Which of These Sports Apparel Makers Will Suit Your Portfolio Best?
Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
An uptick in spending on the less essential items should logically follow now that the housing sector seems to be back on its feet. Recent economic data appears to bear this out. The resale home market approached its high in nearly six and a half years this May, while a rebound in consumer spending and lower claims for unemployment benefits were also registered.
Significantly, May personal income also jumped by a better-than-expected 0.50%. Estimated monthly retail stores sales during the first five months for clothing and clothing accessories and for sporting goods, hobby, book and music records, likewise showed year-over- year gains of 3.3% and 4.2%, respectively, per government estimates.
A Portland potential
In both of these retail measures, Columbia Sportswear (NASDAQ: COLM) should be enjoying some tailwinds. This Portland-based company manufactures not only outdoor apparel, footwear, and accessories but also active outdoor gear and equipment. These are marketed under four well-established niche brands: the flagship Columbia, Sorel, Mountain Hardwear, and Montrail.
Highlights from the company’s 2013 first quarter are encouraging. Sales rose 5% to a first-quarter record of $348.3 million from $333.1 million a year earlier. Net income soared 159% year over year to $10.1 million, or $0.29 per share, from $3.9 million, or $0.11 per share. Also, a $0.22 per-share quarterly dividend was paid.
Flexing territorial strengths
The U.S. market accounts for the bulk of Columbia Sportswear’s sales. It contributed $200 million revenue in the 2013 first quarter, a gain of 4% from a year earlier. The sales gain was strongest in the company’s Latin America and Asia Pacific markets where growth achieved for the most recent quarter was 8% for a total revenue of $83 million.
Moving forward, added sales can be expected from the company’s Asia Pacific market. A Columbia Sportswear joint venture in China is set to start operations in 2014. What’s good about this JV is that it won’t be starting from scratch as it is a partnership with the Swire Resources subsidiary of the HKSE-listed Swire Pacific. Swire Resources has been the exclusive China distributor of Columbia Sportswear since 2004.
A level up for a China partnership
Swire Resources generated over $150 million revenue and low-double-digit EBITDA from its Columbia Sportswear distributorship in Mainland China last year. It sells not only through some 70 branded retail locations, but also via dealers operating over 680 mono- and multi-brand retail sites.
The 60/40 JV will take over this existing distributorship and initially employ about 700 staff which would be primarily mainstays of the present Swire Resources team. Notably, this team gets the credit for growing Columbia Sportswear as the top outdoor brand in China, a ranking affirmed by the 2012 China Outdoor & Fashion Sports Goods Retailing Report from the China National Commercial Informational Centre and ISPO China.
This player needs to be quicker
Columbia’s lofty performance in China may have been accomplished partly at the expense of Quiksilver (NYSE: ZQK). This Huntington-based outdoor sports lifestyle company, which has several operating units in Hong Kong and China, posted a 14% decrease in net revenue to $64 million in its Asia Pacific markets during its fiscal 2013 second quarter. It also took a beating for the quarter in its Americas and Europe/Middle East/Africa markets with revenue drops of 3% and 16% to $229 million and $165 million, respectively.
Columbia also appears to have recently gotten the upper hand against Nike (NYSE: NKE), another major sports apparel player in China. Nike was reported to have experienced flat sales in China as well as in Western Europe in its fiscal 2013 fourth quarter.
Cheerless guidance on the fences
The saving grace was the 12% sales growth in Nike’s home market, all in all resulting in an increase in the company’s EPS to $0.76 from $0.60 a year earlier. Another positive was the 8% growth in Nike’s future orders, though investors were lukewarm on the company’s revenue guidance for the current quarter. Nike projects sales rising in mid to high single digits and flat gross margin. In its fiscal 2013 fourth quarter, gross margin improved 110 basis points to 43.9%.
Columbia Sportswear is, likewise, cheerless in the guidance for its 2013 full year. The company expects approximately 6.6% operating margin, including the charges in restructuring and resultant costs and income deferral related to its China JV coming online. It also expects a slight decline in net sales.
Conclusion: Buy on weakness
To conclude, Columbia Sportswear and Nike still look worthy of inclusion in a stock watchlist. Both stand to benefit from the rising consumer spending in their U.S. home market and have established themselves as strong choices among Mainland China consumers. Notably, stirrings of a recovery in European consumer spending too have been felt recently.
These factors provide reason to expect that these companies can sustain or even improve, at the very least, their annual dividend yields. Columbia Sportswear’s yield of 1.40% and the 1.30% for Nike are notably among the highest payout rates in their industry. Positioning on weakness, though, seems a prudent approach as the current valuations of these equities at about 20 times their earnings aren’t exactly cheap.
The best investing approach is to choose great companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.
Arturo Cuevas has no position in any stocks mentioned. The Motley Fool recommends Nike. The Motley Fool owns shares of Nike. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!