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Columbia Sportswear (COLM) Q1 Earnings Top, View Raised

Columbia Sportswear Inc. COLM reported better-than-expected earnings and sales results in the first quarter of 2016.

The company’s first-quarter earnings per share of 45 cents comfortably beat the Zacks Consensus Estimate of 32 cents by 28.9%. Earnings also jumped 20% year over year.

The upside in profits was driven by higher sales in the U.S. as well as strong performance by the Sorel and Columbia brands.

Revenues and Operating Profits

Quarterly revenues increased 10% to $525.1 million backed by higher sales in the U.S. and the Eastern Europe, Middle East & Africa (EEMA) region and Canada partially offset by Latin America. Sales increased 12% year over year (on a constant currency basis) and also surpassed the Zacks Consensus Estimate by 6.29%

In spite of an 11% increase in cost of sales, gross profit increased 8.1% to $247.37 million buoyed by higher revenues. Gross margin contracted 70 basis points (bps) to 47.1%. Adjusted operating profit inched up 0.5% year over year to $44.3 million. Operating margins, however, deteriorated 80 bps to 8.4%.  

Regional Segments

U.S.: Net sales grew 18% to $336.2 million supported by low-teen percentage growth in wholesale channels and approximately 20% increase in direct-to-consumer channels strong sales of the Sorel brand.

Canada: Net sales gained 4% (up 18% at constant dollar) to $35.8 million.

Latin America/ Asia Pacific: Net sales slipped 10% (down 7% at constant dollar) due to higher sales in Korea. However, China and Japan recorded low single-digit growth in China and Japan.

Europe/Middle East/Africa (EMEA): Net sales gained 7% (14% at constant dollar) to $51.3 million, backed by growth in the direct business in Europe.

Category Segments

Apparel, Accessories & Equipment segment’s net sales increased 9% (11% in constant dollar) to $434.0 million. Footwear net sales jumped 14% (18% in constant dollar) to $91.1 million.

Brands

Columbia brand’s net sales increased 9% (up 11% constant-dollar) to $437.1 million on the back of progress in Europe-direct markets, where the brand reported 20% constant currency growth. Sorel brand’s net sales climbed 35% (38% constant-dollar) to $18.1 million, thanks to the strong performance of the Spring apparel category and late winter weather that drove higher sales of Fall styles. Sales of Mountain Hardwear remained flat year over year (4% constant-currency) at $25.2 million. Net sales in the prAna brand surged 12% to $41.4 million.

Other Financial Updates

During the quarter, management approved a quarterly dividend of 17 cents per share, payable on Jun 2, 2016 to shareholders of record as of May 19, 2016.

2016 Guidance

Columbia Sportswear updated its full-year 2016 earnings guidance. Net sales growth outlook was maintained at mid-single digits growth from the 2015 levels. Currency is expected to affect sales by almost 1%. Operating income is expected between $254 million and $263 million compared to the earlier projection of $257 million to $267 million.

Margin is estimated at 10.7% compared with 10.8% expected earlier. Earnings per share are forecasted within $2.60 to $2.70 compared with $2.55 to $2.65 projected earlier. The company reported earnings of $2.45 in 2015.

The guidance incorporates anticipated effects of recent macroeconomic headwinds including: bankruptcies by several U.S.-based wholesale customers; sift fall 2016 advance orders in response to slowing traffic and the lingering effects of last year's warm winter; and further deterioration in the health of the overall Korean outerwear market. However, the company expects to counter these headwinds with the strong sales of its brands.

Columbia Sportswear has a Zacks Rank #2 (Buy). Another favorably ranked stock in the same sector is Coach Inc. COH with the same Zacks Rank as Columbia Sportswear. A couple of stocks in the broader consumer discretionary sector worth considering are Black Diamond Inc. BDE and Capella Education Co CPLA, also carrying a Zacks Rank #2.

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