Tuesday, 25 January 2011

Columbia Sportswear Company (COLM)

Results are out 28th January 2010 - after markets close.

PE Ratio is around 28.  This is high compared to say Nike which has a PE ratio of 19.  Market capitalisation stands at around $2bn

Last quarter COLM fell significantly after results.   Estimates are around $436m for the current quarter with earnings of 0.64c.  This would bring the current year earnings to around 2.14 or a PE of 28 based on current share price.  Next years earnings are expected to grow to 2.64 !.   Thats a 23% growth in earnings (50c).  Revenues are expected to grow from $1.49bn to $1.59bn around $100m.  Such a small increase in revenues is hardly representative of the PE attached to this company.

These numbers dont really add up as gross profit margins are around 42%.  So adding $100m to revenue would result in $42m in gross income.   It would require $17m profit to the bottom line after tax in order to get the 50c increase in the EPS.    This would imply no SG&A increases in the next year. Highly unlikely.

Given margin pressure, the cost of transport, raw materials, it is unlikely that the margins will stay the same next year.  Also the increasing move towards the Internet and vast reduction of independent sportswear retailers will add margin pressure.   Dealing with larger companies always means margin pressure.

The austerity measures in Europe have hardly started to kick in which will also impact gross margins for Columbia and its independent retailers.  Particularly with the recent sales tax increases which will make goods seem even more expensive.

Given the last earnings release Columbia has outperformed the market and peers.
Even if the results are good the upside is limited as this company is hardly a $LULU.

Im shorting into earnings at around $61.

Cramer 23-December 2010 "Cramer said Columbia is still an exciting story, but after the stock's recent run up, and the disappointing earnings from Nike, he'd only be a buyer of Columbia on a pullback."

No comments:

Post a Comment

About Me

I try and work a broadly market neutral strategy and based purely on fundamentals and my gut feel.