What's Driving Sales for This Retailer

Gayatri is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Last quarter, the extended cold weather, stronger DTC sales, and the Omni Freeze Zero launch helped Columbia Sportswear (NASDAQ: COLM) beat the estimates. The company has reported a 5% increase in sales, and its EPS of $0.35 significantly outpaced the consensus estimates of $0.14. Operating margin has improved and inventory is down by 11.3%. Extended duration of cold weather has helped the company clear excess inventory. The company is also investing in product innovation and expansion strategies. Lets take a closer look at these strategies the company is following to grow.

Product innovation: Omni Freeze Zero and Cool. Q Zero

After four years, Columbia has developed the Omni Freeze Zero line of apparels. The company aims to provide products that consumers can use throughout the year in all seasons. Columbia launched this line in April 2013. It targets athletes and outdoor enthusiasts. There are thousands of little blue rings embedded in the Omni Freeze Zero apparel, and when exposed to sweat, these rings swell to create a cooling sensation. The company has supported this launch with huge promotions and advertisements, which include multi-channel marketing campaigns on ESPN and the ‘Omni-Freeze Zero tour,’ where two converted ice cream trucks will put on product demonstrations at 100 different locations.

Joint venture in China with Swire Resources

Swire Resources, a subsidiary of Swire Pacific, has been the distributor of Columbia Sportswear products since 2004. The company has decided to leverage this relationship and extend it further by creating a joint venture with its largest distributor in China. This joint venture is expected to start in January 2014. It will have 60% interest of Columbia Sportswear and 40% interest of Swire Resources. Swire Resources has reported sales of Columbia Sportswear products of $150 million in 2012, which is 20% year-over-year growth from $123 million in 2011. With this partnership, the company is expected to increase its penetration in China.

Peer analysis

Comparing Columbia Sportswear’s two strongest competitors are Under Armour (NYSE: UA) and Wolverine Worldwide (NYSE: WWW).

Under Armour reported 1Q13 EPS of $0.07 against consensus estimates of $ 0.03. The company reported 1Q13 results with apparel revenue increasing by 22%. Footwear net revenue increased 27% to $81 million, up from $64 million in the previous year, and generated the highest revenue growth in the company's direct-to-consumer (DTC) business at 31%. The company stated that most of the DTC business growth came from e-commerce developments. Under Armour has brought the total number of Factory House stores to 102, up 21% in the first quarter of 2013. It has also opened an Under Armour Brand House store in Baltimore and launched its Alter Ego line of products. Under Armour is now the official supplier for the U.S. men's and women's gymnastics teams.

Another competitor, Wolverine Worldwide, also reported its first quarter 2013 results with EPS of $0.81, up 26.6% as compared to the 1Q12 EPS. The company announced organizational changes in which it will move from four operating groups to three. These three groups are the Heritage Group, the Lifestyle Group, and the Performance Group. These groups comprise different brands, and each will be led by a senior officer of the company. This step has been taken to capture global opportunities and further build the company's brand. Wolverine has also reduced its long term debt by $33 million in this quarter.

Company

P/E ratio

Dividend yield

P/S ratio

Debt-to-equity ratio

Columbia Sportswear

20.90

1.36

1.33

0.01

Under Armour

54.20

NM

3.53

7.58

Wolverine Worldwide

34.52

0.87

1.69

194.58

Above is a comparison of these three companies on the basis of four parameters. Columbia Sportswear seems to be a great option among the three companies, with the lowest P/E, P/S, and debt-to-equity ratio. It also has the highest dividend yield. Under Armour has the highest P/E and P/S ratio, which isn't a good sign. Its debt-to-equity ratio is less than Wolverine Worldwide. The third company, Wolverine Worldwide, is better than Under Armour in the case of P/E and P/S ratios. The company also has a dividend yield of 0.87, but it has a high debt-to-equity ratio.

Conclusion

Columbia Sportswear is continuously investing in product innovation and expansion through joint ventures in China. These investments will support growth in the long term. I recommend buying shares of Columbia Sportswear. Similarly, Under Armour is also investing in product innovation, marketing, and brand promotion. The company is now the official supplier for the U.S. gymnastic teams.  All these strategies will help the company to grow faster so I recommend buy. Wolverine Worldwide has made changes to its organization or leadership but to grow further it will need some robust plans. So I recommend sell.

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Gayatri Sharma has no position in any stocks mentioned. The Motley Fool recommends Under Armour. The Motley Fool owns shares of Under Armour. 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!

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