season. At the same time, the stock may be ready to break out as well with some compelling tailwinds. Columbia trades at a discount to its peers and has the strong potential to grow earnings via sales and increasing efficiency. In the most recent earnings report, the company beat Wall Street's estimates, though its profit was down on a year-over-year basis. Don't let the short-term dip get you down, though. This is an attractive play on the global economic recovery.

Earnings recap
For Columbia's fiscal third quarter, the company brought in sales and earnings that came in above both the analysts' expectations and management's internal predictions. It was a refreshing sight coming from a retailer, as recent periods have yielded more than enough management comments regarding the soft economic recovery and poor consumer spending data. Columbia saw better-than-expected results in all three of its direct sales channels: stores, outlet stores, and e-commerce.

The company earned $1.57 per share -- $0.14 ahead of Wall Street estimates. However, the number also represented a 16.5% drop from the prior year's quarter due to a higher tax rate. Sales in the U.S. fell 7%.

The market, despite the beat, was unhappy with the results and sent the stock down a few points.

Looking ahead, the company is guiding for an 8% increase in its operating income due to improving sales. Management sees future growth coming from a Chinese joint venture, bigger wholesale sales, and market expansion in its main regions.

Management, again encouraged by sales both past and forward-looking, boosted the stock's dividend by 14%.

The market is incorrect to punish the stock, as Columbia Sportswear has better days on the horizon.

Momentum
For the past two quarters, the company has brought inventory levels down double digits -- a contributing factor for better margins. This past quarter, it managed a 14% decrease -- or $66 million in reduced inventory. Management attributes this to a better flow in fall merchandise and cautious wholesale planning. For the December quarter, management expects another year-over-year decline, even with the additional $25 million worth of merchandise going to the new Chinese joint venture.

The company is also set to see material results on the income statement from that Chinese JV by mid-2014, shortly following the January launch. Management sees the EMEA region stabilizing and likely showing favorable numbers in the coming months. Globally, management is targeting new lines of high-performance gear to juice sales growth via direct-to-consumer and wholesale channels.

At 21 times forward earnings, Columbia Sportswear is cheaper than its peers. As noted in a recent article from fellow Fool David Ristau, the average apparel manufacturer's P/E is above 23 times earnings. For a deeper conversation on the forward-looking valuation, take a look at the article.

All in all, Columbia is a growing company with a fantastic supply-chain management team that should keep both top and bottom lines growing over the long term.

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11/21/2014 4:00 PM
COLM $43.31 Down +0.00 +0.00%
Columbia Sportswea… CAPS Rating: ****

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