Columbia Capitalizes On Cold Weather With Strong Q4 Earnings: The Sell-Side Reacts

Columbia Sportswear Company COLM shares were higher by more than 15 percent Friday after the apparel retailer announced a fourth-quarter earnings beat, superior guidance and a $200-million buyback after Thursday's close. 

Earnings per share came in at $1.63 on sales of $917.6 million — far exceeding estimates of $1.28 and $841.93 million, respectively.

The Analysts 

• Cowen analyst John Kernan maintained an Outperform rating on the stock and raised the price target from $103 to $118.
• D.A. Davidson analyst Michael Kawamoto maintained a Buy rating and raised the target from $105 to $116.
• Wedbush analyst Christopher Svezia maintained an Outperform rating and raised the target from $104 to $110.

The Thesis

Cowen's Kernan attributed the beat to strong execution across the Columbia, PFG, Sorel, Prana and Mountain Hardwear brands. Product innovation and storytelling also drove inflection in the outdoor category, he said. 

“Strategic initiatives, increased demand creation and cold weather aligned, enabling COLM to beat Q4 sales and EPS expectations."

D.A. Davidson's Kawamoto said Columbia's performance demonstrated opportunity for “sustainable, profitable growth." 

“While wintry weather was definitely a tailwind for COLM in 4Q, the company's exceptional results were also a reflection of the product, supply-chain and marketing investments the brand has made over the past year and a half,” the analyst said. “The company's cold-weather product continued to perform well this winter, and a broadened assortment for spring, particularly in footwear, is promising as well.”

Reorganization, efficiency measures and product innovation could drive profits, said Cowen's Kernan. 

“Footwear is a massive opportunity and the addition of Peter Ruppe, a decorated Nike vet, support big potential,” the analyst said. 

While new investments are seen to stunt operating margins in the near term, Columbia’s direct-to-consumer capabilities could help expand retail market share and bolster margins over the next few years, said D.A. Davidson's Kawamoto. 

“We anticipate 2019 to be another strong year, with expected growth across all brands and regions,” the analyst said. “The company continues to do an admirable job executing on its growth initiatives, and we believe shares can appreciate via earnings growth.”

In fact, some analysts expect Columbia's being too modest with its guidance, despite having raised it well beyond estimates.

"Management is likely being conservative on both sales and margins as there is potential upside to DTC, the wholesale order book and core gross margins, in our view," said Wedbush's Svezia. "The increased share buyback program up to $330 million also provides for optionality."

Price Action

Columbia Sportswear shares were up 17.41 percent at $108.55 at the time of publication. 

Related Links:

Cowen: Columbia Sportswear's Share Price Doesn't Reflect Portfolio Strength

Pivotal Downgrades Columbia Sportswear Ahead Of Q2 Report

Photo by Steve Morgan/Wikimedia.