Columbia Sportswear Company (COLM) is set to report second-quarter fiscal 2014 results on Jul 24. Last quarter, the sports apparel retailer delivered a massive positive surprise of 96.9%.
The company has reported positive earnings surprise for the past four quarters. Let us see how things are shaping up for this announcement.
Factors to be Considered this Quarter
Columbia Sportswear has been reporting decent earnings results for the past few quarters, backed by strong sales. The company has also maintained a strong market share position on the back of strong demand for its Columbia and Sorel brands, especially across U.S. wholesale and direct-to-consumer channels.
Management is optimistic about the to-be-reported quarter as well. In-fact, the fiscal 2014 outlook was raised during the first-quarter conference call. Management expects its full-year operating income to grow 25% year over year, leading to operating margin of approximately 8.25%, higher than the prior forecast of 8%.
Net sales for 2014 are expected to grow 16% to 18% year over year, as against the previous expectation of 15% to 17% growth. A major portion of sales growth is expected to come from the newly formed China joint venture completed in Jan 2014.
However, the inclement weather that hit the U.S. lingered till March and resulted in soft sales during the early months of 2014. Retailers like Columbia Sportswear are thus trying to clear the resultant piled up inventory by offering heavy discounts which has led to a difficult pricing and promotional environment in the industry. This has led to a pricing war among retailers which may affect Columbia Sportswear’s margins and sales during the quarter.
Earnings Whispers?
Our proven model does not conclusively show that Columbia Sportswear is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:
Zacks ESP: ESP for Columbia Sportswear is -5.41%. That is because the Most Accurate estimate stands at a loss of 39 cents while the Zacks Consensus Estimate is a loss of 37 cents.
Zacks Rank: Columbia Sportswear has a Zacks Rank #1 (Strong Buy) which when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some other companies that, according to our model, have the right combination of elements to post an earnings beat this quarter:
The J. M. Smucker Company (SJM), with an Earnings ESP of +1.46% and a Zacks Rank #3 (Hold).
Dr Pepper Snapple Group, Inc. (DPS), with an Earnings ESP of +3.30% and a Zacks Rank #3.
Keurig Green Mountain Inc. (GMCR), with an Earnings ESP of +2.30% and a Zacks Rank #3.
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