According to the Farmers Almanac, a colder than usual winter they call “The Days of Shivery” is upon us. This is great news for outerwear companies, as warmer winters hit sales.
One tough mother
Outerwear company Columbia Sportswear Company (NASDAQ:COLM) is one to check out now. A family business, the company is run by CEO Tim Boyle, but his mother and Chairman of the Board, Gert Boyle, has powered the company since 1970. Her driving motto was, “Early to bed, early to rise, work like hell, and advertise.” Gert Boyle starred in the company’s iconic “One Tough Mother” advertising campaigns.
(source Columbia Sportswear Investor Relations)
Columbia Sportswear Company (NASDAQ:COLM) owns five brands: Columbia Sportswear Company (NASDAQ:COLM), Sorel, Mountain Hardwear, Outdry, and Montrail selling in 100 countries with a recently signed agreement with Chogori India Retail Ltd in India. A joint venture commencing in China with Swire Resources Ltd. brings 80 direct-to-consumer branded stores to China alone.
Columbia Sportswear Company (NASDAQ:COLM) had a dismal second quarter; net sales were down 3% year over year, and management guided for operating margin contraction of 300 or more basis points and a 6.5% drop in net sales. But this company is a survivor and pays you a 1.50% dividend to wait for cold weather.
Gert almost sold the business for $1,400 in 1970,but since built it into a company with a $2.2 billion market cap and 2012 net sales of $1.67 billion. The Boyles run a debt-free tight ship with cash and short-term investments of $430.6 million, up from $228.5 million year over year, adding up to $12.51 in cash-per-share.
One tough competitor
Columbia Sportswear Company (NASDAQ:COLM)’s main competition is VF Corp (NYSE:VFC), which obtains 17% of its revenue from The North Face, its main outdoor apparel brand. According to Bloomberg, The North Face has lost its standing with serious outdoor enthusiasts.
VF Corp (NYSE:VFC) has a big market cap of $21 billion. VF Corp (NYSE:VFC)’s trailing P/E at 19.00 is similar to Columbia Sportswear Company (NASDAQ:COLM), but the stock offers a slightly higher yield at 1.80%. Other apparel brands provide 83% of V.F. Corporation’s revenue, like its nine brands of outdoors-wear and its fashion brands of Nautica, Wrangler, and more.
VF Corp (NYSE:VFC) has a larger fashion component bringing more risk of consumer fickleness, especially for expensive brands like 7 For All Mankind.
VF Corp (NYSE:VFC) has debt, not unmanageable, but it can’t be as nimble as a debt-free family business (66% insider ownership at Columbia compared to 22% at V.F. Corporation).
With its proprietary fashion technologies, Columbia has advantages over VF Corp (NYSE:VFC) like its Omni-Freeze Zero, which works with your own sweat to cool you down. CEO Boyle has said building up warm weather business is key. The company rolled out its largest advertising campaign ever to support Omni Freeze.
Rival Under Armour Inc (NYSE:UA)’s main demographic is competitive athletes and weekend warriors. It has an outdoors recreational segment, but Columbia remains the go-to-brand for the seriously outdoorsy.
At over thrice the trailing P/E, at 62.30 to Columbia’s 18.83, a price to sales ratio of 4.0, more than triple Columbia’s 1.20, and no yield, Under Armour Inc (NYSE:UA) isn’t cheap.
Under Armour Inc (NYSE:UA)’s sales growth has been impressive at a five year rate of 23.64%, better than Columbia’s 5.94% and V.F. Corporation’s 8.46%. Analysts expect a five year earnings-per-share growth rate of 20.68% compared to Columbia’s 8.20% and V.F. Corporation’s 11%.
Under Armour Inc (NYSE:UA)’s trailing net profit margin is 6.62% to Columbia’s 6.40%, but the back half of the year should expand margins at Columbia. Under Armour Inc (NYSE:UA)’s third quarter when college and high school sports start in earnest is their most profitable historically. Both pale in comparison to V.F. Corporation’s trailing profit margin of 10.21%.
Finally, Columbia has the lowest price to free cash flow at 18.50 to Under Armour’s 117.50 and V.F. Corporation’s 27.60.
A tough decision
Columbia’s management is strongly aligned with shareholders offering yield and no debt. Overseas expansion in India and China along with Omni-Freeze are breakout catalysts.
Under Armour Inc (NYSE:UA) isn’t cheap. A third quarter disappointment could tackle the stock. V.F. Corporation is a good choice as a big cap retailer with higher yield, reasonable valuation, and decent margins, but doesn’t have Columbia’s catalysts.
The article A Tough Competitor Means Cold Cash for You originally appeared on Fool.com is written by AnnaLisa Kraft.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool recommends Under Armour. The Motley Fool owns shares of Under Armour.
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