COLM: Guidance is Too Low

Score one for our process here at Research Edge. Alone, I liked how the risk/reward was shaping up. From a timing standpoint, Keith wanted to wait for the print. I think guidance is low. You may get your shot…
This quarter was a mess for COLM. Yeah, the company beat when stripping out asset impairment and tax charges (on a clean basis it came in at $0.72 vs. the Street at $0.64). But earnings were still down from $1.12 last year, and guidance for 1Q was nothing short of abysmal. Also, COLM wrote off $25mm associated with Pacific Trail and Montrail – to brands that it bought in 2006 for $35mm for 1x revenue. Now they’re worth $10mm combined?? C’mon guys, this is only a hair less embarrassing that Vikram Pandit writing off the value of his Old Lane hedge fund after selling it to Citigroup and becoming CEO.

My problem here is that I really can’t get to a number as low as what COLM is guiding in the upcoming quarter. $0.04-$0.08 vs. $0.56 in ’08 and $0.71 in ‘07? I don’t think so. Even though sales are punk (as the backlog reported 3 months ago told us), inventories are about in line, FX pressure on the top line has the reverse effect on SG&A, COLM anniversaries 1H marketing send on product launches, and begins o benefit from recent corporate headcount cuts. I need to assume that revenue is down mid-high teens or that pricing is off disproportionately with current inventory levels to get to the assumptions that COLM threw out there.

I’m getting to near $0.25 for 1Q, and $2.75 for the year. My sense is that the Street will come in at about $0.10 and $2.10, respectively. If we see the stock head into the mid-high $20s, this might shape up to be one of my favorite names.

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