Columbia Sportswear (COLM)

Outerwear manufacturer Columbia Sportswear (NASDAQ:COLM) announced better-than-expected revenue in Q1 CY2025, with sales up 1.1% year on year to $778.5 million. On the other hand, next quarter’s revenue guidance of $587.5 million was less impressive, coming in 2.9% below analysts’ estimates. Its GAAP profit of $0.75 per share was 9.7% above analysts’ consensus estimates.

Company Overview

Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ:COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.

Thanks to social media and the internet, not only are styles changing more frequently today than in decades past but also consumers are shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel and accessories companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Columbia Sportswear's primary competitors include The North Face (owned by VF Corporation NYSE:VFC), Jack Wolfskin (owned by Callaway Golf Company NYSE:ELY), Arc'teryx (owned by Amer Sports OTC:AGPDY), and private companies REI Co-op and Patagonia.

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Columbia Sportswear’s 2.7% annualized revenue growth over the last five years was weak. This fell short of our benchmarks and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Columbia Sportswear’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.1% annually.

This quarter, Columbia Sportswear reported modest year-on-year revenue growth of 1.1% but beat Wall Street’s estimates by 2.9%. Company management is currently guiding for a 3% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.1% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below average for the sector.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Columbia Sportswear’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 8.4% over the last two years. This profitability was mediocre for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, Columbia Sportswear generated an operating profit margin of 6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Columbia Sportswear’s flat EPS over the last five years was below its 2.7% annualized revenue growth. We can see the difference stemmed from higher interest expenses or taxes as the company actually grew its operating margin and repurchased its shares during this time.

In Q1, Columbia Sportswear reported EPS at $0.75, up from $0.71 in the same quarter last year. This print beat analysts’ estimates by 9.7%. Over the next 12 months, Wall Street expects Columbia Sportswear’s full-year EPS of $3.91 to stay about the same.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Columbia Sportswear has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 13.2% over the last two years, better than the broader consumer discretionary sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Columbia Sportswear burned through $47.6 million of cash in Q1, equivalent to a negative 6.1% margin. The company’s cash flow turned negative after being positive in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Columbia Sportswear hasn’t been the highest-quality company lately because of its poor revenue and EPS performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 17.4%, higher than most consumer discretionary businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Columbia Sportswear’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Companies with more cash than debt have lower bankruptcy risk.

Columbia Sportswear is a profitable, well-capitalized company with $658.4 million of cash and $456.9 million of debt on its balance sheet. This $201.5 million net cash position is 5.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Columbia Sportswear beat analysts’ revenue and EPS expectations this quarter. On the other hand, its EBITDA missed and its revenue guidance for next quarter fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 2% to $61.00 immediately following the results.

Updated: May 22, 2025 at 10:38 PM EDT

When considering an investment in Columbia Sportswear, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of Columbia Sportswear, we’ll be cheering from the sidelines. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its above-average ROIC suggests its management team has made good investment decisions, the downside is its projected EPS for the next year is lacking. On top of that, its constant currency sales performance has disappointed.

Columbia Sportswear’s P/E ratio based on the next 12 months is 18.2x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $66.50 on the company (compared to the current share price of $64.96).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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