Columbia Sportswear Co (COLM) 2003 Q1 法說會逐字稿

Good afternoon my name is Katie and I will be your conference facilitator.

At this time, I would like to welcome everyone to the Columbia Sportswear First Quarter 2003 financial results conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks there will be a question and answer period.

If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad.

If you would like to withdraw your question, press star then the number 2 on your telephone keypad.

Thank you.

I would now like to turn the call over to Mr. Sean Beers.

Please go ahead sir.

Thank you.

Good afternoon and welcome to Columbia Sportswear's first quarter 2003 financial results conference call.

With me are Gert Boyle, Columbia's Chairwoman, Tim Boyle, Columbia's President and CEO, Pat Anderson, Columbia's COO, Bryan Timm, Columbia's CFO, and Carl Davis, Columbia's General Counsel.

I would also like to introduce today, David Kaiser (ph) who will be taking over my responsibilities here at Columbia as the Investor Relations Manager.

David?

Good afternoon everyone, it's a pleasure to be here.

For your information Sean will be moving over to our Sorel subsidiary as Director of Operations.

Continuing our standard practice, the purpose of this call is to review first quarter operating results, provide some guidance on future periods and deal with any questions that you might have.

You should have received a copy of the earnings release by now, but if you have not, then please phone Mary Oxford (ph) here at Columbia at 503-985-4000 and one will be sent to you.

In light of Regulation FD we encourage you to ask as many questions during the live call as you feel are necessary to understand the company's business.

Before we begin, Columbia's Chairwoman Gert Boyle has a comment to make.

Thank you David.

This conference call will contain forward looking statements regarding Columbia's business opportunities and anticipated results of operation.

Please bear in mind that forward-looking information is subject to many risks and uncertainties and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's annual report on Form 10K for the year 2002, under the heading Factors That May Affect Our Business, and the Price of our Common Stock.

Forward looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward looking statements after the date of this conference call, to conform the forward looking statements to actual results, or to a change in our expectations.

Also as you may know, today is 'Take Your Child to Work'.

My son Tim Boyle has followed me to work for the last 32 years and now he'd like to make a statement.

Thanks Mom.

Welcome everyone, and thank you for joining us.

As you can imagine we're very pleased with our first quarter financial results.

Let's begin with the review of some highlights from the press release.

Q1, 2003 sales for the company grew by 17.9% over the comparable period of last year, to a first quarter record of $168.9m.

On a constant dollar basis consolidated sales increased by 12% in the first quarter.

Gross margins expanded 270 basis points to 45.4%, due to continued sourcing improvements for spring products and lower volume sales of fall close out products at higher margins.

Operating margins expanded 360 basis points this year to 14%.

Net income for the first quarter was a record $14.9m compared to $9m for the same period of 2002.

We grew the top line 17.9% and expanded net income more than 65%.

Which I believe demonstrates the operating leverage capacity of our business in this quarter.

Diluted earnings per share for the first quarter of 2003 came in at $0.37, compared to earnings per share of $0.22 for the first quarter of 2002.

I think it's important to note that these positive results were achieved despite a difficult retail environment, compounded by slow overall economies in many parts of the world.

Update.

Fall backlog.

We reported a strong fall backlog today, excluding Mountain Hardwear, all product backlog at March 31, 2003 was $571.7m, an increase of 10.4% over last year.

Consolidated backlog which includes spring 2003 world-wide orders increased 12.4% to $656.7m.

Our fall backlog is stronger than we previously anticipated, due primarily to [inaudible] sportswear and footwear volumes.

US fall orders were down very slightly as compared to last year, due principally to a continued poor [inaudible] retail environment.

However, international bookings, particularly in the sportswear and footwear categories were strong.

Our international fall bookings benefited from foreign currencies strength.

Total fall bookings grew approximately 6% on a costed dollar basis.

Please note that both sportswear and footwear are being well received in the US, and both categories experienced growth domestically for fall 2003 bookings.

Mountain Hardwear.

We completed the acquisition of Mountain Hardwear on March 31st.

As you will recall, we paid aggregate consideration of approximately $36m including $30m in cash and $6m of debt assumption to consummate the transaction.

Integration efforts are underway and are proceeding well.

We are confident in Mountain Hardwear's management team, which is among the best in the industry.

As previously discussed, our financial strength, and significant infrastructure, should help Mountain Hardwear expand sales consistent with their specialty dealer base and improve gross margins and operating margins over time.

We would anticipate approximately $30m in revenue for Mountain Hardwear in 2003, and believe that the business should be able to grow to $100m over the next 5 years.

Due to the timing of the closing of the acquisition, Mountain Hardwear and Columbia's balance sheets were combined as of March 31st.

There were no income statement impacts during the first quarter.

We will include Mountain Hardwear results beginning in our second quarter income statement.

Our financial guidance, which we'll cover later, will include anticipated Mountain Hardwear Results.

Bryan will give additional color on the merger in his prepared remarks.

Sorel.

We're pleased with the continued growth of our Sorel business.

As we have discussed in the past, we're assembling an experienced team to expand the Sorel brand from its cold weather footwear roots to a broader product offering including work apparel in the near term and other apparel products in the future.

Bookings for Sorel footwear and apparel for fall 2003 experienced significant growth and we were able to open considerably more doors for fall 2003.

European DC.

During the first quarter we placed our new distribution center in Combraith (ph), France [inaudible] and we have been shipping spring 2003 apparel to the facility since January.

The facility is operating as planned and we are scheduled to transfer European footwear shipping operations to the Combraith facility for the fall 2003 season.

The construction of this new facility underscores our commitment to the European business and our dedication to customer service generally.

I believe it will aid us in our efforts to maximize our opportunities in Europe.

In anticipation of your questions regarding SARS, I would like to briefly address the issue and it's affect on our Asian operations.

As you are aware, Columbia maintains 15 sourcing and quality control offices in Asia staffed by nearly 650 Columbia employees native to each region.

These Columbia employees work with independent manufacturers to direct sourcing activities, ensure quality control and assist with shipments of our products.

We believe that our significant local presence in Asia provides a competitive advantage in the sourcing and manufacturing of our products.

To date, there have been no known SARS related cases with any of our Asian staff.

All our Asian office operations are running normally.

In addition there have been no slowdowns or disruptions with any of our independent manufacturers caused by the illness.

Our liaison officers are taking appropriate precautions as directed by their local health and government authorities.

Some travel schedules to the Far East have been postponed and replaced by electronic communications.

However, other than some inconvenience to travelers, we are operating normally without impact to our business.

At this point I'd like to hand the call over the Bryan Timm, our CFO, who will review first quarter financial results, and will discuss the financial guidance we reported today.

Bryan?

Thanks Tim.

Good afternoon everyone.

I will start with a quick review of the first quarter income statement, and as is customary, I will compare current quarter line items with prior year periods to facilitate an accurate comparison.

Net sales for the first quarter were $168.9m, an increase of 17.9% over the $143.3m of net sales for the same period of last year.

Consolidated net sales were strong and came ahead of our previous guidance, due in part to increased volumes in spring sportswear and footwear in all key geographic markets, and strong shipment of close out merchandise at higher prices due to favorable weather conditions in the Northeastern US.

By regions, US shipments were up 9.8% to $99.6m.

European shipments were up 27.8% to $32.2m.

Canadian shipments increased 39.2% to $18.1m.

And other international shipments increased by 31.9% to $19m.

When measured in cost and dollar terms, consolidated net sales increased 12%.

Canadian net sales were up 32.1% for the period.

European net sales increased by 3.4% and other international net sales increased 23.2% in the first quarter.

Our consolidated gross margins for the first quarter of 2003 expanded by 270 basis points to 45.4%, from 42.7% in the first quarter of 2002, due primarily to continued sourcing improvements for spring products and lower volume of fall closeout products at higher margins.

SG&A increased by 14.9% or $6.9m on an absolute basis to $53.1m or 31.4% of sales for the first quarter of 2003, versus $46.2m or 32.3% of sales for the comparable period 2002.

The 90 basis point improvement, as percentage of sales, is a result of strong sales growth and continued cost measures with specific focus on personnel, capital and other discretionary spending.

Depreciation and amortization totaled $5.6m for the first quarter of 2003, compared to $4.2m for the same period of the prior year.

As previously discussed, the increase was primarily due to the European distribution center, which was placed in service during January 2003.

We continue to have a strong cash position.

As we reported, net interest income for the first quarter was $183,000 versus net interest expense of $109,000 last year.

Applying the effective tax rate of 37.5% for the quarter, which is consistent with the prior year rate, and our best estimate for the full year 2003, the company reported net income of $14.9m for the first quarter of 2003, versus net income of $9m for the first quarter of 2002.

This is a 65.6% increase in net income and 17.9% increase in revenues, demonstrating the operating leverage in our business model for this quarter.

Earnings per share for the first quarter of 2003 were $0.37 versus earnings of $0.22 a share for the first quarter of 2002 based on a diluted share count of 40.4m and 40mrespectively.

I will quickly touch on key items in the balance sheet and again I will be comparing March 31, 2003 balances to March 31, 2002 balances.

As a result of the Mountain Hardwear acquisition our March 31, 2003 net assets increased by $30.2m.

The major components of net assets acquired were $6.2m of accounts receivable, $8.6m of inventory, intangible assets of $28.4m, offset by deferred tax liabilities of $6.2m and debt of $6.4m.

Our balance sheet remains very strong with cash and short term investments totaling $179.2m versus $123.9m at the same time last year.

Excluding Mountain Hardwear, accounts receivable was up 18% to $124m at March 31, 2003, versus the prior year balance of $105m.

This increase is consistent with our Q1 spring sales growth and our aging remains in good shape.

Excluding Mountain Hardwear, inventories were down $6.2m for the period to $107.2m compared to $114.3m at the end of the first quarter in 2002.

The finished goods inventory is down $3.8m and raw materials and work in process inventory are down $3.3m, which is in line with our internal expectation and reflects continued decrease of a CMPQ method of sourcing.

Let me now reiterate our capital spending plans.

We continue to model Capex of approximately $15m for 2003, again, consisting of approximately $10m in maintenance Capex and $5m in anticipated IT and distribution projects.

Please note in the first quarter we spent approximately $1.7m in maintenance capital.

Consistent with our previous guidance, we anticipate $24m in depreciation and amortization this year.

That covers the financials for the first quarter of 2003.

I will reiterate that from a balance sheet perspective we remain very pleased with the way the quarter was managed.

Inventories and receivables remain in good shape and the balance sheet is quite strong.

Now let's turn our attention to the financial guidance.

Given the results that we have reported today we are in a position to update everyone on our guidance for the balance of the year.

Please keep in mind that this information is forward-looking in nature and is therefore subject to certain risk factors, many of which are described in the company's 2002 10K, and were expressed by Gert in her opening comments.

Additionally, it is important to recall that the second quarter is our most volatile quarter as we wind down our spring shipping and start our fall business and variances can be amplified as it is our lowest volume quarter.

That being said, we currently anticipate Q2, 2003 consolidated revenue growth to be 18% to 20% higher when compared to the same period last year and we are targeting Q2 gross margins of approximately 41.9% to 42.1% of estimated sales.

We do expect gross margin contraction in the second quarter, due primarily to the negative impact of marking the Mountain Hardwear inventory to market value and purchase accounting and increased volume of international distributor sales, which have lower gross margins when compared to our direct businesses.

Our current SG&A targets, as a percentage of estimated sales for Q2 2003, are 33.8% to 34.2% as we continue to manage costs diligently.

We are modeling net interest income of approximately $200,000 for Q2 2003 versus approximately $300,000 during the second quarter of 2002, reflecting the generally lower rate environment and the relative mix of taxable and tax exempt investment security.

At present we are modeling the company’s quarterly and full year effective tax rate at 37.5% and we are using 40.4m shares for purposes of EPS calculations.

This analysis implies an increase in Q2 net income of up to 5% when compared to the second quarter of 2002.

As we stated in today's press release we currently believe that our strategies will enable us to generate revenue growth for the full year of 2003 of between 12% and 14% when compared to 2002 revenue and net income growth of between 8% and 10%.

This guidance includes the estimated results of operations of Mountain Hardwear for the 9 month period ended December 31, 2003.

Again, please understand that this information is forward-looking in nature and is therefore subject to the risk factors as previously mentioned.

Please consult the company's 2002 annual report on Form 10K.

I will now hand the call back to Tim who will review Columbia's business environment [inaudible].

Tim.

Thanks Brian: Let me just run through for you the first quarter 2003 categorical sales, with comparisons to the first quarter of 2002.

Outerwear - $36m versus $36.7m last year, a decrease of 1.9%, reflecting a lower volume of fall 2002 closeout product.

But we did experience growth in spring outerwear shipments in international markets.

The U.S. outerwear market for spring is quite small.

Sportswear - $97.8m versus $80.9m in Q1 of '02, an increase of 20.9%.

We experienced significant increases in our U.S. spring sportswear business as well as in other markets globally.

Footwear - $29.7m versus $20.2m, an increase of 47%.

Spring footwear shipments were robust in the first quarter, driven in large part by strong demand for our innovative products in this category.

Columbia branded footwear accounted for a significant portion of the increase in Q1 shipments of footwear.

Accessories were essentially flat year over year at $5.4m.

Geographically, let me give you some basic background in that area for the first quarter of '03 versus the first quarter of '02.

USA - $99.6m versus $90.7m, an increase of 9.8%.

The increase here was driven by strong growth in sportswear and footwear.

Canada $18.1m versus $13m, an increase of 39.2% or 32.1% constant dollars, again, sales growth driven by strong demand for sportswear and footwear.

The increase in sportswear shipments in Canada came primarily from continued expansion of concept shops and focus areas in the department store channel and continuing good results in the GRT line.

Europe - recorded sales of $32.2m versus $25.2m for the same period last year, an increase of 27.8%.

When measured in cost of dollar terms, the sales in Europe increased 3.4% over the first quarter of '02.

The increase here was driven primarily by continued growth in each of the key product categories.

Please note that Europe generally has later shipping patterns than the US.

Other international, including Japan, sales of $19m versus 14.4m, an increase of 31.9%, again sales growth driven by strong demand for sportswear and footwear.

In constant dollars, other international sales increased 23.2%.

Let me provide you with some additional commentary regarding sales efforts here in the US and internationally.

US - selling activities in the US in the early part of the spring season has been generally solid in many parts of the country.

Specifically, many key accounts are telling us that sportswear sales are quite good, despite traffic being down due to cold weather on the east coast.

Sportswear sales in the southern tier states are very strong with the upper Midwest and western regions coming along.

In the footwear category, trail shoes are performing well at this point with some sandals, water sports and boat shoes also selling well.

According to Sports Trend, a third party industry performance research company, 2 of the top 10 trail running shoes at retail in the US are Columbia brand with our Sawtooth trail shoe running particularly strong in this category.

Overall men's footwear is performing quite well this season.

Now that the primary fall booking season is largely concluded the company has completed its analysis to determine the appropriate level of speculative inventory to carry into the fall 2003 season.

Based on a variety of factors, including channel inventories, economic environment, health of customers and the US retail environment generally, we have made the decision to remain fairly conservative with our fall speculative inventory position.

Specifically we believe that an approximate 5% unsold inventory position for US outerwear going into the fall season is most prudent.

As you will recall this level is generally consistent with our historical approach and is designed to permit some additional revenues and earnings and an upside opportunity if conditions permit, while at the same time protecting the company's gross margin structure in the event of a less favorable environment.

Europe - constant dollar spring sales growth in Europe was lower than the company average primarily due to the timing of European shipments.

As we have discussed previously Europe has generally a later shipping pattern than the US.

That said, feedback from key accounts indicates that spring '03 sell through is at acceptable levels.

Turning our attention to backlog, fall backlog growth in Europe is strong, well above the corporate average and in all key markets and with key customers, as well as all major product categories, led by healthy backlog growth in sportswear and footwear.

Our deepening relationship with key customers in Europe are driving backlog growth.

Nine of our top 10 European customers significantly increased their fall orders.

Canada - the Canadian retail market remains generally steady at this time.

Spring sales were healthy and fall orders are up ahead of the corporate average.

Growth for the region in general will be a function of continuing to drive more business with several key large retailers with whom we have great long-term relationships.

The Sorel brand also offers significant growth opportunities for the region going forward.

I am optimistic that through effective product development and business execution we will continue to carve out growth opportunities in Canada.

Japan - bookings in Japan for fall 2003 were up significantly and were driven by very strong sell through of fall 2002 merchandise, which was aided by cold weather during the fall and winter of 2002 in the region.

While the overall economic environment in Japan continues to be uncertain, based on fall bookings, we anticipate growing our business in this region during 2003.

I remain optimistic about the long term potential for the Japanese market.

In closing, going forward, our business strategy remains steady and we will continue to focus our attention on growing the business through the [inaudible] key growth strategies that we so frequently articulate.

First, we will continue to enhance the channel productivity of our existing customers through effective operation of retail merchandising programs, including concept shops and focus areas.

Second, we will continue to leverage our brand internationally and focus on building the business in Europe in the near to mid-term.

Third, we will continue to develop the merchandise categories of sportswear and footwear more completely, which includes growing our footwear business in part through the Sorel acquisition.

Fourth, we will continue to selectively add distribution as we seek to grow our department store and specialty footwear store business.

And last but not least we will continue to seek out attractive licensing opportunities as we attempt to leverage the Columbia Sportswear brands.

One final note, I contemplate selling up to 150,000 shares of Columbia stock, or less than 1% of my stock ownership, to facilitate some personal estate and income tax planning issues.

Following these sales I will continue to own 15.6m shares or more than 39% of Columbia's outstanding shares.

I am deeply committed to the long-term success of Columbia Sportswear.

There are no further sales planned by me at this time.

I would like to thank Sean Beers for his help in the Investor Relations over the last several years and I look forward to his continued success with Sorel.

That concludes our report.

Thank you very much for listening.

We would be happy to field any questions.

Operator, can you help us with that?

At this time I would like to remind everyone, if you will like to ask a question, press star then the number 1 on your telephone keypad.

We’ll pause for just a moment to compile the Q&A roster.

Your first question comes from Bob Drbul with Lehman Brothers.

Congratulations.

Good afternoon.

Thanks Bob, it's good to talk to you.

I guess, Tim, as-you look at these numbers versus where we were at the end of January, any more color you can give to us in terms of what you saw versus what you ended up with and where you are happy and what the discussions went like?

Certainly - we continue to be thrilled and excited with our business in total especially the business outside the US.

The domestic business we felt was, even in light of the great weather that we had in the east was impacted negatively by weather in the west and by general concerns at the consumer level and at retail about the health of retailing in general.

We were disappointed with our domestic results and we planned the business accordingly, but obviously thrilled with the business results outside the US.

Based on that, Bryan, can you talk about the Forex (ph) assumptions that you have in the revenue growth estimates and I guess, just trying to get a handle on how much currency is going to help around Europe for the rest of the year, how much that plays into the numbers?

Sure - you know, I think I mentioned on the last conference call that as it relates to currency in the budgeting exercise, or excuse me, forecasting exercise that we go through at the company.

I think it would be foolhardily for us to assume that you always have appreciation in your foreign currency.

And therefore we try to take more of a moderating affect to what may or may not happen to currencies when we basically translate our foreign sales back to US dollars for our forecast.

That being said, with respect to kind of how foreign currencies can play a role with the company going forward, our strategy is maybe somewhat vanilla (ph) and conservative with respect to the way we hedge.

Nearly all of our inventories are purchased in US dollars and therefore we are selling in local currencies in our foreign direct businesses.

Simply put, we use foreign contracts when we are setting prices in our foreign local currencies.

We enter into contracts 6-9 months ahead of the US dollar payments for the production.

What we're trying to do is basically protect our downside.

As Tim's mentioned several times, we're not in the currency business and therefore we're trying to lock up some of that downside risk of our gross margin.

A lot of different factors affect what may or may not affect our ultimate margins going forward including the prices and the margins that we expect to get for future seasons, the discounting that may or may not be involved and therefore just kind of on an overall basis, I believe that you have somewhat of a margin improvement simply because on the contracted rate basis from one season to the next you do get some upside.

I don't know if that helps.

Yes, thank you.

In terms of - back to the backlog for a minute.

In terms of the merger of Sports Authority] and Gart (ph), has that impacted at all your numbers on the backlog here?

There has been some modest amount of impact there but I would say it's slight.

The merger is not concluded so speculative inventories, both customers are reluctant to purchase speculative inventories based on what's likely to occur.

So, there has been some modest inclusion of that but it's not totally baked (ph).

Okay.

All right, great.

Thank you.

Thank you.

Your next question comes from Jeff Edelman with UBS Warburg.

Thank you and good afternoon.

Tim I guess we won't beat on you for being too conservative this time.

Two questions.

One regarding Sorel.

What are you learning from the distribution of apparel and is that solely in Canada now or are you starting to bring that to some of the mass channels here in the US?

No, actually we have probably an equal apparel business in Canada and the US for 2002, and our sales, I think, I am relatively close here, are going to be about equal in apparel for '03 both in Canada and in the US.

What we are learning is that it is a great opportunity.

It is quite different in styling from where Columbia's apparel designs are and then there's quite a good sized opportunity for us.

Competitors are tough in this area and so it's not going to be easy but we think there's a big opportunity for us there.

OK thanks.

And on the footwear side, I guess your numbers sort of validate increased consumer interest in the more casual shoes.

As you look out to fall, seasonally this is a bigger period for you.

Do you expect to see the same kind of rates of gain going forward or the same kind of market impact going forward?

Well we are getting better at becoming less of a totally cold weather footwear company.

Our improvements in spring from a design standpoint, we've been thrilled with that and we expect that going forward in fall of 03 that we will have less reliance on the winter product, even though those winter products are expensive and they add up we're seeing significant growth in the non-winter part of the business, the casual part of the business.

Ok thank you.

Thanks Jeff.

Your next question comes from Virginia Genereux with Merrill Lynch.

OK.

You guys are like the boy that cried wolf.

On the guidance for the year, may I ask, the top of 8% to 10% net income growth on $256m, but that's $0.26 it seems, you know $0.26 EPS growth that might suggest.

And this quarter was up $0.15.

So that says that you are talking about $0.11 of EPS increase over the balance of the year.

And I guess I would ask, and then it seemed like the second quarter guidance was maybe up $0.01, so then you're talking about the back half being up $0.10 and it looks also like you're writing up the Mountain Hardwear inventory in the second quarter.

Won't you get some one; accretion from Mountain Hardwear in the back half and two; if your revenue guidance is a little better won't you get some SG&A leverage at the very least, like you saw this quarter?

It seems like you're being conservative on the EPS guidance for the balance of the year.

Yes, I can address that Virginia.

With respect to the Mountain Hardwear - and I understand the factual components of your question.

From an accretion standpoint I know three months ago we talked about it.

You know, and again we were dealing with an estimated closing balance sheet for Mountain Hardwear.

There were some unknowns with respect to certain valuations on certain intangibles and whatnot at that point in time that it may or may not be amortizable and therefore we commented it would basically be neutral to earnings this year.

I think with all the facts that we know at this time, I think that it will be accretive this year and probably to the tune of about $0.02.

So, if I'm using your numbers correctly, in $0.10 at the back year, that's $0.02 of the overall amount.

Also as Tim pointed out in our prepared remarks, it's about $30m of net sales for Mountain Hardwear.

So if you take the percentage increases that we had, that left maybe roughly half of that sales then is going to come from Columbia's business.

And if you take a typical margin or actually a little bit less because of some of the factors we talked about - roughly you come to about $0.08 for that business.

So, that's kind of how we characterize the year, I guess.

OK - may I ask, you guys are still then expecting to see some gross margin pressure in the back half, I guess.

Yes.

Will you not get some more SG&A leverage?

Again, some of the gains on the top line, especially as it relates to Columbia.

You know, I think I pointed out that the $30m from Mountain Hardwear gives us about $0.02 accretion.

So, that's $30m at $0.02.

If you look at the other $30m, part of that increase is coming through our foreign subsidiaries which I believe we've mentioned have higher operating costs.

So, I'm not sure that some of that leverage, if some of those were from a domestic company I think we wouldn't have to absorb any more costs since a lot of our costs or a good portion of our costs are fixed.

So, right now we know we're going to have some pressure.

I know we talked last time we spoke about the D&A that's coming on line from the European DC.

We talked about the product mix, gross margin pressure.

We also have some gross margin pressure as it relates to international distributor business because it traditionally carries about half the gross margin that the typical gross margin of our business, you know, roughly around 46%, about half of that.

I will point out that it doesn't come with a lot of SG&A expenses so our operating income is basically neutralized by that.

I guess, there's a lot of different moving parts.

Please take the guidance with the data points that we have at this time.

Great.

May I ask, this quarter, you guys at least for the last year, your gross margin guidance was sort of where, pretty much where you came in except for December with the outerwear, the excess outerwear sales.

Gross margin this quarter was well ahead of what you had guided to.

Did something change between the end of January and the end of March?

Did business accelerate with the severe weather?

Is there a reason that gross margins picked up the way they did?

And do you see, looking into the back half as a sourcing environment and your comments about sourcing sort of being, the benefits being tapped out, you know, in Vietnam their exports have been capped recently.

Has that changed at all?

Let me speak to a couple of the margin components in terms of the first quarter.

I think we mentioned earlier that as it relates to closeout products we did expect less closeouts folding into Q1 of the fall 02 selling season.

That in fact did happen and maybe even more so from a margin standpoint.

Because I think last year we had something close to $9m of closeout sales whereas this year we had closer to $7m.

Another factor of that is not just the volume but the margins.

Maybe we probably got some for close to 10% in the prior year on those closeout sales where this year the numbers were quite higher.

That was probably one of the overriding impacts on the margin for this quarter.

Then I might just add, Virginia, in terms of the spring components, we're sourcing in so many countries at various volume levels and various product categories, it's almost impossible with a tremendous amount of certainty to predict the margins on some of these blended sales around the world.

But in general I think we are still confident that our sourcing - the significant sourcing gains of prior periods are all but gone.

Thank you Tim.

Lastly, may I ask - the backlog; a- do footwear and sportswear book later?

Were you able to again between January and the end of March, get a lot more visibility related to footwear and sportswear and maybe to the international business, and then secondly, let me ask you if this is right-was backlog for the US positive on balance?

I know you said, sort of Europe, international was a lot stronger but did the fall backlog for the US business end up positive?

Well, I would say that it's very close to flat but just slightly down.

And then to answer your first question, sportswear bookings are about on par with our outerwear business in the US.

Footwear order deadlines are later, and Europe and Japan are later on all components of their backlogs, their ordering.

Okay, so Tim, might we see, could you see additional business?

Could you see additional footwear orders or additional international orders or are we done at April 24?

As you know, no, we're not done.

We make speculative purchases and we get orders throughout the season.

So, no we're not done.

We're trying to give some predictability and some visibility to the business based on a snapshot at March 31st and then from there there's a highly complex set of calculations that include all categories of the business, all geographies and that's where we come up with the guidance.

So, we certainly expect to get more orders but they're baked into our guidance.

Thank you.

I am sorry to go on so long.

No problem, Virginia.

Your next question comes from Carole Buyers with RBC Capital Markets.

Hi.

Two questions for you.

One, I was wondering if you could break out the earnings impact from the benefit of the currency exchange this quarter, and then second; could you actually break out the outerwear backlog?

Is it fair to say that was flat as well?

I can handle the first one, with respect to currency, it was a nominal affect.

I'm not sure, Carole, I want to get into that level of specificity.

It's a minor affect.

It's not what drove the business.

It relates to margin.

OK that's what I was trying to figure.

You could put these revenues in constant dollars but I'm trying to understand on the margin.

So, you're saying on the margin it was nominal?

Nominal effect.

OK.

What about outerwear backlog?

Yes.

Outerwear backlog.

I don't have the global outerwear backlog in front of me, but in the US, frankly, in North American, outerwear is our most mature business.

So, it's the area where we have the most challenges on a domestic standpoint.

But I would say it's roughly flat globally.

Ok.

One more just quick question.

When you look at the first quarter being seasonal toward sportswear, is outerwear still the highest margin in Q1?

I would say this year based on the high margin we got on liquidating inventories from '02 that yes, in this quarter outerwear probably was our highest margin product.

But [inaudible], if you didn't have--

Full price outerwear is the company's highest margin category.

In Q1.

In-generally.

Any particular quarter can be impacted by liquidations from prior periods.

In general outerwear is our most profitable category.

Thank you.

Your next question comes from Margaret Mager with Goldman Sachs.

Hello everybody.

Hello Margaret, how are you?

Margaret Mager.

Good, good, good.

And you guys are great, obviously.

I have a couple of questions.

First of all I'm just trying to understand, as you look out over the course of the year and you're guiding to 12% to 14% sales growth, can you just talk about how that will look by geography - you know, domestic, Canada and international.

Or if you just want to do domestic and international.

Roughly?

Well in the past we've not broken out our backlog geographically nor categorically other than just in general terms.

And I guess I'd be comfortable saying that in North America, certainly specifically the US is our most challenged environment on backlog basis.

Again, we have the combination of poor retail, a war during our booking season and then despite the fact that we have fabulous weather in the east we had poor weather conditions west of Chicago.

On the other hand our long-term strategies of growing our business internationally, especially in Europe, have really been very [inaudible] at this time.

OK.

So for the full year are you thinking something along the lines of a single digit growth rate in domestic sales?

Yes.

I think we'd be comfortable at that range, yes.

OK.

Well you say ask all your questions, so I'll ask the next one.

Low single to mid single?

I'm just trying to get an idea here of what we're looking at in terms of the domestic business in the second half of the year?

Sure, I understand.

I think we're going to be in that low single digit area is where I would consider us at this time for the full year.

Tim, could you talk about in the US what's going on with your business by channel distribution, if you could give us any kind of sense of how sporting goods is doing compared to some of your large catalogue retailers compared to Penny's and Cole's.

Just some sense of how the business is mixing by channel distribution within the context of that low single digit outlook for the domestic business.

And then I have a couple of more questions.

Yes, I would say our department store business in general is up slightly.

Sporting goods probably was the most impacted by the poor weather in the west.

We have a lot of sporting goods customers in the western part of the United States and those were impacted, I think, probably more negatively than our department store customers that have a broader distribution.

We're also in many department store operations; we're still a relatively new vendor.

People like Godshocks (ph) and Bonton (ph) and others where we're still growing up to maturity with their businesses.

So in general I think our sporting goods guys were probably the most challenged.

OK.

And with the way the orders generally come in reflect the conditions that were experienced in fall, winter `03?

Or in other words, sporting goods would be taking the least amount of orders in the department stores and other retailers would be taking more [inaudible] more confident.

Yes.

I don't think it's going to be a very significant change from our sort of 28%, 29%.

I think last year in 02 we had a 28% of our volume was with department stores and the balance was with some sort of sporting goods company.

That's a global number.

My guess is the US will be close to that and I would expect that in 2003 that we'd still be about the same by the time the year is all wrapped up.

OK.

That’s a good segue into my next question which is about mix.

With international clearly growing at a very quick pace, especially compared to the US, is there any mix shift implication for your gross margin, SG&A or EBIT margins?

I am going to let Bryan speak to that because basically the analysis that we've done is baked into the guidance in terms of what we expect mix to be and what we expect geographic results to be, but I will let Brian speak a little bit more about that.

From a geographic mix standpoint we do have very nice growth in our international distributor markets and that's where we don't have direct businesses.

As I mentioned, those gross margins come about half of what the reported margin we had for '02.

And therefore that does put some gross margin pressure, but as it relates to operating margin, it has very little, if very moderate SG&A type expenses associated with it.

So you're roughly about the same, if you will, on the operating margin line.

As it relates to product categories, I think we mentioned, as footwear and sportswear are the growth drivers in the business, it does tend to contract our margin a bit as it relates to the fall business.

Right.

With regard to these distributors of your international segment, how much of your sales come through distributors?

And is there an opportunity now that you have your distribution center up and running to convert them to owned business?

Well, the, yes, just let me reiterate.

In terms-the company's direct businesses would include obviously the USA, Canada, Japan, and every country in the EU with the exception of Greece where we have a distributor.

So those are the direct markets.

Now, the distributor markets would include a whole host of countries that have smaller sales potential and geographically don't work in relationship to our European DC, and those would include places like Argentina, and Australia, and areas around the world that are not proximate to the European distribution center.

Russia would also be included there.

I know Gert likes Russia.

I know she loves Russia.

You heard me didn't you?

But from a future look there are several countries who are going to be becoming members of the EU and those would include Czechoslovakia and a number of others in that eastern block area.

Those could be served by our European DC if we decide to make those direct markets.

And we're not decided yet.

Frankly, there's so much opportunity in the EU that we're reluctant to take any time and effort away from the traditional EU markets, from our management team there to-for any of these new ones.

So, those are currently successful distributors and they're likely to remain so for at least quite some time.

Okay.

Just wondering on the international revenues, how much is in these distributors.

Roughly we're talking mid single digit Margaret, for the international distributors.

So not huge.

But depending on the quarter, can have a sizeable impact.

All right.

Well, that's all very helpful.

I'll drop off for the moment and see what other questions come up, and if I have any more, I'll come back at the end.

Okay Margaret.

Thank you so much.

Bye.

Thanks, bye.

Your next question comes from Noelle Grainger with JP Morgan.

Good afternoon everyone.

Hi Noelle.

Let's see here.

Can we talk about the sales guidance a little bit?

You said for the full year, 12% to 14%, which includes $30m of Mountain Hardwear, right?

Correct.

So if I take out Mountain Hardwear you're saying Columbia up 9% to 10% for the full year roughly, or 8% to 10%.

Can you just kind of map that back for me to-we're looking at spring backlog growth of 15% and fall backlog growth of 10%.

So how to we get then to 8% to 10%, or 9% to 10% for the year without Mountain Hardwear?

Again, I know the first half of the year, and I know our spring backlog was up 15.2%.

And with our Q1 of almost 18%, and our Q2 guidance of 18% to 20%, I guess as it relates to the back half of the year, and our fall backlog, it's-there is some-I don't want to say shifting, but I think maybe the better use of the term would be-you can't translate the fall backlog specifically into the back half of the year.

You've got some spring close out that fall into-not as many-most of those are cleared out in Q2, but there are some that go into Q3.

You've got some fall that spills over from a close out perspective into next year.

You also have a spring component that ships in Q4, and roughly-we don't have hardly any visibility on that business.

As you know at this point, on the spring'04 business.

So, again, with the data points we have right now that's it.

There's nothing abnormal going on this year, it's just perhaps your normal conservatism?

Well, we would want to make sure that investors knew that we're really attempting to get a high degree of predictability here.

That's the company's goal.

I would expect that the business-the retail environment is hopefully going to improve now that the war is for all intents concluded, and it's our expectation that those things can-that a more normalized retail environment in the US would be positive for the company.

I just wanted to add to the point Bryan made, you have to remember that a portion of our spring backlog actually ships in the year prior.

I don't have the numbers in front of me, but there was a portion of spring '03 that shipped in December of '02.

And-

Okay, I asked because we have kind of mapped them historically, and your sales typically run ahead of the backlog for that period.

So, I just wanted to make sure there wasn't anything going on.

Noelle, just to come back to that, I think the other impact, and I don't call it abnormal, but, we have to set some currency assumptions for the back half of the year, and I think at this point you've had some nice appreciation as it relates to the Euro and the Canadian dollar.

However for today, with the Canadian dollar it went the other way.

But that's the difficult part, and you've got to, at the end of the day, just make some moderate assumptions and we'll see what happens.

Fair enough, that's a good point.

Okay.

On the SG&A, Bryan, can you just address, related to the distribution center; you were able to get some leverage this quarter.

As you look forward, the-presumably your unit cost of shipping goods will start to decline at some point as well as your duplicate costs.

So, I guess I'm still having trouble kind of understanding, ex the sourcing benefit that you got this quarter, why you're going to see SG&A as a percentage ratchet up so much?

Well, there's a couple of things.

And you pointed to, you pointed to European DC, and I think I've pointed out that that's roughly $5m to $6m of our D&A increase this year.

You know, the other thing that we are doing is we are adding other infrastructure internally.

We now have two additional brands between Sorel and Mountain Hardwear; we're adding personnel related costs.

Obviously we're making sure that we do that in a very prudent manner.

But, sometimes you have to spend a little money to make sure that you can fund that future growth.

So, there's certainly some of that going on as well.

Other things I’d point to-last year there were-specifically if we relate to Q2, there was-I guess it's not an anomaly, but we did have some legal settlements in Q2 of last year of between $500,000 and $600,000 that was included as a credit in the SG&A.

So, all those things combined, coupled with the fact that the international business still isn't operating at full capacity.

The DC is a pretty good sized fixed cost, and we simply need to get more revenue to get that leverage.

Thanks.

Tim, Canada was really strong in the first quarter.

Can you talk a little bit more about Sorel versus Columbia, and what you're seeing-the dynamics you're seeing in that marketplace?

Certainly.

Well, the Sorel brand is very well known up in Canada obviously.

It's a Canadian company.

And I think it's-the growth there is just an example of the brand becoming more available.

Maybe not approaching its former availability levels, but we just have more product out in the marketplace now.

There was a test on some safety footwear which was started in the first quarter and was successful with a number of customers.

And that was a component of the business.

But, we've been thrilled with how well our traditional customers have embraced the Columbia products and how much more business we're doing up there.

Expanding, in addition to our sporting distribution but also with some department store distribution which is-I don't want to say lagging behind, but it's probably not as fully developed as our US department store business.

Okay, in terms of inventory-if you take out Mountain Hardwear, you're looking pretty lean.

And I'm wondering how you're feeling about those levels in terms of servicing the backlogs that you've got, and then where do you think-is inventory a use of cash this year or not?

Bryan's got a handle on that one.

With the inventory, let me address maybe, first, as it relates to-yes we are somewhat lean now.

As it relates to the backlog we haven't started receiving our follow up [inaudible] goods we won't start doing that until the May, June July time frame.

So, that's how those two come forth.

With respect to where I think we'll end up the year, yes it will be-with the backlog that we've guided here today-it will be a use of cash, probably somewhere in the neighborhood of, anywhere from $25m to 35m, I guess, if I had to throw out a range.

Okay, great, that's helpful, thanks a lot.

You bet.

Your next question comes from Jamelah Leddy with McAdams Wright Ragen.

Hi.

Given that you still have some more orders to take from Europe and other international areas, as well as footwear, or at least if those lag the domestic backlog, and given that the international area is growing faster than the United States, would it be correct to assume that the reported fall backlog as a percentage of total yearly revenue will be coming down?

No, no I don't think that would be accurate.

The backlog, you have to remember-the total backlog contains merchandise orders for many periods of the year.

But, no, I-the backlog won't be coming down.

As we ship, it will be reduced obviously, converted into invoices.

But-

Okay, so you're not necessarily going to have more at one business than you have had in past years?

We are making about the historical average speculative position on winter outerwear and that has been running historically around 5% on the outerwear portion.

We run a very much more conservative speculative position on our sportswear businesses.

That is in part why you are seeing a smaller inventory number this quarter.

Footwear on he other hand has a slightly higher re-order percentage but it is a smaller business for us right now.

I understand that.

Maybe I’m not being totally clear but last year when you reported your fall backlog, you represented I think it was about 85% of your last three quarters total revenue, if you add up Q2, Q3 and Q4.

So what I'm trying to understand is, that this year, that if some of these other areas other than the United States are growing that much faster and they don't, are not included in the fall backlog that you are reporting right now, will your total yearly revenues be, or will the fall backlog be maybe less than that 85%.

Or is that not necessarily a good way to look at is, is sort of what I'm getting at.

Yeah, we don't look at it that way.

The best, we think the best way to look at it is for us to take a look at the backlog, make an analysis of what it means, what the components are, and then give guidance from that.

So I would think our best guess on it has got to be our guidance that we've provided.

Okay.

And then, just the only other question I have, if you could maybe talk a little about any other new products, such as non-nylon outerwear, or new licensed products or anything else that you might have down the pipeline that you might be willing to talk about at this point.

Certainly, well for fall 2003 the non-nylon outerwear that the company sold was Sorel product.

And it was very well received, and we're excited about the potential there.

Our merchandising team is in the process of developing products for fall 2004 right now, and it contains probably on the Columbia side, more fabrics, shelf fabrics which would be in part more highly technical as the water breathable technology becomes less expensive.

It will also contain some micro fibers which, especially in men's have been more popular, and it will also contain some cotton products.

Now, we would expect that the Sorel brand will continue with its expansion on those primary cotton products as well.

So we look forward to great things there from the product development teams.

Okay.

What about any new licensees?

Licensees.

We're continuing to look at the licensees.

There's a number of product categories which are under consideration right now, but none that we're ready to announce.

But I think that the current licensees have been working well, and we've just got further penetration with the brand, with the help of our licensees.

Okay, wonderful.

All the rest of my questions have been discussed already, so thank you very much for your time.

Thank you.

Your next question comes from Margaret Jones (ph) with ACI Capital.

Hello.

I just had one quick question.

I was wondering if you could go over again the foreign exchange affects that you had on your sales growth, and if you could explain how it didn't end up affecting your margins as well?

Let me ask Bryan who is our resident hedging expert.

Are you speaking specifically to Q1?

Yes.

Well, again as it relates to, and again, kind of our vanilla approach to hedging, we're trying to-Tim doesn't want to-we're not in the currency business, and therefore we're trying to protect our downside risk.

So, pretty much you can assess that Columbia Sportswear will take out a pretty good position and make sure that we lock up a lot of our production, and therefore trying to secure that gross margin as it relates-we do get some upside merely from that fact that from last year at this time, and I don't have the foreign currency rates in from of me here, to talk specifically about what certain countries exchange rates were at the time, but we do get some upside just in the comparability standpoint, because assuming there is appreciation in those currencies year over year, you do get some margin benefit from that.

My comments earlier was with respect that that's a very minor piece of the overall margin increase, or at least the reason for the overall margin increase.

It was more related to the close out of our business.

The mix, the mix of course in the business.

We talked some time ago about having sourcing appreciation and some of the expansion that we're gong to have this particular quarter, in fact for the spring season overall.

And I guess some of that was a little bit better than what I had planned.

When do you put your hedging strategies into place?

Typically about 6-9 months ahead of paying for that inventory.

So, for instance, we will be pricing and basically analyzing our hedging policy, you know, this upcoming June for spring '04 business, and then we will start selling from December through May of next year.

Yes, generally you can expect that we would hedge in particular currencies at around the same time that we actually create our price list.

So, again, the theory being that we're not in the currency business.

We'd like to just lock our price in and know that we have a margin at those selling prices that we're offering to our dealers.

Okay, thank you.

Your next question comes from Harris Hall with Wedbush Morgan Securities.

thanks, great quarter guys.

Actually, all my questions have been answered so I will let it go.

Thanks.

Your next question comes from Jennifer Black with Wells Fargo.

Good afternoon and congratulations as well.

I wonder if you could talk a little about the convert line and about the children's business, and about how important that is both domestically and internationally and if you're doing anything there with footwear as well?

Thanks Jennifer.

Yes, the convert line in outerwear has been great in the US and continues to expand.

It's been interesting though in Europe, despite some additional marketing efforts there, our customers have said they really would prefer to concentrate more heavily on the Columbia brand.

So, the results in Europe on Convert have been slightly smaller than we would have expected.

Children's has been a category in the domestic US business has been challenging for us.

We've got a great business there, but it's been as other parts of our outerwear business, been more challenging.

Footwear in Convert, unfortunately didn't work as well as we had hoped and we're going to be channeling those efforts onto the Columbia side, which frankly, the Columbia business in footwear is responding so well that we need to put all the efforts on that that we possibly can.

That having been said, the Sorel business is great too, and so, between Columbia and Sorel we're going to be soaking up those efforts.

Well, plus it would seem too, that it would keep your costs down.

Obviously if something doesn't work, or if it works, you're not going to make your decision based on that, but, you can be more focused on where the dollars really are, and I guess that would lead to my next question about your SKUs.

Do you see them being flat across categories, do you see them broadening, do you see them-can you give me kind of an idea?

Certainly.

I would say in sportswear we're probably getting more efficient on our SKU count, that's probably being reduced somewhat.

Outerwear I think was also slightly reduced this year over last year.

Now, footwear, which has been a focus for us, we've allowed that to, in fact we've encouraged growth in SKU counts there.

We really want to take advantage of several things that we have working there and we want to maximize our opportunities.

So, those are sort of the three components of the business and where the various ones are changing.

As you remember, the company's got very sophisticated distribution capacity, so, we can handle these kinds of changes in SKU count pretty easily and still make sure we have very high service levels.

All right.

I totally know that.

One other question on what I saw at Magic (ph) the leather, your licensed leather jackets.

I was curious to know, maybe you already went over this, but I was curious to know how the sell ins went as far as orders.

Actually that category did very, very well.

The increase over their first tests last year was pretty significant.

And it looks like it's going to be a great long-term license for the company.

And the folks there have been doing it.

We’ve been very pleased with the product quality, and our customers are responding very well to that leather outerwear.

Well, it's very cool.

Anyway, congratulations, great job, and thanks a lot.

Thanks Jennifer.

Once again I would like to remind everyone if you would like to ask a question press star and the number one on your telephone keypad.

You have a follow-up question from Margaret Mager with Goldman Sachs.

Wow, maybe this won't be a 2 hour call tonight, huh?

That'd be ok; we've got nothing to do.

I'm already back up, so.

My question this time is about just some of the products that are driving the business.

We don't really tend to get too much into style level discussions with you guys, so I wouldn't mind hearing about some of the things that are working well for you.

And how that might differ, the US versus Europe?

I would say, just based on what we have which has been working spectacularly, I would start with the sportswear business and probably the most exciting thing there is the fact that we've actually got a product now in men's bottoms, and even in women's bottoms as well now, which is working quite well which is our rock pant.

That item has been picked up by many of our good customers, not all.

But all of them have reported very good success with that pant.

And when we talk about successful sportswear companies, almost all of them have a very strong bottoms business to support the rest of the business.

It's great to see that even though we've had terrific sales in shorts, that we finally have a product that's more of a year round product, and especially a product selling in fall.

This rock pant did very well.

Then in footwear, just talking about the global impact, we looked at the top sellers in the US versus Europe and there was, I think of the top 10 for Columbia, 7 of them were in the top 10 in Europe.

So, we've got quite broad exposure geographically on the company's best selling products, and we're thrilled with the success so far of our Sawtooth.

I've talked to investors extensively about what it will take for the company to really explode in the footwear business, and not that we have - not that we consider the Sawtooth to be our explosive product, but frankly its success has been really terrific and we're just thrilled to see a product like that from Columbia that's doing so well.

In outerwear, it's been a more challenging part of the business, but our Titanium stuff is doing very well, and our fleece products, probably more importantly are doing very, very well, and have had significant increases.

I think North Face said that they think they're gaining market share again.

Do you think they're having any impact on you in the outerwear segment?

Well, we've talked at length about many brands including the North Face, Timberland, Nike, ACG and others who have targeted us, and there's no question that they've improved.

Yes, they couldn't have gotten any worse, so we've seen improvement from them.

I would say that we still don't have a dominant branded competitor that would be anywhere as significant a competitor as our customer's private label merchandise.

So, we've got a couple of competitors in the branded area which are improving, but we don't see them making anywhere near as much inroads and as tough as our customers.

Is there anything going on with pricing?

I know that the rock pant really took off for you when you took the price down from-what was it--$38.99 to $28 or $29.99.

Is there anything else happening from a price perspective, in any one of the three segments, that you would call out.

Not anything-I guess the most specific thing we can point to is just the continued deflation in all these product categories.

And we expect that over time they're just going to continue to get less expensive.

Probably the most dramatic change is in the affordability of these waterproof breathable fabrics which at one time were in the $12 to $15 per yard range, and now are getting down in the $3 range.

So, we can offer consumers terrific performance at a really reasonable price.

Wow.

Is there any phasing out of quotas in any of your product categories that we should be aware of?

Well, I'm going to let Carl speak to that because there are a number of negotiations which have gone on to reduce quotas.

Carl, do you want to talk about that?

Well most of the quotas that are in place are scheduled on a down hill slight to go away by 2005 or 2006.

The one thing we're watching with Cara (ph) right now is the negotiations going on with Vietnam to set up quotas in that category, in various categories from that country.

And to see how that could affect us.

But, we feel that our factory relations over there-we're going to be in pretty good shape on that.

By 2005, will quotas have already have been scaled back in outerwear over the previous three years to the point where we're not looking at a real drop off like we may see in some other product categories in apparel in `05?

Well you're going to see it continue to go down, the reductions thus far have been slight as you know, but they'll start to accelerate as we get closer to the time when they're all supposed to be done away with.

Yeah, I think it's our view of the world that these may not be totally, absolutely predictable.

There may be future negotiations which change some or all of the plan.

But, we feel one of our strengths is our local base of knowledge in every country.

We said earlier we have a number of offices in Asia and a lot of folks, and we feel that it would certainly be a strategic strength of the company to be on top of this.

Great.

Okay.

All right, so nothing really notable in pricing then, that you would-

Nothing other than those general things that we've spoken of.

Okay.

All right.

In the first quarter with the very strong gross margin that you recorded, are there any meaningful sourcing benefits year over year that are helping influence that on an upward, or is it just, really just the higher margins on close out.

Oh, no.

Absolutely, Margaret.

I think that spring '02 versus spring '03, and as we commented, on fall '02, for that matter, that we've made some significant strides in our sourcing.

We've got some very attractive package rates.

We've lessened the amount of the CMPQ business that we do.

And year over year, spring '02 versus spring '03, that was a very meaningful piece of the overall increase in our gross margins, some of which was just unplanned-not unplanned, but not in our forecast when we gave last guidance.

It was more significant that we thought.

And the same thing will happen for fall '03?

For fall '03, it's, I think it's less of an impact on a year over year basis.

We got such great improvements in fall '02, I think it wouldn't be, I'm not sure it'd do us disservice to say that fall '03 we can expect some of the similar gains.

And plus we've got a couple of different things, including product mix, that it's going to help drive that negative.

But, put some contraction pressures on our back half gross margin.

So, not the same impacts that we got for-I think fall '02 and spring '03 were probably the two biggest beneficiaries of our sourcing.

Okay.

The Bugaboo (ph) jacket.

What is the retail price point for that jacket?

I think it's-the map price would be in the $129 to $139 range.

That has not changed.

No.

All right.

Well, is this Sean Beers last conference call?

We might recruit him from time to time for specific questions.

He's not going to go away.

Oh, well he's going to get so busy with Sorel, I don't know if he's going to have time for these conference calls.

I'll make cameos.

Because Sean we don't want to lose touch with you.

He'll still take you for lunch.

And Gert, thank you for bringing Tim to work every day for the past 32 years!

It worked out pretty well.

It does, bring your kid to work every day.

Margaret Mager.

Okay, thanks guys, see you later.

Thanks Margaret.

The next question comes from Mitch Kummetz (ph) with CA Davidson.

Congratulations as well.

I just got a couple of quick questions.

First of all, on Canada.

Could you elaborate a little bit on the performance there.

Obviously not a big part of the quarter, but up substantially.

And although it's a mature business in terms of outerwear, it's apparently not particularly mature with regard to some of these other product categories.

Right.

Well, we had a couple of things going on in Canada this quarter which were quite good.

One is the launch on-I guess I would call it a test launch on safety footwear, which has been well received there under the Sorel brand.

The other is the expansion of the company's distribution into department stores, which is slightly less robust, and maybe even on a lesser trajectory from the US expansion to the department stores.

So that means more sportswear and a bigger sportswear business in Canada.

We have some terrific relationships with significantly key customers there, and additional penetration in those great doors, plus this additional new category has been very helpful to this year's early sales.

Does that expansion into the department stores there imply some good results into the back half of the year in terms of outerwear?

I think we've got those baked] into the guidance, but we've had some nice growth in those areas as well, yes.

Okay.

And then, secondly, on the footwear side, obviously a great quarter in terms of footwear, but going into the fall holiday season, what's happening there.

Especially in terms of the casual side I know the product line, has been more focused on rugged casual, but I believe you're starting to emphasize the casual business, going into the back half of the year.

What do you see there in terms of selling that product in?

Well, it's been going quite well.

But, never fast enough for me.

Our business there is growing, and the issue of what is casual, it constantly reverberates around our offices.

Again, we talk a lot about these five key words that the company has, and we would expect that our successful rugged category would contain all of those key words, active and authentic and really, all the words that really reflect Columbia.

So, when you look at the casual offering that we have in those broad terms, it's been very well received, and we would expect that things like Sawtooth would pull us into a much more broad footwear business than we've had in the past, which has historically been really cold weather oriented.

Well, then how about women's footwear.

How's the performance there and your expectations for that business going into the back half?

Well, I would say women's is less developed and managed at Columbia.

Certainly in cold weather we think we've got great products for women, and we do a great job of keeping women protected in footwear in fall.

But, I would say that we're probably going to be spending the bulk of our time on men's early on, and so our men's to women's ratio in fall casual type product is probably going to be lower than arguably it should be.

But we feel we need to start in men's.

Okay, thank you.

You bet.

You have a follow-up question from Jennifer Black with Wells Fargo.

Have you guys changed any of the way your ad spend is going to run this year?

And I wondered as a percent of sales, what it typically runs and then just if you're doing anything different?

And your ads are always great!

Well, in terms of the ad spend dollars, they're still going to run around 4.5% of sales.

I would suggest that this year, if there is any change it would be more modest, and it would probably include a higher percentage of outdoor advertising.

Meaning, billboards and bus shelters, than we've previously used.

But other than that, it's more of what's been working.

Okay.

Is that because people are standing outside freezing their butts off?

Well, if they are wearing a nice warm coat, we want to remind them what kind they should be having.

Okay.

Thank you very much.

You bet, Jennifer.

At this time there are no further questions, are there any closing remarks?

I want to thank everyone for listening in and we look forward to talking to you again in July when we release our second quarter earnings.

Thank you very much.

This concludes today's Columbia Sportswear first quarter 2003 financial results conference call.

You may now disconnect.