Columbia Sportswear

COLM : NASDAQ : US$78.67 
HOLD

COMPANY DESCRIPTION:

Columbia Sportswear Company designs and distributes outdoor apparel, footwear, accessories and equipment in the US, LAAP, EMEA, Africa and Canada. The company sells its products through wholesale distribution channels, licensees and via a direct-to-consumer channel that includes retail stores, outlets, and e-commerce.  

Target: US$75.00

Investment recommendation COLM reported solid Q4 adjusted EPS of $1.21 vs. our 98c (consensus of 92c). We recently raised our Q4 estimates on expectations of stronger sales in cold weather gear; however, COLM managed much healthier growth than we anticipated (+6.4% vs. our 1% estimate adding 6c to EPS). Gross margin was also a standout (+330bps) as full price selling at both DTC and wholesale drove 25c of the beat, partially offset by higher taxes (-8c). Inventory (-15%) is healthy at both COLM and at retail as evidenced by solid fall ’14 order growth (+DD). This was a solid Q4 in which COLM executed well. That said, full year 2014 guidance (15%- 17% sales growth on 8% EBIT margin) implies an EPS of ~$3.42 suggesting a valuation of 24x. Given the incremental $100M in expenses (e.g. Swire JV, marketing costs, ERP implementation, DTC), we are hard pressed to chase COLM here and thus maintain our HOLD.
Investment highlights  The transition of the China JV with Swire is now complete, yet the expected 2014 EPS accretion has been lowered to 13c (we had estimated 25c of accretion). Excess inventory in the market and stepped up promotions are reducing COLM’s sales outlook in China.
 Total organic sales ex-Swire are expected to be up ~8%, consistent with history and mainly driven by the US fall orders +DD, partially offset by -LSD spring ’14 orders due to weak Argentina/Venezuela.
Valuation Our $75 target is based on 20x 2015E EPS, 10x EV/EBITDA, and DCF.

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