prev

COLM: Key Market Share Trends

Per my prior post, here are supporting charts showing key trends.

1) Total athletic apparel is hardly knocking the cover off the ball, but is at a flattish rate versus -20-30% 3 months ago.

2) Outerwear has started off the year better than last year at retail – without price point degradation.

3) Footwear (17% of sales) remains a disaster.

COLM: Risk/Reward Is Shaping Up Nicely

Here’s some irony for you… Yesterday I was in my office reviewing top line and cash flow trajectories for all the companies I track in retail. One that stood out to me as a potential positive inflection was Columbia Sportswear. No, the irony is not that I’ve been a perpetual bear on this model, but that about an hour later Keith (who has the uncanny ability to call key stock levels on a massive number of tickers) sent me an email saying ‘COLM looks like a lay-up under $30 – long side.’

Mark my words, COLM WILL miss the quarter and management WILL guide down. I’m at $1.75 for 2H08 EPS vs. the Street at $2.01. But with short interest at an all time high of 33% of the float, do you think that just MAYBE the market knows this?

Also, I like the fact that trends in the channel are picking up for COLM at a point when the company is just beginning to anniversary 4 quarters of extremely tough EBIT margin compares. It is gaining share on the margin from VFC’s The North Face, and its US Outdoor division (36% of sales and nearly 50% of cash flow) has picked up since COLM last issued guidance. The kicker for me is the P&L compares are so rough, in part, due to a meaningful increase in SG&A spend to up the ante on product and marketing – something I have long knocked this company for. SG&A ratio will have gone from 28% to 34% over 3 years. That’s the exact level that this company needs to kick start growth.

If I assume that EBITDA is down another 20% in 2009, I get to sub-7% margins and a 5.6x EBITDA multiple. That’s not cheap relative to some other names in the space (esp one with 22% of sales in Europe), but with margins having gone from 16% to 7% over 3 years as COLM repeatedly shot itself in the foot, I think that the risk/reward is starting to point higher as it relates to cash flow. Heck, at this point a simple factor like a cooler than expected winter would get the cash flowing.

Please see our COLM margin walk below for detail on the progression of key P&L components. See our follow up post for key market share trends in key categories.

SEA CHANGE: HONG KONG TRIMS YUAN HOLDINGS

History and geography have always led Hong Kong’s merchants to be pragmatic traders. Invasion, colonial rule, war and natural disasters have been reoccurring themes over the course of five centuries of almost uninterrupted trade on the Island. This trade resilience is a testament to remarkable timing skill.

The most recent figures released by the special district’s monetary authority suggest that -ever pragmatic, Hong Kong’s residents have been limiting their additions in Yuan holdings as the currency begins to slow in trajectory due to intervention and the cooling of global growth expectations.

Andrew Barber
Director

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

EYE ON PUTIN POWER: COLD WIND BLOWING FROM THE EAST

Belarus today became the fifth nation to appeal to the IMF for help as the credit meltdown continues to knock small, leveraged economies over like dominoes.

As the crisis spreads, the division between pro Russian and pro Western states is becoming increasingly pronounced. Anti-Russian former Soviet states Belarus and the Ukraine –as well as former satellite Hungary, have been relatively warmly received as they reach westward for help. The aid pledged by the western powers to help Georgia rebuild after this summer’s conflict now exceeded $4 Billion.

Meanwhile the much heralded Russian loan for Iceland has, as of yet, failed to materialize and the flight of capital from Moscow banks continues. The Russian Navy –which looks about as seaworthy as the Russian stock market, arrives in Venezuela just in time to see their South American comrades sink into the abyss as plummeting oil prices bankrupt Higo Chavez’s grand socialist experiment.

The Pro Russian block is experiencing a rapid reversal of fortune as credit replaces oil as the most coveted commodity on earth. The large financial Infrastructure of the US, EU & Japan have been weakened dramatically, but they remain the undisputed strong hands at the poker table.

If these trends continue the Threat to Putin’s global influence are considerable. That is not a positive data point for stability.

Andrew Barber
Director

PFCB – A New Risk Factor in the 10Q

I just finished reading the PFCB and noticed that the company added a new risk factor to its 10Q. PFCB is now specifically talking about new stores taking more time to reach maturity. I can only conclude that management is seeing a “new” trend in the stores it has opened recently. Not that we need to find another negative for a casual dining company, it’s an interesting development. This also help explain why they reduced new store openings again!

The following is the new text from the 10Q filed yesterday:

“As of June 29, September 28, 2008, there have been no material changes to these risk factors. factors other than the change of the following.

Failure of our existing or new restaurants to achieve predicted results could have a negative impact on our revenues and performance results as well as result in impairment of the long-lived assets of our restaurants.

We operated 182 full service Bistro restaurants, 165 quick casual Pei Wei restaurants as of September 28, 2008, 48 of which opened within the last twelve months. The results achieved by these restaurants may not be indicative of longer term performance or the potential market acceptance of restaurants in other locations. We cannot be assured that any new restaurant that we open will have similar operating results to those of prior restaurants. Our new restaurants commonly take several months to reach planned operating levels due to inefficiencies typically associated with new restaurants, including lack of market awareness, inability to hire sufficient staff and other factors. The failure of our existing or new restaurants to perform as predicted could negatively impact our revenues and results of operations as well as result in impairment of long-lived assets of our restaurants.”

EMPLOYMENT: INITIAL CLAIMS DISPOINT THE BULLS

After two consecutive weeks where jobless claims came in lower than expected, today’s number arrived higher than forecasts at 478, 000; 10,000 more than the economists surveyed by Bloomberg and breaking the short lived winning streak for bulls looking for signs of stability.

Traders know that in a period of extreme market volatility, picking a top or bottom is very difficult –in a period of extreme economic volatility the same principal holds true. The trend in job losses has not shown signs of directional change yet.

Andrew Barber
Director

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

next