Thesis For Columbia

ValueWalk’s fourth Contrarian Investor Virtual Conference is in the books with several new ideas from short sellers. Analysts at GlassHouse Research shared their thesis for Columbia Sportswear, for which they see 51% downside in its stock.

Columbia Sportswear

GlassHouse: Columbia Sportswear shows signs of accounting red flags

GlassHouse looks for companies with signs of accounting red flags, especially companies whose GAAP or even worse, non-GAAP earnings deviate from their true economic earnings. The firm’s analysts found some such signs at Columbia Sportswear and compared it to the red flags they identified with Under Armour. GlassHouse believes Columbia is at risk of revenue recognition and channel stuffing that’s even worse than Under Armour in 2017.

The firm described Columbia Sportswear as having “one of the worst inventory positions in all of retail.” GlassHouse analysts believe the company’s management has put off writing down more than $225 million in inventory or 28% of total inventory.

Unlike sell-side analysts following Columbia, GlassHouse’s research suggests the company’s wholesale partners are stuffed with product and will hesitate to buy inventory in the near future. The retailers in question accounted for more than half of Columbia’s total sales in fiscal 2019.

“Positioned for failure”

The GlassHouse team believes Columbia Sportswear is “positioned for failure” during the COVID-19 pandemic. They said the company’s management appears to be waiting for things to get back to normal instead of adjusting to the new environment. For example, they said Columbia has fallen far behind competitors Lululemon and Nike in ecommerce.

GlassHouse also found many accounting irregularities related to revenue recognition and extending credit to failing partners. Also spiking prepaid expenses are cause for concern, and the GlassHouse team believes Columbia management may be “playing games” with the company’s financials.

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