Outerwear manufacturer Columbia Sportswear (NASDAQ:COLM) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 5.5% year on year to $931.8 million. The company expects next quarter’s revenue to be around $1.08 billion, slightly below analysts’ estimates. Its GAAP profit of $1.56 per share was 15.4% above analysts’ consensus estimates.

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Chairman, President and Chief Executive Officer Tim Boyle commented, “Third quarter results reflect ongoing strength in most international markets, offset by continued softness in North America. While warm weather has curbed early season demand for Fall 2024 cold weather product, I’m excited about the differentiated innovations we are offering consumers, including Omni-Heat Infinity and Omni-Heat Arctic, as well as the lightweight comfort provided by our Omni-Max footwear platform.

Company Overview

Originally founded as a hat store in 1938, Columbia Sportswear (NASDAQ:COLM) is a manufacturer of outerwear, sportswear, and footwear designed for outdoor enthusiasts.

Apparel, Accessories and Luxury Goods

Within apparel and accessories, not only do styles change more frequently today than decades past as fads travel through social media and the internet but consumers are also shifting the way they buy their goods, favoring omnichannel and e-commerce experiences. Some apparel, accessories, and luxury goods companies have made concerted efforts to adapt while those who are slower to move may fall behind.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Columbia Sportswear grew its sales at a weak 2.1% compounded annual growth rate. This shows it failed to expand in any major way, a rough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Columbia Sportswear’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.4% annually.

This quarter, Columbia Sportswear reported a rather uninspiring 5.5% year-on-year revenue decline to $931.8 million of revenue, in line with Wall Street’s estimates. Management is currently guiding for a 1.4% year-on-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 3.6% over the next 12 months, an improvement versus the last two years. While this projection illustrates the market thinks its newer products and services will catalyze better performance, it is still below the sector average.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Columbia Sportswear has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 10% over the last two years, slightly better than the broader consumer discretionary sector.

Columbia Sportswear burned through $255 million of cash in Q3, equivalent to a negative 27.4% margin. The company’s cash burn increased from $6.09 million of lost cash in the same quarter last year . These numbers deviate from its longer-term margin, raising some eyebrows.

Over the next year, analysts predict Columbia Sportswear’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 12.8% for the last 12 months will decrease to 7.2%.

Key Takeaways from Columbia Sportswear’s Q3 Results

We enjoyed seeing Columbia Sportswear exceed analysts’ EBITDA and EPS expectations this quarter. On the other hand, its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a softer quarter, but the stock traded up 2.3% to $78 immediately after reporting.

Is Columbia Sportswear an attractive investment opportunity at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.