Outerwear manufacturer Columbia Sportswear (NASDAQ:COLM) beat analysts' expectations in Q1 CY2024, with revenue down 6.2% year on year to $770 million. On the other hand, next quarter's revenue guidance of $566.5 million was less impressive, coming in 3.2% below analysts' estimates. It made a GAAP profit of $0.71 per share, down from its profit of $0.74 per share in the same quarter last year.

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Chairman, President and Chief Executive Officer Tim Boyle commented, “2024 has started out broadly in line with our expectations. We are making good progress against our top priorities. Inventory exiting the quarter was down 37 percent year-over-year, and our Profit Improvement Plan is on track to achieve our savings targets. Based on year-to-date results, we are reiterating our net sales outlook while modestly increasing our diluted EPS range.

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 give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one may grow for years. Columbia Sportswear's annualized revenue growth rate of 3.8% over the last five years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Columbia Sportswear's recent history shows the business has slowed as its annualized revenue growth of 2.6% over the last two years is below its five-year trend.

Columbia Sportswear also reports sales performance excluding currency movements, which are outside the company’s control and not indicative of demand. Over the last two years, its constant currency sales averaged 6.6% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see that foreign exchange rates have been a headwind for Columbia Sportswear.

This quarter, Columbia Sportswear's revenue fell 6.2% year on year to $770 million but beat Wall Street's estimates by 3.6%. The company is guiding for a 8.8% year-on-year revenue decline next quarter to $566.5 million, a reversal from the 7.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Columbia Sportswear has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 9.1%, subpar for a consumer discretionary business.

Columbia Sportswear's free cash flow came in at $91.98 million in Q1, equivalent to a 11.9% margin and up 43.8% year on year. Over the next year, analysts predict Columbia Sportswear's cash profitability will fall to break even. Their consensus estimates imply its LTM free cash flow margin of 17.7% will decrease by 17 percentage points.

Key Takeaways from Columbia Sportswear's Q1 Results

We were impressed by how significantly Columbia Sportswear blew past analysts' EPS expectations this quarter. We were also excited its operating margin outperformed Wall Street's estimates. Full year EPS guidance was also raised and is above Wall Street's estimates, adding to the positivity of the print. Overall, this quarter's results still seemed fairly positive and shareholders should feel optimistic. The stock is up 7.6% after reporting and currently trades at $85 per share.

Columbia Sportswear may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.