If anything can wreck a retailer's seasonal business, it's unseasonable weather. With truly cold weather slow to arrive in much of the U.S., anyone selling winter boots and ski jackets has probably found their sales soft so far. So I'm sure it was a surprise that Motley Fool Hidden Gems pick Columbia Sportswear (Nasdaq: COLM ) had such a strong quarter.
The year's robust finish was also surely welcome amid the company's recent record of weak sales. Columbia's Q4 sales totaled $361.8 million, a 15% increase year over year. For fiscal 2006, sales were up 11.4%, but gross margins fell once more as the shift in product mix continued. Inventory as a percentage of revenues crept upward, but that's no surprise, given the lower-margin business mix. Inventory turns for the year actually improved slightly from 2005.
Net income for Q4 was $38.4 million, or $1.06 per diluted share, up 4.9% from the year-ago period. Adding back $0.03 in stock option expenses suggests a more comparable 12.4% growth in earnings per diluted share. Earnings also benefited from a 32% increase in Columbia's licensing program, as the company continued to focus on leveraging its brand name. Beside lower gross margins, increased operating expenses -- most likely related to non-cash options -- pressured the bottom line, offset in part by a lower realized tax rate. (Get the detailed numbers from the earnings release.)
Management feels the company is well-positioned for future performance, reaffirming its forecast of 11% revenue growth in the first quarter of 2007, along with diluted earnings growth of 9.6%-13.5%. But CEO Tim Boyle found it impossible to gauge sales and earnings levels for the second half of the year.
Given Columbia's business model, that may explain why this quarter's surprise shouldn't have been so surprising. Much of Columbia's fourth-quarter strength stemmed from its ability to generate excitement at last spring's various trade shows. At that time, buyers were thinking about last year's winter -- not this year's. The results of Columbia's design and marketing efforts will lie in next year's fall pre-bookings, which will be announced at the Q1 earnings release. If retailers had good sell-through of Columbia products, pre-bookings should be strong.
However, to maintain its momentum, Columbia must continually stay ahead of its major competitors. For the Columbia and Mountain Hardware group, rivals include North Face, a division of VF Corporation (NYSE: VFC ) , and Patagonia; on the shoe front, the company vies with Nike (NYSE: NKE ) and Timberland (NYSE: TBL ) .
Given the likelihood of excess inventories in the channel, timid buying because of this year's unseasonably warm weather, and the extra time Columbia's competitors have gained to respond to the company's product lines, I'd wait to see those pre-bookings before confirming that Columbia is indeed back on a solid growth track.
For related Foolishness:
- Columbia Sports Slick Metrics: Fool by Numbers
- Columbia Sportswear Gets Rained On: Fool by Numbers
- Columbia Sportswear Climbs Higher
- Foolish Forecast: Columbia's Chill
Fool contributor Matthew Crews welcomes your feedback -- really. He has no financial position in any of the companies mentioned. VF Corporation is an Income Investor selection. The Motley Fool has a disclosure policy.