Ticker Reports for August 20th
Columbia Sportswear: A Turnaround Story That's Gaining Ground
Outdoor lifestyle apparel and products manufacturer Columbia Sportswear Co. (NASDAQ: COLM) is trying to stage a turnaround in its business. After the pandemic-driven surge of 2021, Columbia has been tackling tailwinds comprised of inflationary pressures, economic uncertainty, and inventory glut. While its recent earnings results and Q3 guidance left a lot to be desired, signs of a return to growth are starting to take shape. The company has been executing an aggressive cost containment and inventory reduction plan, which is gaining ground and planting the seeds for recovery as normalization nears an end.
Columbia Operates 4 Lifestyle Brands
In addition to its namesake, Columbia operates three additional brands that were acquired to complement its portfolio of outdoor products. SOREL sells outdoor utility boots, contemporary slippers, shoes, and sandals. Mountain Hardwear sells premium apparel, gear, and accessories for climbers, mountaineers, trail athletes, skiers, and snowboarders. prAna sells versatile basic casual wear from stretch performance pants, tee-shirts, and tops to activewear.
Columbia Sportswear operates in the retail/wholesale sector, competing with V.F. Corp. (NYSE: VFC), Canada Goose Holdings Inc. (NYSE: GOOS), and Deckers Outdoor Co. (NYSE: DECK).
Columbia: Weathering Normalization and Inventory Glut
Compared to competitors, Columbia has a smaller mountain to climb to return to growth. The company has very little debt, as evidenced by its debt-to-equity ratio of around 19%. In comparison, VF Corp has 10x more debt-to-equity at 193%. This enables Columbia to deploy capital to boost its non-core brands instead of spending efforts on debt reduction. SOREL's sales decline is starting to stabilize. prAna is showing positive signs based on the improvement in future season sales. The company was successful in shrinking its inventory 29% YoY in Q2 2024 and is on track to generate $75 million to $90 million in cost savings for the full year 2024.
Columbia’s Omni-Tech: Enhancing Apparel with Innovative Protection
Columbia has developed and incorporated proprietary Omni-Technologies for some of its products. Omni-Heat thermal reflective insulation technology in its jackets delivers more warmth, using metallic gold dots to reflect more body heat. Omni-Tech makes its gear waterproof and breathable. Omni-Shade apparel, including shorts, camp tee shirts, pants, and hoodies, blocks harmful UVA/UVB rays to protect against skin damage.
COLM Stock Forms a Symmetrical Triangle Pattern
The daily candlestick chart for COLM indicates a symmetrical triangle pattern. This is comprised of a descending upper trendline connecting the lower highs and an ascending lower trendline connecting the higher lows. The two trendlines meet at the apex point. COLM will either break out through the upper trendline or break down through the lower trend as it moves toward the apex point. The daily relative strength index (RSI) is stalled around the 50-band. Pullback support levels are at $76.90, $73.51, $69.52, and $66.01.
Making Incremental Improvements
Columbia Sportswear posted a Q2 2024 EPS loss of 20 cents versus consensus estimates or a loss of 34 cents. This was a 14-cent EPS beat. Revenues fell 8.2% YoY to $570.2 million versus $596.37 million consensus estimates. The company closed the quarter with $711 million in cash and cash equivalents. Inventories dropped 29% YoY to $823.6 million. The Board of Directors approved a quarterly cash dividend of 30 cents payable on Aug. 29, 2024, to shareholders of record on Aug. 15, 2024.
Columbia Issues Mixed Guidance
Columbia Sportswear issued downside Q3 2024 guidance for EPS of $1.27 to $1.43 versus $1.62 consensus estimates. Q3 2024 revenues are expected to be between $927 million and $959 million versus $966.41 million. The company issued in-line full-year 2024 EPS of $3.65 to $4.04 versus $3.87. Full-year 2024 revenues are expected to be between $3.35 billion and $3.42 billion versus the consensus estimates of $3.39 billion.
Columbia Sportswear CEO Tim Boyle commented, "As we look toward 2025, I am pleased to report that early indications from our Spring '25 wholesale order book suggest a return to wholesale growth in the first half.”
Boyle concluded, “Our fortress balance sheet remains a strategic advantage, with over $710 million in cash and short-term investments, and no debt, at quarter end. I’m confident our team and our strategies position us to re-accelerate growth and capture market share over time.”
Columbia Sportswear analyst ratings and price targets are at MarketBeat. There are five analyst ratings on COLM stock, comprised of one Buy, three Holds, and one Sell. Consensus analyst price targets point to $77.00.
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Lowe's Stock: Hold Now, Buy it When it Dips
Lowe’s Companies (NYSE: LOW) stock is in a holding pattern after the Q2 results revealed operational quality offset by a weakened sales outlook. The critical takeaway is that macroeconomic conditions impact sales while operational quality improves. As bad as the guidance seems, it’s not as bad as was feared, and the company is set up to gain leverage when the economy rebounds. Among the critical details are improving sales in the Pro segment, the company’s primary growth avenue today, and solid cash flows that can sustain the capital return program.
The only truly bad detail in the report is that share repurchases have slowed and will likely remain weak until business improves systemwide. Until then, investors can bank on the dividend, which trades at a premium relative to historical norms. Trading at 20x earnings, Lowe’s is a value compared to the 10-year average 22.5x P/E multiple and its largest competitor, Home Depot (NYSE: HD), which trades at an even higher multiple.
Lowe’s Reports Mixed Results, Cuts Guidance
Lowe’s reported mixed results for Q2, impacted by slowing DIY sales, big-ticket item sales, and weather, offset to a small degree by improving Pro sales. The company reported $23.59 billion in net revenue, which is down 5.5% compared to last year and 160 basis points shy of the consensus. Comps are down -5.1%, offset by an increased store count, with DIY sales down nearly double digits and Pro up mid-single-digits.
Margin news is also mixed, with margin contraction at every level but less than analysts forecast. The gross margin contracted by 20 basis points, SG&A increased by 50 basis points, the operating income margin increased by 100 basis points, and the net income margin increased by 50. The salient detail is that the $4.10 adjusted EPS is down 10% YoY but outpaced consensus by a dime, providing sufficient cash flow to sustain share repurchases, dividends, and balance sheet improvements.
Guidance will move the market over the next few days and weeks. The company lowered its guidance significantly, putting the new high-end range below the prior low-end range, but based on the market response, investors were expecting much worse.
Lowe’s Capital Returns Are Safe: Repurchases Slowed in Q2
Lowe’s results drove sufficient cash flow to sustain the capital return, but a problem will undercut the upside share price potential over the next quarter.
The company’s repurchases slowed by 60% to only $1 billion in Q2 and will likely remain muted until business picks up again. Repurchases in Q2 helped reduce the count by 2.5% on average for the quarter, a pace investors should expect to slow in the fiscal year’s second half.
The dividend remains safe despite the slowdown in repurchases. It is worth about 1.9%, with shares trading near $240, and is less than 40% of the renewed guidance.
Distribution increases are also likely to continue, but, as with the repurchases, investors should expect the pace of growth to slow over the next two quarters.
Analysts Hold Lowe’s but View its Stock as Fairly Valued
The initial analysts' response to Lowe’s results is favorable. The few revisions issued immediately after the report reiterate ratings and price targets aligning with the Hold consensus and the $250 price target. The caveat is that the consensus price target assumes the stock is fairly valued at the current price point and is unlikely to move higher soon. The risk for investors is that the consensus will falter over the coming weeks, adding downward pressure to the market.
The price action is bearish going into the open following the release. The market is down about 1% but still above critical support, so the downside may be limited. Critical support is near $240 and may hold despite the weak report. In that scenario, investors should expect to see this market trend sideways until more news is out, including updates on inflation and the outlook for FOMC rate cuts. If the market falls below $240 and can not rebound quickly, it could revert to its trading range with a chance of moving to $215 or lower.
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ZIM Shipping Stock Soars as the Industry Shows a Bottoming Trend
Most investors have been worried about the state of the shipping industry. Transportation stocks have underperformed the broader market ever since bottlenecks and supply chain issues caused by the COVID-19 pandemic created a difficult business environment for those who operate in the space. Today, a mid-cap shipping stock shows that the industry is actually starting to look up now.
Shares of ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) rose by as much as 16.7% in a single day, as most bearish traders were forced to bail out of their short views for this company. The rally is 100% accredited to the recent second quarter 2024 earnings announcement, which pointed ZIM’s financials in the right direction today despite all of the potential issues brewing in the background for the global supply chain landscape.
Wall Street analysts reiterated their bullish view on the stock right after the earnings announcement, and that is encouraging for shareholders looking to stick by ZIM in the coming months, especially for those on the sidelines awaiting further confirmation to potentially justify a position in this shipping leader. For the sideliners, here’s what drove the earnings rally for ZIM stock.
ZIM Stock Soars as Key Business Drivers Spark Optimism
Every business and industry has its own set of key performance indicators (KPIs), but the one that every single operator shares is the top line, also known as revenue. This quarter, sales reached $1.93 billion for ZIM, representing a net growth rate of 48% over the past 12 months.
While that could have boosted the stock, it’s not meaningful enough for a nearly 20% rally in one day. Moving deeper into the most common drivers in the business, investors can look into ZIM’s free cash flow (operating cash flow minus capital expenditures), which reached $712 million this quarter, or a jump of 391% over the year.
This shift in free cash flow helped the one metric investors (and markets) care about the most swing into positive territory. Earnings per share (EPS) jumped to $3.84 from a net loss of $2.29 a year prior. That type of recovery fits a double-digit rally more, but there’s more.
Looking into the future, analysts at Jefferies Financial Group reiterated their Buy rating for ZIM stock, with a price boost potentially following shortly after from other banks. Why? ZIM management has already given the public a preview of what the rest of the year might bring.
Shipping volumes are rising, with an 11% increase over the past year alone. Considering the current freight rates (which have also been on the rise), it was easy for management to provide more optimistic guidance moving forward.
ZIM Stock Forecast: Bright Future Ahead for Investors
Considering the current conflicts affecting shipping and freight patterns in the Middle East, especially the Red Sea crisis, freight rates could reach new highs as demand comes online from potentially easing policies in leading nations.
With the Federal Reserve (the Fed) promising interest rate cuts by the end of 2024, business activity—including shipping—might see better days ahead, and ZIM management shows all of these trends working in favor of the company in the following quarters.
Knowing that the future is brighter now for ZIM stock, short interest in the company has been on a downtrend for the past two quarters, a sign of bearish capitulation with sentiment shifts attached. Adding to the momentum and potentially filling in the gaps bears left, up to $143 million in institutional capital has made its way into ZIM stock.
Among these buyers were the company's largest shareholders, Renaissance Technologies, who boosted their stakes by 479.9% as of August 2024 for a net investment of up to $58.4 million. In today's economy, institutional and retail investors might find another bullish factor to justify taking a second look at this stock.
After witnessing the recent financial strength for the quarter, management also boosted the quarterly dividend payout to $0.93 a share, which would come out to be an annualized yield of up to 4.2% today to beat both inflation and GDP growth in the United States.
But here's another significant statistic for those worried about considering a stock after such a big rally. Valuations are typically where the discounts can be justified. For ZIM stock, this opportunity comes in the form of a price-to-book (P/B) multiple.
Trading at only 1.1x P/B puts ZIM stock below the transportation sector's average valuation of 2.05x, and that's where investors can rest assured that more upside could be ahead for this company, especially with the new guidance and the bottlenecking state of the shipping industry.
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