Columbia Sportswear: A Turnaround Story That’s Gaining Ground

Key Points

• Columbia Sportswear may be turning the corner as negative normalization starts to finalize.
• Columbia Sportswear reduced inventory by 29% YoY in Q2 2024.
• Columbia's Fall 2024 order book supports sequential improvements in wholesale sales and a potential return to growth by Q4 2024.

Outdoor lifestyle apparel and products manufacturer Columbia Sportswear Co. NASDAQ: COLM is trying to stage a turnaround in its business. After the pandemic-driven surge of 2021, Columbia has been tackling tailwinds comprised of inflationary pressures, economic uncertainty, and inventory glut. While its recent earnings results and Q3 guidance left a lot to be desired, signs of a return to growth are starting to take shape. The company has been executing an aggressive cost containment and inventory reduction plan, which is gaining ground and planting the seeds for recovery as normalization nears an end.

Columbia Operates 4 Lifestyle Brands

In addition to its namesake, Columbia operates three additional brands that were acquired to complement its portfolio of outdoor products. SOREL sells outdoor utility boots, contemporary slippers, shoes, and sandals. Mountain Hardwear sells premium apparel, gear, and accessories for climbers, mountaineers, trail athletes, skiers, and snowboarders. prAna sells versatile basic casual wear from stretch performance pants, tee-shirts, and tops to activewear.

Columbia Sportswear operates in the retail/wholesale sector, competing with V.F. Corp. NYSE: VFC, Canada Goose Holdings Inc. NYSE: GOOS, and Deckers Outdoor Co. NYSE: DECK.

Columbia: Weathering Normalization and Inventory Glut

Compared to competitors, Columbia has a smaller mountain to climb to return to growth. The company has very little debt, as evidenced by its debt-to-equity ratio of around 19%. In comparison, VF Corp has 10x more debt-to-equity at 193%. This enables Columbia to deploy capital to boost its non-core brands instead of spending efforts on debt reduction. SOREL's sales decline is starting to stabilize. prAna is showing positive signs based on the improvement in future season sales. The company was successful in shrinking its inventory 29% YoY in Q2 2024 and is on track to generate $75 million to $90 million in cost savings for the full year 2024.

Columbia’s Omni-Tech: Enhancing Apparel with Innovative Protection

Columbia has developed and incorporated proprietary Omni-Technologies for some of its products. Omni-Heat thermal reflective insulation technology in its jackets delivers more warmth, using metallic gold dots to reflect more body heat. Omni-Tech makes its gear waterproof and breathable. Omni-Shade apparel, including shorts, camp tee shirts, pants, and hoodies, blocks harmful UVA/UVB rays to protect against skin damage.

COLM Stock Forms a Symmetrical Triangle Pattern

The daily candlestick chart for COLM indicates a symmetrical triangle pattern. This is comprised of a descending upper trendline connecting the lower highs and an ascending lower trendline connecting the higher lows. The two trendlines meet at the apex point. COLM will either break out through the upper trendline or break down through the lower trend as it moves toward the apex point. The daily relative strength index (RSI) is stalled around the 50-band. Pullback support levels are at $76.90, $73.51, $69.52, and $66.01.

Making Incremental Improvements

Columbia Sportswear posted a Q2 2024 EPS loss of 20 cents versus consensus estimates or a loss of 34 cents. This was a 14-cent EPS beat. Revenues fell 8.2% YoY to $570.2 million versus $596.37 million consensus estimates. The company closed the quarter with $711 million in cash and cash equivalents. Inventories dropped 29% YoY to $823.6 million. The Board of Directors approved a quarterly cash dividend of 30 cents payable on Aug. 29, 2024, to shareholders of record on Aug. 15, 2024.

Columbia Issues Mixed Guidance

Columbia Sportswear issued downside Q3 2024 guidance for EPS of $1.27 to $1.43 versus $1.62 consensus estimates. Q3 2024 revenues are expected to be between $927 million and $959 million versus $966.41 million. The company issued in-line full-year 2024 EPS of $3.65 to $4.04 versus $3.87. Full-year 2024 revenues are expected to be between $3.35 billion and $3.42 billion versus the consensus estimates of $3.39 billion.

Columbia Sportswear CEO Tim Boyle commented, "As we look toward 2025, I am pleased to report that early indications from our Spring '25 wholesale order book suggest a return to wholesale growth in the first half.”

Boyle concluded, “Our fortress balance sheet remains a strategic advantage, with over $710 million in cash and short-term investments, and no debt, at quarter end. I’m confident our team and our strategies position us to re-accelerate growth and capture market share over time.”

Columbia Sportswear analyst ratings and price targets are at MarketBeat. There are five analyst ratings on COLM stock, comprised of one Buy, three Holds, and one Sell. Consensus analyst price targets point to $77.00.