Columbia Sportswear (COLM) produces the highly-recognizable Columbia brand outdoor and active lifestyle apparel and accessories, as well as SOREL, Mountain Hardware, and prAna products, explains value investing expert Bruce Kaser, editor of Cabot Undervalued Stocks Advisor.
For decades, the company was successfully led by the one-of-a-kind Gert Boyle, who passed away late last year. The Boyle family retains a 36% ownership stake and Gert’s son Timothy Boyle remains at the helm.
In its second quarter report, Columbia’s sales fell 40% compared to a year ago, driven by high levels of store and wholesaler closures. Net income turned to a $(0.77)/share loss compared to a $0.34/share profit a year ago. However, both sales and earnings were better than consensus estimates.
At quarter’s end, nearly all of their owned stores were open. Trends in the third quarter are showing meaningful improvement compared to the second quarter. Inventories are higher than a year ago, but the company commented that it is well-positioned for winter gear whereas that can’t be said of some of its competitors.
Columbia’s new mobile app is ready for launching, and it is introducing several new products. The company is on track to reduce its operating costs by $100 million, or about 4% of revenues, this year. The company is likely to remain healthy as consumers seek its highly relevant products.
Operating cash flow was a negative $37 million, much of which reflected an increase in inventories. The balance sheet remains sturdy, with $476 million in cash yet a miniscule $3 million (not billion) in total debt.
Columbia’s shares have fully recovered their post-earnings decline, helped by investors shifting toward more cyclical stocks as there appears to be more progress on a Covid vaccine and as government relief appears more likely (but not guaranteed).
Full year estimates are $2.05 and $4.21 for 2020 and 2021, respectively. For comparison, the company earned $4.83/share in 2019. On next year’s estimates, the shares trade at a P/E of 19.0x.
The stock has appeal for value investors and for growth investors with patience for what might be a slower recovery than other growth stocks. Traders will find COLM shares appealing given their sensitivity to consumer and economic re-opening trends. I rate the stock a buy.
