Pestle analysis of sportswear industry

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Company Overview
Columbia Sportswear is a company which is a frontrunner globally in designing, marketing and distributing outdoor attire and footwear. The company has been operating in Europe, Asia, and North America. Columbia Sportswear is a leader in selling skiwear in America. The company has developed an international reputation for providing value, performance, and quality for its products.

History
The Columbia first entered the skiwear business in late 1986 (Carroll , 2017). The company has some of its retail outlets where they sell discounted goods. The company sold part of the family business to the public in 1998 (Carroll , 2017).

Columbia Sportswear has been having annual revenue of more than $2 billion since 2015 (Carroll , 2017). Columbia market cap is at $5.65. The company has plans to warm weather clothing and accessories (Carroll , 2017). Columbia sportswear in 2017 had a debt of $14M with the current assets of $1412 which shows that the company can be able to survive a downturn even during adverse business conditions that may affect their sales. The company has a stable liquidity position to cover their interest cost quickly and can generate good cash flows (Carroll , 2017).

Current Market
The Columbia sportswear major on wholesale for their products using their 8500 distributors to major retails and sport goods stores. The company uses the various media platform at their disposal to market their products. The company employs media such as TV, social media sites, and print. The success of Columbia Company is attributed to using direct customer channels through retail and using online e-commerce sites.

The Columbia sportswear has operations are divided into two products categories the first category which is the largest includes clothing, equipment, and accessories that accounts for 80% of the company’s revenue. The second category comprises footwear, brand boots that accounts for the remaining 20%. In the United States, the company has more than 90 department stores with 24 retail shops, five branded e-commerce sites, and two employee outlets.

Company Summary

Columbia Sportswear has been expanding its geographic presence strategically. The company has developed by making alliances with other companies, making company acquisitions and licensing deals to open branches in new locations. The company has partnered with other brands that have helped them to move to new market consumer categories prioritizing on those that are fitting for a warmer climate. In 2015 after the licensing agreement with Delta Galil industries they were able to expand into new territories, and the company was able to develop, produce and distribute the Columbia underwear under Columbia’s brand. We are going now to analyze Columbia Sportswear internal and external factors.

Strategic Analysis
The strategic analysis that can be made to the Columbian sportswear company includes SWOT and PESTLE analysis. SWOT investigation is a tool that can be used by the managers of the sportswear company to plan and also them to weigh the organization strengths with the organization weaknesses. The company can know how it’s performing according to the business environment. PESTEL analysis can be used to analyze the Columbian macro environment. The macro settings need to be investigated since changes can impact the company directly affecting the company’s competitiveness or the profit levels of the consumer’s goods.

PESTEL and SWOT are related approaches to the Columbia Sportswear, and their similarities include they both are part of the Columbian framework to evaluate the environments that are in the organization. Both PESTEL and SWOT are used to identify factors that affect the organization. SWOT can be used to analyze the current market conditions of Columbia while SWOT is used for the external environment. The analysis strategies used will both be of benefit to the Columbian Sportswear if the analysis data is used properly.

SWOT
The SWOT is used to analyze the internal factors that Columbia Sportswear Company is facing. The SWOT is used to analyze the business operations which affects the company directly. The company’s strengths, weaknesses, and opportunities maybe used by the managers of the Columbian company to have a clear picture of where the company is and where it is going.

Strengths

The Columbian Sportswear has some strength which includes the company has highly skilled labor that has been attributed to its continuous training and learning programs (research and markets, 2018). The company has the high rate of its customer’s satisfaction because of the dedication that the company has to their customers. The company has had great success in coming up with new products.

Weaknesses.

Some of the company’s weaknesses include lack of proper marketing strategy for its products. The company has not invested adequately in research for innovative products as compared to its competitors.

Opportunities.

The company could have success if they spent in other products in the market of the industry. The present technology in place can enable the company to implement differentiated price strategy to beat their competitors to win customers.

Threats

One of the threats that faces Columbia Sportswear Company is the fake items which are sold at a much lower cost than the marked ones. Also the brand faces a personality issue outside USA which would mean a more prominent time for mark building.

PESTLE

Political factors.

The Columbia Sportswear political factors is an essential factor in the company’s strategy. Political considerations are such as the steadiness of the textile (fernfortuniversity, 2017). The level of corruption present in the regulating the consumer goods is also a political factor. The intellectual property protection is vital to help the company to avoid replication of their products. PESTEL analysis shows the company’s challenges that the organization is supposed to overcome to be profitable.

Economic factors
Economic factors that affect the quality of textile, the skill of the workforce and the efficiency of the financial markets. The level of education in the market and labor cost are both economic factors.

Social factors

The social factors include the culture, attitudes and the people’s leisure interest. The demographics of the population and their level of skills. The spirit of entrepreneurship and the nature of society in their boarder.

Technological factors
Technological factors include the technical impact of the products that the company has, the rate that technology is diffusing. The impact that value chain structure has on the business and the technological advancement of Colombian competitors.

Environmental factors
The company is also affected by environmental factors such as laws that are regulating the pollution of the environment, the corruption of air and water in Textile. People’s attitude and their support for use of renewable energy.

Legal factors
Legal factors that protect the intellectual protection such as the consumer protection laws, laws that protect against discrimination and also the health and protection laws that are in place to protect employees.

Strategic summary

The findings from the SWOT and PESTEL analysis can be very helpful for the Columbia Sportswear company in creating a business plan (Gartenstein, 2018). The business plan will help the company to know what direction they should be heading with goals that are measurable. The company can use the strategies as tools that can guide their daily decisions. Columbia can be able to change its approach as it progresses.

Financial statements and ratios

The Columbia Sportswear has financial statements and ratios. However, it is important to understand the difference between financial ratio analysis and strategic analysis in order to have an understanding of the company’s finances. The financial ratio analysis involves a quantitative analysis of the company’s financial information. On the other hand, strategic analysis involves determining the current position of the company so that the management can decide and plan for the future of the company. Financial analysis is significant to the Columbia Sportswear company since it helps to determine the efficiency, profitability and liquidity of the company.

Liquidity

The liquidity of the Columbia Sportswear company is identified by the available assets which in this case are the clothing and footwear. The company’s liquidity also helps the company to meet its short-term debt obligations. The table below will show the liquidity ratios of the Columbia Sportswear company for the year 2015, 2016 and 2017.

2014

2015

Change

2016

Change

Current Ratio

3.39

3.41

0.02

3.89

0.48

Quick Ratio

2.36

2.11

-0.25

2.55

0.44

Cash Conversion Cycle

105.29

120.10

-14.81

127.82

7.72

Table 1 - Liquidity Ratios (www.gurufocus.com)

Asset Management

The asset management involves the process of managing a company’s investments. The Columbia Sportswear has the financial management which is in control of the investments management. The financial managers of the compare ensure that they dispose off the clothing and footwear in a cost-effective manner. Through the asset management, the Columbia Sportswear facilitates more investment for those who want to invest in the sportswear industry.

2014

2015

Change

2016

Change

Inventory Turnover Ratio

3.21

2.92

-0.29

2,63

-0.29

Days Inventory Outstanding

113.72

125.04

11.32

138.55

13.51

Days Sales Outstanding (DSO)

59.84

58.36

-1.48

51.24

-7.12

Total Asset Turnover (TAT)

1.24

1.28

0.04

1.23

-0.05

Table 2 - Asset Management (www.gurufocus.com)

Debt Management
Debt management involves the steps taken by the financial managers to ensure that the company’s outstanding debts are settled. This facilitates a control over the finances. In the given period, the debt management process enables the debtor to reduce their unsecured and outstanding debts. The Columbia Sportswear debt management is given in the table below.

2014

2015

Change

2017

Change

Debt Ratio

0.01

0.01

0

0.01

0

Debt to Equity

0.01

0.01

0

0.01

0

Days Payables Outstanding

68.27

63.30

-4.97

61.97

-1.33

Interest Coverage

189.52

226.04

-36.52

247.78

21.74

Table 3 - Debt Management (www.gurufocus.com)

Profitability
In the financial analysis of the company, the profitability is the ability to generate great earnings. In order to obtain a great profitability ratio, the company must obtain higher earnings than the expenses and costs it incurs. The Columbia Sportswear can increase its profitability ratio by expanding their market and focusing more on their sales efforts. The table below provides an overview of the Columbia profitability within the last three years.

2014

2015

Change

2016

Change

Profit Margin on Sales

7

7

0

8.07

1.07

Gross Margin

45.46

46.15

0.69

46.71

0.56

Basic Earning Power

11.14

13.46

2.32

12.81

0.65

Return on Assets (ROA)

8.07

9.58

1.51

9.94

0.36

Return on Equity (ROE)

10.60

12.71

2.11

12.96

10.85

Table 4 – Profitability (www.gurufocus.com)

Financial Statement Overview
Columbia Sportswear is doing great and showing a lot of success in its businesses. The company has a high financial strength which is identified by the various ratios presented. The cash to debt ratio shows that the company has a little amount of debt since the amount of interest it obtains is very high as illustrated by the interest coverage making it manage debts well. Consequently, the company has a high profitability and growth rate with a revenue growth of at least 5.60 within the last three years and a growth rate of the 9.00. The revenue indicated is higher hence producing a significant amount of net income. Additionally, the company’s cash, operating cash, free cash flow, and the net income is higher than the debt. This makes the company have high profits hence being successful in the industry.

Stock analysis

The maximum share price of Colombia sportswear was 71.97 in 2017 and the lowest was 51.99. The highest in 2016 was 63.24 and the lowest was 45.59. In 2015, the highest recorded price was 71.54 and the lowest was 41.62. In 2014, the highest price was 45.38 and the lowest was 35.06. In 2013, the highest was 39.54 and the lowest was 28.01. The average was 59.08 in 2017, 57.04 in 2016, 55.92 in 2015, 40.25 in 2014 and 31.72 in 2013. (NASDAQ, 2018).

The graph below shows the maximum, minimum and average stock prices of V.F Corporation over the five years. The highest closing price was 75.99 in 2014 and the lowest was 62.5 in 2013. The highest average closing price was 74.44 in 2014 and the lowest was 53.54 in 2016. (Morningstar, 2015)

Pricing

Graph 1

Earnings per share is a ratio which shows the profitability per share of the outstanding common stock (Brooks, 2015). The EPS of Colombia sportswear Ltd was 1.49 in 2017, 2.72 in 2016, 2.45 in 2015, 1.94 in 2014 and 1.36 in 2013. The EPS of V.F Corporation was 2.71 in 2013, 3.02 in 2014, 2.85 in 2015, 2.54 in 2016 and 1.52 in 2017. From the analysis, EPS of the main firm is on increasing trend while that of the competitor is on a decreasing trend which is a poor financial indicator. The average negative growth rate is -11.30%. However, for Colombia sportswear dropped by 45.22% to 1.49 in 2017. Therefore, based on EPS the shareholders of the main firm are wealthier compared those of the competitor. The company’s top three competitors are The North Face, Nike and V.F Corporation.

Dividends per share are obtained by dividing the number of the shareholder's equity and the number of shares outstanding. The DPS of Colombia sportswear was 0.46 in 2013, 0.57 in 2014, 0.62 in 2015, 0.69 in 2016 and 0.73 in 2017. The DPS of V.F Corporation was 0.92 in 2013, 1.11 in 2014, 1.33 in 2015, 1.53 in 2016 and 0.92 in 2017. From the analysis, we can conclude that the DPS of both firms is on an increasing trend for the five years. However, the DPS of the competitor is higher compared to the main firm (NASDAQ, 2018).

The book value per share helps determine whether the stock price is overstated or understated. As such, it gives the intrinsic and real price of the share (Brigham et al., 2016). The book value of the Colombia Sportswear was 18 in 2013, 19.24 in 2014, 20.21 in 2015, 22.34 in 2016 and 23.17 in 2017. The book value of V.F Corporation which is the competitor was 12.78 in 2013, 13.57 in 2014, 12.58 in 2015, 11.77 in 2016 and 9.95 in 2017. From the analysis, Columbia Sportswear’s book value per share of the main firm is rising since 2013 while the V.F increased in 2014 but has dropped consistently till 2017. Therefore, the book value of the main firm is better compared to the competitor (NASDAQ, 2018).

Stock performance

The price to earnings is the ratio of the stock price to the earnings per share. The P/E ratio of Colombia Sportswear has not been consistent rather fluctuated over the years with a five year average of 26.05. The P/E ratio of V.F Corporation has been fluctuating as well but shown significant increase over time, from 23.7 in 2013 to 29.5 in 2017 with a dipping drop of 185 in 2016. The five-year average was 24.62. The trends in both firms are characterized by fluctuations in the variables. However, the five-year average growth rate for the main firm is higher compared to that of the competitor. The fluctuations in stock price are a result of changes in market price which influences supply and demand of the share price. Bank interest rates and financial position of the company also influences stock price (Brooks, 2015).

The dividend yield is the ratio of the dividend per share to the price of the stock (Wehlan, Baginski and Bradshaw, 2014). The dividend yield for Colombia Sportswear was 1.4 in 2013, 1.4 in 2014, 1.2 in 2015, 1.3 in 2016 and 1.2 in 2017. The five-year average is 1.3. The DY for V.F Corporation was 1.47 in 2013, 1.48 in 2014, 2.14 in 2015, 2.87 in 2016 and 2.32 in 2017. The five-year average is 2.04. The trend in the main decreasing while that of the competitor is rising. Therefore, based on the dividend yields, V.F Corporation is performing well compared to Colombia Sportswear Ltd.

The payout ratio of Colombia Sportswear Ltd was 33.8 in 2013, 29.4 in 2014, 25.3 in 2015, 25.4 in 2016 and 49 in 2017. The five-year average is 32.6. The payout ratio of V.F Corporation was 33.1 in 2013, 36 in 2014, 53.1 in 2015, 51.2 in 2016 and 66.9 in 2017. The five-year average is 48.06. There is a negative growth rate in the main firm while the competitor has a positive growth. Therefore, the competitor pays higher dividends compared to Colombia Sportswear Ltd.

The return on equity of Colombia Sportswear was 7.6 in 2013, 10.1 in 2014, 12.1 in 2015, 12.2 in 2016 and 6.4 in 2017. The five-year average was 9.7%. The ROE of V.F Corporation was 21.6 in 2013, 17.89 in 2014, 22.36 in 2015, 20.8 in 2016 and 14.2 in 2017. The five-year average is 19.37. The trends in both firms are fluctuating. However, based on the five years average, the competitor has a higher a better ROE compared to the main firm.

Stock Chart of V.F Corporation

The price forecast is obtained by multiplying the five-year average growth rate with the share price in 2017. The assumption is that in 2018, the stock price will grow by the average of the five years.

Year

2018

2017

2016

2015

2014

2013

High

80.17

74.78

53.87

62.80

75.99

62.50

Low

79.32

73.99

53.22

62.23

74.89

62.08

Average

79.74

74.39

53.55

62.52

75.44

62.29

% change

0.07

0.39

-0.14

-0.17

0.22

Five-year Growth Rate

0.07

Table 2. Share Price Forecasts of V.F Corporation. Adapted from NASDAQ

Table 3. Share Price Forecasts of Colombia Sportswear. Adapted From NASDAQ

Valuation forecast

The book value is obtained by multiplying the five-year average growth rate with the book value per share in 2017. The assumption is that in 2018, the stock price will grow by the average of the five years. As such, the book value per share of V.F Corporation is estimated to be 13.64 in 2018 and that of Colombia sportswear is forecasted to be 24.68. Therefore, based on the trends and forecast the stock is overvalued.

Table 3. Book Value Forecasts of V.F Corporation. From Morning Star

Year

2018

2017

2016

2015

2014

2013

Book Value

13.65

12.78

13.57

12.58

11.77

9.95

% change

0.07

-0.06

0.08

0.07

0.18

Five-year Growth Rate

0.07

Table 4. Book Value Forecasts of Colombia Sportswear. Adapted From NASDAQ

Year

2018

2017

2016

2015

2014

2013

Book Value

24.69

23.17

22.34

20.21

19.24

18.00

% Change

0.07

0.04

0.11

0.05

0.07

Five-year Growth Rate

0.07

The table above indicates the book value of Columbia Sportswear and its competitor, V.F Corporation. The book value of Columbia Sportswear is high with a fluctuating percentage change. The five years growth rate of both companies is the same implying that the companies will still retain their book value positions in the next five years.

Stock Analysis Summary

From the analysis done on the share prices, return on equity, dividends per share, book value per share, earnings per share, and payout ratio we can conclude that Colombia Sportswear is performing better compared to V.F Corporation. The profitability and market values strongly indicate that the management team of the main firm is more qualified, competent and skilled compared to that of the competitor (Weygandt, Kimmel and Kieso, 2015). The team is able to invest in projects that yield positive benefits to the shareholders.

The share prices were highest in November and December 2017 and were lowest between January and March 2018. The patterns can be explained by the forces of demand and supply created by the sale and purchase of shares. As the year ends, most financial analysts and institutional investor sell of the stocks that are performing badly and buy new shares to improve the portfolio image and brand (Wahlen et al, 2014). The sale stimulates the aggregate demand in the market leading to a rise in prices. However, due to slow movements and low demand in the economy at the beginning of the year, the share prices drop.

Columbia Sportswear Company is a strong business distributor with impressive market trends evidenced by its increase in revenue. It has a consolidate growth position backed by its stock prices and book value in comparison to its competitor V.F Corporation. There has been a surge in earnings and dividends per share with a good payout ratio and return on equity. The company’s market will also expand over the next five years despite the fluctuations in the stock and share prices. The fluctuations are a result of changes in supply and demand among other economic factors which influence demand and supply. The enhanced margins and strong sales result in sales growth and improved performance. The overall market trend of Columbia Sportswear shows a fluctuation in growth as there are significant differences in the stock analysis over the years (NASDAQ, 2018).

Comparative Analysis

Overall company performance

Columbia Sportswear has a steady growth performance backed by its recent developmental activities. The company has been able to brand itself as a reputable company with consistent growth over the years. It has been expanding its geographic presence, developing an international reputation which is indicative of growth. Its strategic analysis also shows growth on the positive side as a result of its strengths which encourage a good micro-environment for the company. The business operations of the company are indicative of company on the brinks of steady operations on the positive upper end.

The financial statement of Columbia Sportswear indicates a stable liquidity position with more assets to debt ratio. The company can therefore cover their interest quickly and generate good cash flows in case of any downturn. The company profitability in terms of profit margin on sales and gross margin show a good picture as there has been negative minimal change over the years which show a high profitability and growth rate. The share price of Columbia Sportswear has been on a steady increase so has the profitability per share. The book value per share of the company has been on the rise since 2013, a good growth indicator. There is a negative growth in dividend yield from 1.4 in 2013 to 1.2 in 2017. The return on equity has also been fluctuating. The overall company performance can be said to be taking a positive growth over the years which is good for the company.

Overall Industry Performance

The sportswear and textile industry is thriving and set for a new era of growth. The number of competitors that the company is up against is an indication of the growth which has been grueling for years. The company’s top three competitors are The North Face, Nike and V.F Corporation which seek to reach out to a larger market. The high competition in the industry which remains an indicator of growth is a result of technological, political and social factors coupled with the opportunities for growth through mergers and acquisitions. These industries increase competition through its quality production as they seek to enter into new markets. The competition shows there is growth of the industry.

Overall market performance

The overall market of the company and industry shows a fluctuating trend in growth as there are significant differences in the stock analysis over the years. The stock price has been on a steady increase for Columbia sportswear. In comparison to its close competitor V.F Corporation, the shares of the company have been trading at a high price. The share price, return on equity, dividends per share, book value per share, earnings per share, and payout ratio indicate that the market is stable but there are some fluctuations it has. The company’s close competitor does not share the same stock analysis sentiments with the company hence the fluctuating trends in the market.

Example Investment

Based on the analysis provided, Columbia Sportswear is likely to return a 6.4 to 7.1 percent on investment. An investor with an investment of $100,000 in common stock would expect an annual return of $219,000. The investor will therefore have a total return of $750,000 in the course of five years supposing that the annual average growth rate is 7.1%.

Considering that an investor were to have the funds in a savings account at a 5% interest per year, for five years instead of investing in Columbia Sportswear, the investor would have a guaranteed return of $500,000. The stock return in Columbia Sportswear is greater but also has less risk than the savings account return. According to the analysis of the report, and the example investment comparison, the highest return over five years would be Columbia Sportswear.

Conclusion

Columbia Sportswear aims to be a global distributor as it expands its markets developing an international reputation. The current market of the company is fragile considering the marketing strategies and the existing weaknesses. Expanding its geographic presence and offering products in various categories, there are internal and external factors which affect the growth of the company. The company’s strengths and opportunities provide a window for it to grow. The financial analysis of the company indicates a progressive growth over the years, similar to the stock analysis. Despite the fluctuations in some of the factors and assumptions made, the profitability and liquidity indicate stability of the company. Columbia Sportswear has a steady growth performance evidenced by its financial, strategic and stock analysis.

There are a few assumptions made from the analysis which includes, the market conditions, social, political and economic factors remain constant throughout the years and into the future. The other assumption is that the rates remain the same over the next five years when making the return on investment. There are still a number of things which should be handled well such as calculating the rate of return while determining the rate of investment to have a well-calculated analysis.

High 2013.0 2014.0 2015.0 2016.0 2017.0 62.4999 75.99 62.8 53.87 74.78 Low 2013.0 2014.0 2015.0 2016.0 2017.0 62.08 74.89 62.23 53.22 73.99 Average 2013.0 2014.0 2015.0 2016.0 2017.0 62.29 75.44 62.515 53.545 74.385

V.F Corporation Share Price

High 2017.0 2016.0 2015.0 2014.0 2013.0 74.78 53.87 62.8 75.99 62.4999 Low 2017.0 2016.0 2015.0 2014.0 2013.0 73.99 53.22 62.23 74.89 62.08 Average 2017.0 2016.0 2015.0 2014.0 2013.0 74.385 53.545 62.515 75.44 62.28995
Year

Share Price