UBS keeps sell rating on Columbia Sportswear after disappointing Q4

Columbia Sportswear’s (NASDAQ:COLM) admission that 2024 could be a “challenging” year is not encouraging confidence in Wall Street as the stock is losing ground for a second day. UBS sees sentiment deteriorating further if the company can’t meet 2H24 sales forecasts and margins compress even further.

The bank maintains its Sell rating on Columbia and lowered its price target to $59, 28% below Friday’s closing price.

“Columbia has a portfolio of solid outdoor brands and can deliver decent [long-term] sales growth…but weaker wholesale order books and [direct-to-consumer] deceleration,” prompted UBS analysts Mauricio Serna and Jay Sole to lower their FY24 EPS target by 7% and FY25-FY26 by 9%.

Recent quarterly results suggest “there is still downside risk to Columbia’s FY24 outlook if demand does not inflect in 2H24, potentially resulting in weaker sales and more aggressive downsizing.

In its latest quarterly results, the sportswear company missed EPS estimate by $0.41 and revenue by $20M, and set Q1 and full year sales well below estimates. Sales will likely drop by 8-11% in Q1 and by 2-4% for 2024.

As part of a cost-cutting initiative CEO Tim Boyle announced job cuts of 3-5% during the company’s earnings call. Boyle also said Columbia is taking steps to improve efficiency and spending in non-inventory items to restore operating margins to low-teens percent rate. Cost savings are likely to “ramp up” in 2024 and 2025 with the full benefit realized in 2026.

UBS doesn’t expect these initiatives to have a significant impact on margins as well as “limited expense leverage given slower sales growth.”

“Softer sales should drive deeper SG&A deleverage and we thus reduce our FY24 operating margin estimates 70bps,” Serna and Sole said.

Analysts are largely Neutral on Columbia Sportswear with an average Hold rating from Wall Street analysts and Seeking Alpha's Quant rating. Seeking Alpha authors rate Columbia with a Buy.