Columbia Sportswear Q2 Loss Narrower Than Expected, View Up
Columbia Sportswear Company (NASDAQ: COLM) recently reported its second quarter 2014 results wherein the adjusted loss came below the Zacks Consensus Estimate and sales exceeded expectations. The company also raised its outlook for 2014.
This leading apparel and footwear designer posted adjusted loss of 26 cents, wider than a loss of 21 cents reported in the year-ago quarter, due to higher operating losses incurred in the quarter. However, the loss was narrower than the Zacks Consensus Loss Estimate of 38 cents per share owing to better-than-expected sales.
Quarter in Detail
Net sales of this retailer increased 16% to $324.2 million and came ahead of the Zacks Consensus Estimate of $317 million, driven by improved sales growth from all the four geographic regions. The company's Columbia brand, the newly-acquired praAna brand (acquisition completed on May 30) and the China joint venture also contributed to sales. In January, the company formed a joint venture in China with Swire Resources Ltd., which has acted as Columbia's exclusive distributor in China since 2004.
Columbia brand net sales increased $38.5 million from the prior-year quarter, while the prAna brand and China JV contributed $5.5 million and $23.1 million, respectively, of incremental net sales. The company was also benefited by favorable currency fluctuations.
Gross profit increased 19.7% to $144 million, while gross margin expanded 150 basis points to 44.4% in the quarter owing to higher sales. However, the company incurred an operating loss of $16.9 million in the quarter, almost twice the loss incurred in the year-ago quarter, due to higher operating costs related to the prAna acquisition and the China JV. Selling, general & administrative (SG&A) expenses increased 23% in the quarter, while the SG&A ratio increased to 50%, compared with 47% of sales in the year-ago quarter.
Segment Detail on Regional Basis
U.S.:Second quarter U.S. net sales increased 5% mainly driven by increased direct-to-consumer (DTC) sales, largely offset by lower wholesale sales. U.S. net sales included $5.5 million of incremental prAna net sales.
Canada: Net sales in Canada increased 39%, driven by increased wholesale and DTC sales. However, sales were impacted by an unfavorable currency impact of 10 percentage points.
Latin America/Asia Pacific (LAAP):The company witnessed net sales growth of 18% in the region, coming from sales at the company's new China joint venture. Currency impact was neutral in the region in the quarter.
Europe/Middle East/Africa (EMEA):Sales in this region improved 37%, which includes a 2 percentage points benefit owing to the changes in foreign currency exchange rates.
Other Financial Update
During the quarter, the company's board authorized a quarterly dividend of 28 cents a share to be paid on Aug 28, 2014 to shareholders of record as of Aug 14, 2014.
Columbia Sportswear's board also authorized a two-for-one stock split in the form of a 100% stock dividend, which will be payable on Sep 26, 2014 to shareholders of record on Sep 8, 2014.
During the second quarter, the company completed its acquisition of the prAna Lifestyle Apparel Brand for $188.5 million. PrAna is a lifestyle brand and will complement Columbia's existing portfolio of authentic, active outdoor brands, which include Columbia, Mountain Hardwear, Sorel and Montrail. The company expects to recognize incremental net sales of approximately $55 million from the prAna acquisition during fiscal year 2014. It is also expected to contribute low double-digit operating margin in 2014.
2014 Outlook Raised
The company raised its 2014 outlook to account for the PrNA acquisition. Columbia Sportswear's net sales for 2014 are now expected to grow 19% to 21% from 2013 levels to $2.01 - $2.04 billion against the previous expectation of 16% to 18% growth. The anticipated growth of approximately $320 million to $355 million is expected to come from the new China JV and from the prAna brand. The company also expects high single-digit percentage organic growth to contribute to sales.
The company expects gross margin to increase up to 75 basis points, compared with 2013 levels.
Compared to the prior year, management envisions full-year adjusted operating margin of approximately 8.8%, higher than the prior forecast of 8.25% and the 2013 adjusted operating margin of 8.4%.
Excluding the impact of the prAna acquisition and the China JV, Columbia Sportswear expects adjusted earnings in the range of $3.27 - $3.43 per share, much higher than $2.72 reported in 2013. The Zacks Consensus Estimate for earnings is pegged at $3.45 for 2014, higher than the guided range.
Columbia Sportswear carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Investors interested in the textile apparel sector can also consider stocks like Hanesbrands Inc. (NYSE: HBI), Vince Holding Corp. (NYSE: VNCE) and Perry Ellis International Inc. (NASDAQ: PERY). All these stocks sport a Zacks Rank #1 (Strong Buy).
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