Colombia
Sportswear Co. (COLM, $58.44): “Columbia Keeps Constant”
By:
Paige Chiang, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Colombia Sportswear Co. (NYSE:COLM) designs, develops, markets, and
distributes various apparel, footwear, accessories, and equipment tailored
towards active outdoor lifestyles. Products are sold throughout the United
States, Latin America, Asia Pacific, Middle East and Africa, and they fall
under COLM’s four primary brands: Colombia Mountain Hardwear, Sorel, and
Montrail.
• COLM is currently combatting
the decline in purchases by wholesalers by increasing their online presence
through their own website and by partnering with online retailers such as
Amazon.com.
• While online sales are
increasing, general sales of Mountain Hardwear have been lagging over the last
2 years.
• On March 6, 2017,
management announced that Mr. Joe Vernachio will be the new President of
Mountain Hardware effective April 3, 2017.
Key
points: Although Colombia Sportswear Co. is a major player in
the performance sportswear arena, they still face difficulty when it comes to
orders from wholesalers. Many wholesalers that regularly purchase COLM’s gear
are struggling in the quickly changing retail environment causing a lag or
decrease in orders. COLM recognizes this shift in customer habits from
purchasing the majority of items in brick-and-mortar stores to online shopping.
In the 4Q16 earnings call, management stated that ecommerce sales grew by more
than 20% relative to 2015, which accounted for more than 9% of global 2016
sales. In the United States, COLM has partnered with Amazon.com and has their
own mini-online store through the Amazon.com platform. This good relationship
with Amazon.com dramatically increases their online presence, all while decreasing
the brand’s chance of being consumed by Amazon.com – or in other words being
“Amazoned.”
Regarding their European
online operations, COLM is focusing on building a DTC relationship with their
consumers. COLM currently uses a third party that manages the order and
shipment of products from their faculties to their final customers. Columbia is
now trying to bring that operation in-house using existing infrastructure for
warehouses and the established call-center. In addition to the cost benefits
associated with this plan, management is excited to “take back the customer”
and further provide them with a more brand enhancing experience. COLM expects
this insourcing of its European ecommerce operations to be completed by
mid-2017.
Over the past couple of
years, COLM has seen sales struggle in its Mountain Hardwear division. Mountain
Hardwear designs, produces, and sells outdoor athletic apparel and equipment,
and is focused on delivering products on the forefront of materials technology
and design to customers. Unlike COLM’s other brands, Mountain Hardwear tends to
be less traditional and geared more towards athletes that aspire to live
boldly. To combat their falling sales, Mr. Vernachio was brought on as
President of Mountain Hardware. Mr. Vernachio is viewed as an outdoor athletic
goods veteran having served as the Global VP of Product and Operations for The
North Face and CEO and Senior VP of Product and Sourcing with Spyder Active
Sports. Both of these brands are more similar to Mountain Hardwear’s concept
than other COLM brand concepts. Management is hopeful that Mr. Vernachio will
help in the repositioning of the Mountain Hardware brand.
What
has the stock done lately?
After 4Q16 earnings beat
many estimates on February 9, 2017, COLM shares jumped from a close on 2/9 of
$53.27 to a close on 2/10 of $60.25. This 13% increase was the largest single
day increase that the stock has seen in 2017. COLM has not traded below $55
since 2/9/17, and it has been constantly trading around the $58 mark for the
past couple of months. The rapid growth in ecommerce sales combined with the
company’s push for online expansion might provide the push that COLM shares
need.
Past
Year Performance: COLM share prices in 2016 remained fairly
constant at ~$55-$60. 2016 was a strong year for Columbia as its gross profit
margins saw a 60bp increase to 46.7%, which helped drive their record sales,
operating income, and net income figures. Management has indicated that they
see sales continue to grow, and the majority of that increase will be from
their ecommerce sales rather than traditional sales. COLM currently has a P/E
of 21.49x, which is lower than its peer group comps of 22.22x indicating that
there is still room for COLM to grow.
Source:
FactSet
My
Takeaway
Columbia’s push to
increase their online presence and connect directly with consumers is very
encouraging during this dark time for many retailers. Rather than being sucked
into the current that is online retailing, COLM has decided to ride the wave by
broadening their ecommerce operations. Also, the new hiring of Mr. Vernachio
makes investors hopefully that Columbia will be able to turn around their
struggling Mountain Hardwear division.
All in all, COLM has created a solid
brand with loyal followers. As COLM continues to increase its ecommerce
presence while decreasing its wholesaling orders, the company places itself in
a very comfortable position amongst outdoor athletic retailers.
