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What Drove Columbia Sportswear’s Strong Q3 Earnings Growth?

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Strong growth in earnings

Columbia Sportswear’s (COLM) adjusted EPS of $1.41 in the third quarter easily beat analysts’ consensus estimate of $1.27. The company’s adjusted EPS grew 10.1% compared to its adjusted EPS of $1.28 in the third quarter of 2017.

Overall, the company’s adjusted EPS grew 40.1% to $2.34 in the first nine months of 2018.

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Key drivers

Columbia Sportswear’s adjusted EPS growth in the third quarter was driven by higher sales and the impact of a lower tax rate. Columbia Sportswear’s adjusted effective tax rate was 21.5% in the third quarter of 2018 compared to 26.7% in the third quarter of 2017.

Higher expenses adversely impacted Columbia’s EPS growth rate in the third quarter. On an adjusted basis, the company’s selling, general and administrative expenses grew 12% in the quarter. Increased expenses associated with growing DTC (direct-to-consumer) operations, higher demand creation, and incentive compensation put pressure on its bottom line in the third quarter.

Peer Nike’s (NKE) adjusted EPS of $0.67 rose 17.5% on a year-over-year basis in the first quarter of fiscal 2019, which ended on August 31. Nike’s earnings grew on higher sales, expense leverage, and a lower share count. However, higher taxes had an adverse impact on Nike’s EPS growth.

Guidance raised

Columbia Sportswear raised its reported EPS guidance for 2018 to between $3.41 and $3.46 compared to its earlier guidance of between $3.15 and $3.25. The company expects its adjusted EPS to be in the range of $3.57–$3.62 compared to its previous outlook in the $3.37–$3.47 range. We’ll discuss the company’s updated sales guidance in the next article.

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