It has been about a month since the last earnings report for Columbia Sportswear (COLM Quick QuoteCOLM - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Columbia Sportswear due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Columbia Sportswear Q2 Earnings Beat Estimates, View Lowered

Columbia Sportswear posted solid second-quarter 2023 results. Both the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. However, management lowered its guidance for 2023.

The company posted quarterly earnings of 14 cents per share, crushing the Zacks Consensus Estimate of 2 cents. The bottom line increased from 11 cents in the year-ago quarter. Net sales advanced 7% (up 9% at constant currency or cc) to $620.9 million and surpassed the consensus mark of $586 million. Sales growth was backed by strength in the EMEA and Latin America Asia Pacific ("LAAP") regions, which were mainly backed by earlier Fall 2023 distributor shipments and increased sales in China. This was partly negated by softness in the United States and Canada.

The gross margin increased 140 basis points (bps) to 50.6%, mainly caused by reduced inbound ocean freight costs and favorable inventory provisions, somewhat offset by a rise in clearance and promotional activity. Our estimate for the gross margin was pegged at 50.2%.

SG&A expenses escalated by 11% to $312.5 million. As a percentage of sales, the same expanded from 48.7% to 50.3%. The year-over-year rise in SG&A expenses can be attributed to elevated costs related to the supply chain, direct-to-consumer (DTC) and technology. Columbia Sportswear’s operating income came in at $6.2 million, down 29% year over year. The operating margin contracted from 1.5% to 1%.

Detailed Analysis

In the United States, net sales fell 3% to $399.1 million. Net sales soared 75% to $100.8 million in the EMEA. LAAP net sales advanced 28% to $93.3 million. In Canada, net sales tumbled 21% to $27.7 million. During the quarter, DTC sales rose 5% to $292.6 million compared with our estimate of 4.2% growth. Wholesale channel sales went up by 9% to $328.3 million.

Net sales in the Apparel, Accessories and Equipment category ascended by 4% to $488.9 million, while the same for Footwear jumped 20% to $132 million. Columbia’s net sales gained 11%, and SOREL saw a 32% jump in sales. The prAna and Mountain Hardwear brands registered a sales decline of 32% and 19%, respectively.

Other Updates & Guidance

Columbia Sportswear ended the quarter with cash and short-term investments of $302.8 million and shareholders’ equity of $1,874.7 million. The company had no borrowings on its balance sheet as of Jun 30, 2023. During the six months ended Jun 30, Columbia Sportswear’s cash provided by operating activities was $9.7 million, while capital expenditures were $22.8 million.

For 2023, management expects operating cash flow in the band of $550-600 million. Capital expenditures are envisioned in the band of $60-$70 million. During the first half of 2023, the company repurchased 953,269 shares for $78.7 million. On Jun 30, 2023, Columbia Sportswear had $450.7 million available under its share buyback authorization.

Management’s guidance for the full-year 2023 considers estimates as of Aug 1, 2023 related to the impact of economic conditions. For 2023, Columbia Sportswear now expects net sales to grow 2-3.5% to the $3.53-$3.59 billion band. The metric was earlier anticipated to rise 3-6% to the $3.57-$3.67 billion range. The company expects foreign currency translation to hurt net sales growth by roughly 30 bps in 2023.

Management expects the gross margin to expand by nearly 40 bps to roughly 49.8% compared with the earlier view of increasing 60 bps to nearly 50%. As a percentage of net sales, SG&A expenses are anticipated in the range of 40.1-40.5% now compared with the 39-39.2% expected earlier. For 2023, the operating income is expected in the band of $348-$368 million, with the operating margin expected at 9.8-10.3%. Earlier the operating income was expected in the range of $413-$432 million, with the operating margin expected at 11.6-11.8%. In 2022, the company reported an operating margin of 11.3%.

Management envisions earnings per share (EPS) for 2023 in the range of $4.40-$4.65 now compared with the prior view in the band of $5.15-$5.40. Columbia Sportswear expects foreign currency translation to hurt the EPS by nearly 3 cents.

For the third quarter of 2023, management expects net sales growth of 4-6% to the $995-$1,010 million range. The operating income is likely to come in the range of $132-$138 million, with the operating margin expected to be 13.2-13.6%. This suggests a decline from the operating margin of 15.2% reported in the third quarter of 2022. The third-quarter EPS is envisioned in the band of $1.60-$1.70 compared with $1.80 reported in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -14.13% due to these changes.

VGM Scores

Currently, Columbia Sportswear has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Columbia Sportswear has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.