TOP CONTRIBUTORS

Welton Blount

COLM AT A GLANCE

P/E ► 20.8 AVG EV/EBITDA ► 15.0 AVG ROA ► 5.3% AVG ROE ► 6.5% AVG Debt to Equity ► 0.208 VERY LOW Current Ratio ► 5.39 VERY HIGH Interest Coverage Ratio ► 1K VERY HIGH

 

 

 

 

 

 

With revenues of $1.3B in 2006^[1], Colombia Sportswear Company (NYSE: COLM) is one of the largest wholesalers of outdoor sportswear and equipment in the U.S. Headquartered in Portland, Oregon, Columbia sells clothing and equipment for a variety of outdoor sports, including hunting, fishing, hiking, and snowboarding. Its products are sold mostly in sports and specialty stores, in addition to mid-tier department stores and online.

Columbia's results have been mixed in recent years. The company has experienced strong revenue growth (14.8% CAGR from 1998-2006), but its net income has been falling since 2003 due to increased competition, a shift in product mix towards less profitable footwear, and inefficiencies in its product sourcing. Meanwhile, as the department stores and other specialty stores continue to focus their efforts on increasing their own private label offerings, Columbia may be find its efforts grow through increased department store sales frustrated.

Company Overview

Breakdown of Holdings

Columbia Sportswear Net Sales by Product Category, FY204-2006^[2]

Columbia Sportswear’s business segments have on the whole remained stable as percentages of net sales. The core of Columbia’s sales comes from its sportswear and outerwear business. Colombia’s coats, vests, and parkas are popular among active, outdoors-oriented consumers and account for around 40% of net sales. Its sportswear lines complement the company’s outdoor ethos with hunting, hiking, and fishing gear.

In terms of revenue growth opportunities, one segment to watch is footwear. Part of Columbia’s growth strategy is to expand its presence in the athletic footwear market, which led to the company’s purchase of Montrail (a hiking and rock-climbing footwear brand) in January 2006 for $15M^[3][4]. The company is also seeking growth in its outwear business as well: in March of the same year, the company also aquired trademarks from Pacific Trail (a jacket and outdoorswear company) and London Fog Group (which sells trenchcoats and other rain gear) for $20.4M^[5][6].

Recent Earnings

Columbia Sportswear Revenue vs. Net Income, FY2004-2006^[7]

Since Columbia’s initial public offering, net sales have almost tripled from $423M in 1998 to $1288M in 2006^[8]. This growth has largely come on the back of strong sales in the outerwear and sportswear business segments.

However, net income for FY2006 was just $123M, off $18M from a 2004 high of $139M. This decrease was chiefly caused by increases in personnel-related costs: the recent acquisition of Montrail and Pacific Trail brands came with a $6.7M net expense in the form of stock-based compensation^[9].

Trends and Forces

Economic Conditions

Recent trouble in the credit markets, coupled with high gasoline prices, have the potential to depress consumer spending, thereby impacting Columbia’s bottom line. Such factors may lead consumers scale back on camping vacations and other nature-oriented trips, rendering Columbia's equipment, outdoorswear, and sportswear businesses particularly vulnerable to such a downturn.

However, Columbia’s lower price point (relative to its competitors) may support earnings in times of economic downturn: the price range for a Columbia jacket is around $100-$250^[10], while a typical North Face jacket can set consumers back $250- $500^[11]. Shoppers may seek out lower-cost outdoor apparel during a softening economy, potentially attracting competitors’ customers to Columbia’s brands.

COLM seeks to grow through higher department store sales

Department stores in the United States have undergone significant changes in recent years. As Columbia seeks future growth through increased department store sales^[12], the company will have to contend with these changes in the future. In response to declining margins, stores have implemented tighter inventory controls and have scaled back the quantities of merchandise that they purchase from wholesalers like Columbia. As a means of increasing market share, companies have also sought to differentiate themselves from the competition by demanding exclusive contracts and store-specific private labels (e.g. Ralph Lauren's "American Living" line for J.C. Penney).^[13]. Columbia itself has admitted that some of its strongest competition comes from its own clients private label merchandise ^[14], as they have a strong incentive to prefer private labels wherever possible because they can be sold at higher margins than outside brands. One of Columbia's major customers, Dick's Sporting Goods, accounced in 2003 that it wanted its revenue from private label merchandise to almost triple in the next two to three years, as it typcially sold with 15-20% greater margins than Columbia apparel did.^[15]

In addition, Columbia must deal with the widespread consolidation that is present among department store changes in America. A series of mergers and acquisitions in the industry (e.g. Federated Department Stores' 2005 takeover of Marshall Field's) give the businesses that remain potentially greater power to negotiate lower prices with Columbia, thereby lowering profits.

Competition

Columbia Sportswear competes with several similarly outdoor-oriented brands, like The North Face, Timberland, and Patagonia. In addition, the company argues that often its biggest competition comes from its own clients’ private label merchandise, as big department stores like Kohl's , The Sports Authority, and J.C. Penney have better marketing, distribution, and financial resources than Columbia

References

1. ↑ Data from Google Finance
2. ↑ Data from Columbia Sportswear Company 2006 10-K, p. 2
3. ↑ Columbia Sportswear Company 2006 10-K, p. 4
4. ↑ This purchase also included the assumption of $5.8M of Montrail debt
5. ↑ Columbia Sportswear Company 2006 10-K, p. 51
6. ↑ These transactions were conducted as part of a 2006 bankruptcy auction
7. ↑ Data from Columbia Sportswear Company 2006 10-K, p. 22
8. ↑ Columbia Sportswear Company 2006 10-K, p. 23
9. ↑ Columbia Sportswear Company 2006 10-K, p. 59
10. ↑ Sportsauthority.com
11. ↑ Thenorthface.com
12. ↑ Columbia Sportswear Company 206 10-K, p. 23
13. ↑ "Top fashion designers go down-market", USA Today (published September 25, 2007)
14. ↑ Columbia Sportswear Company 2006 10-K, p. 10
15. ↑ Boaz Herzog, Portland, Ore.-Based Sportswear Firm Copes with Challenging Retail Climate, The Oregonian (February 19, 2003)
16. ↑ These figures were taken from Yahoo! Finance
17. ↑ Taken from FY2006 10-K and 10-Q reports
18. ↑ Figure is for fall 2007 selling season.