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Takeaway: COLM -- Too Soon To Short, But Start Doing The Work | WMT not offering free holiday shipping | KSS Giving the store away

COLM -- Too Soon To Short, But Start Doing The Work

We question how long this good news out of Columbia will last. With the 3Q print, and positive market reaction, we're nudging closer to the short side.

On the plus side, this is about as airtight a quarter as we’ve seen from any company in the retail space (outside of NKE) this 3Q. The earnings algorithm on the income statement was impeccable with revenues +14%, gross profit +16%, EBIT +35%, and earnings +38%, with the sales to inventory spread improving sequentially from -10% to +3%.Even if we exclude the $40mm in wholesale shipments pulled forward from 4Q, the organic growth rate for the company still improved sequentially by 250bps (excluding Fx, Prana, and China JV). If we were to poke holes in any part of the print it would be on guidance, but that’s par for the course with the COLM management team -- the king of the 'guide & beat'. In truth, guidance was far less bearish than we've seen from COLM in a while -- and today's stock reaction knows it. 

On the flip side, we can't escape three things…

1) This selling season has not started off well for cold weather apparel by a country mile. This revenue represents wholesale shipments we're seeing out of Columbia -- they were ordered six months ago when retailers still had fresh memories of extremely harsh winters over each of the past two years. Now that everyone already owns a puffy jacket (we'd argue that 8 out of 10 people reading this bought a new foul weather coat in the past two years), we're curious to see how sell-through looks this season.
2) COLM's shipments and inventory levels look great. But that's not the case in apparel retail in general. There's no question that inventory/sales ratios for the retailers have eroded-- perhaps temporarily -- in the wrong direction. It's simply too early in the season for them to turn on the discounting spigot, but as Black Friday approaches keep an eye on the category. 

3) A significant part of the revenue upside came from Sorel, which is a great brand in its own right. But it's definitely struck a fashion chord with its women's line for this fall (see below). These trends always last longer than most people think, but let's be clear -- this is NOT COLM's core competency. It's not even close.

Retail Callouts (10/30): COLM - Too Soon to Short, TGT, WMT, KSS - 10 30 15 Chart3

Retail Callouts (10/30): COLM - Too Soon to Short, TGT, WMT, KSS - 10 30 15 Chart1

Retail Callouts (10/30): COLM - Too Soon to Short, TGT, WMT, KSS - 10 30 15 Chart2

WMT, TGT - Wal-Mart Won't Offer Free Shipping over Holidays

(http://www.wsj.com/articles/BT-CO-20151029-713548)

Why didn't WMT follow TGT down the free shipping rabbit hole? Our sense is that WMT feels that it's currently doing enough to win the Holiday battle -- 'rollbacks' starting 11/1, lower prices, higher wages/better service. And, it just couldn’t stomach the $5-$8 dollars it costs to ship a pack of pencils for free. Our sense is that WMT will compete away any shipping delta between itself, TGT, and AMZN in price which in effect takes prices down across the industry as price matching algos step into high gear.

KSS - Giving the Store Away

To be fair, this isn't a big deviation from the Halloween weekend sales KSS has run in the past with the one exception being the extra 20% off + triple points for rewards members. But, if you are the consumer (especially a fringe KSS consumer) how  do you keep the promotions straight? 50% off specials + Kohl's Cash + Rewards Benefits. It would not only take a really savvy couponer to figure out the benefits, but this looks like the type of promotion that would cater to a dedicated Kohl's shopper and doesn't solve THE key issue, which is attracting new customers. Looks like Mansell and co. is throwing the kitchen sink at its customer base.

2015 vs 2014

Retail Callouts (10/30): COLM - Too Soon to Short, TGT, WMT, KSS - 10 30 2015 chart4 

TGT - Target officially announces free shipping on all orders for the holidays, repeating last year's offer. 

(http://www.wsj.com/articles/target-to-offer-free-shipping-on-all-online-orders-1446156000)

DECK - Deckers appointed Stefano Caroti, former Nike and Puma exec, as president of omni-channel.

(http://www.prnewswire.com/news-releases/deckers-brands-appoints-stefano-caroti-as-omni-channel-president-300168813.html)

TGT - Target launched a new international website shoppable in more than 200 countries/territories.

(https://corporate.target.com/article/2015/10/borderfree-international-announcement)

M - Macy’s will be opening Thanksgiving with Black Friday deals starting at 6pm.

(http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-newsArticle&ID=2104203)

M - Macy’s Inc. discusses store plans for Abu Dhabi in 2018.

(http://wwd.com/retail-news/department-stores/macys-mideast-abu-dhabi-10270966/)