Monday, May 1, 2017

A current AIM Fund holding: Columbia Sportswear (COLM) by Paige Chiang. "Columbia is an ideal fit for the AIM portfolio"


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. 


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