Columbia Sportswear's Rocky Ascent

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:

What made Columbia the right fit for Tom Gardner and Bill Mann's Motley Fool Hidden Gems? See for yourself with a free 30-day trial subscription.

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.


Read/Post Comments (0) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 520908, ~/Articles/ArticleHandler.aspx, 8/22/2014 1:04:21 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement