Since outdoor apparel company Columbia Sportswear's (NASDAQ:COLM) initial public offering in 1998, the company has compounded sales at a 17% annual rate. That's good.

But before looking at the second quarter's surprisingly good earnings results, let's look back to Q1, when reported results beat analyst estimates for revenue and earnings per share. At that time, the company said -- based on its backlog -- that it would cut 2005 revenue and earnings guidance. The stock fell 17.8% that day and set a 52-week low.

Columbia's second quarter was no leisurely walk in the woods. The good news was that sales increased 8.8% over the same quarter last year. The bad, bad news was that net income dropped 41.1%. Yikes! The stock is up 11% in afternoon trading because net income came in at $6.3 million, well ahead of the $3 million (which would have been a 70% drop) the company was forecasting.

The positive results came as the company did the right thing and compressed operating margins by shipping out its low-margin close-out items. Columbia clearly realizes that for the coming quarters, it is best to have inventory not burdened with what customers don't want.

But the company didn't change its 2005 guidance. Sales are expected to climb 5%, and net income is projected to head downhill to the tune of 8% to 12%.

It bears mentioning that a company of this sort is somewhat beholden to the tastes of its consumers. Sure enough, in an April press release, management cited a shift in preferences to lightweight outerwear. If that's indicative of a longer-term trend, it has the potential to weigh on one of Columbia's core markets, since outerwear represents half of sales for the last year on record. We can't be sure just yet, since we're looking at only a few quarters' worth of data, but investors would be wise to follow what happens with inventory turnover. That's the best way to ensure that the company is properly forecasting demand and, at the very least, not getting stuck holding excess products that it might be forced to sell at a markdown.

The company is using its lower stock price to buy back $116.5 million of its own shares -- and Columbia still has $35.9 million tucked away in its hiking pants for further authorized stock repurchases. That's a positive sign that management doesn't see the current problems as permanent, and it's a good use of the cash piled up in the bank.

Analysts will probably keep their 2005 earnings projections at $3.06 a share, valuing the stock at 16.9 times forward earnings. That's a reasonable multiple, given that the company is expected to grow earnings by 14% a year for the next five years. That's just about the same multiple given to Nike (NYSE:NKE), which is expected to grow earnings 13.5% annually. Competitor Timberland (NYSE:TBL), while expected to grow earnings 13% a year, trades at 14 times forward earnings.

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Fool contributor W.D. Crotty does not own shares in any of the companies mentioned. Click here to see The Motley Fool's disclosure policy.