The Song Remains The Same

My fingers started off typing about Columbia’s miss and guide down. Then I realized that I was getting caught up in the weeds. COLM was not a horrible performer relative to its peers. The reality is that this space just stinks. Organic sales under pressure, order cancellations ticking up, FX benefits are easing, cost inputs are rising, pricing power is nil/negative, GM% eroding, and SG&A is heading higher. Not pleasant. Most companies are answering by opening up their own stores, hence taking up their respective capital plan and operating asset base at exactly the wrong time. This means greater margin volatility, which means little reason for valuations to emerge from the basement. Whether it’s COLM, VFC, VLCM, SKX or CROX (all have reported over the past week), the song remains the same. Margins are coming down another 2-3 points for this industry over 2-3 years.

Our recent mantra in the halls here at Research Edge is that it’s time where stock-pickers can once again earn their keep. I’d take it a step further. In that it is more important now than ever to understanding the extent to which management teams ‘get it’ and can properly allocate capital (or realizing that the best allocation is to pull back deployment meaningfully).

Names that have yet to suffer the same fate, that I think will over 2 quarters, include VFC, WRC, PVH, GIL, DSW, ADS.DE,DKS and (still more to come) in SKX. I continue to like companies that are entering harvesting mode as it relates to brand investment and capital deployment. These include RL, TBL, LIZ, FINL and PSS.
Here's a chart showing aggregated sales, GM, and inventory/sales for all companies that have reported in this space thus far. Not a pretty picture whatsoever.

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