Columbia Sportswear Co (COLM) 2003 Q4 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the fourth quarter and full-year financial results conference call.

At this time all participants are in a listen-only mode.

Following today's presentation, instructions will be given for the question-and-answer session. [OPERATORS INSTRUCTIONS]

As a reminder, this conference is being recorded today, Thursday, January 29, 2004.

At this time I'd like to turn the conference over to Mr. David Kiser, Investor Relations Manager.

Please go ahead sir.

Thank you.

Good afternoon and welcome to Columbia Sportswear's Fourth Quarter and Fiscal Year 2003 conference call.

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

To continue our standard practice, we will review the results of the fourth quarter and full-year results, provide some guidance on future periods and field any questions that you might have.

You should have received an email of the earnings release by now, but if you have not, then please phone Carolyn Greenwood at 503-985-4310 and one will be emailed 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.

However, we would ask that you limit your initial follow-ups to one or two additional questions, to allow all parties the opportunity to ask questions.

Again if you have follow-ups we would ask that in addition to that, that you would re-enter the queue.

We invite you to reenter the queue if you have any additional follow-up questions.

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

Good afternoon.

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

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 quarterly report on Form 10-Q for the quarter ended September 30th, 2003.

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 change in our expectations.

Thank you, Gert.

At this point I will hand the call over to Tim Boyle, who will provide an overview of significant developments that occurred during the fourth quarter and the year.

Tim?

Thanks David.

Welcome everyone and thanks for joining us.

As you can imagine we're thrilled with our fourth quarter and fiscal 2003 financial results.

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

Q4 2003 sales for the company grew by a strong 18.5% year over year to $257.4 million, a fourth quarter record.

Excluding changes in currency exchange rates, consolidated sales increased by 13.1%.

Net income for the fourth quarter was a record $32.2 million, a 10.5% year-over-year increase.

Diluted earnings per share for the fourth quarter came in at 79 cents, compared to 72 cents for the fourth quarter of 2002.

For the full year 2003, we reported exceptional sales results of $951.8 million, a 16.6% increase year over year.

Net income for the year increased a strong 17.2% to $120.1 million and full-year diluted EPS came in at $2.96 compared to 2.56 for 2002.

Again, we're thrilled with our exceptional fourth quarter and full-year financial results.

These results were driven by continued solid sales growth in our sportswear product category, strong outerwear sales momentum and major international markets and the continued development of our footwear product category.

Updates.

Kentucky distribution center.

Construction of the Kentucky distribution center continues according to plan, and we expect to begin shipping products from the facility in 2005.

In the next few weeks, exterior walls and roofing joist will be installed and we're currently in the process of completing the final design of the warehouse management software system.

We expect to begin installing conveyors, sorters and other equipment during the second quarter.

To date we have capitalized approximately $10 million in expenditures related to this project.

We continue to expect to incur approximately $40 million in Capex, total, on this 457,000 square foot facility.

The facility, designed with a specific focus on our footwear product lines, but engineered to be flexible enough to handle more than just the footwear category, will improve our proximity to the majority of our footwear customers.

The Kentucky location should facilitate shorter shipping times and should also reduce shipping costs for the majority of our customers.

Licensing.

During the fourth quarter we signed a North America licensing agreement with Pem America (ph) to design, manufacture and market Columbia branded home furnishings, bed pillows, comforters, throws, blankets and the like.

The assortment will debut this spring.

Our Sorel Division also signed a license for the design, manufacture and marketing of men's, women's and children's socks with crescent hosiery in North America.

Crescent has successfully licensed several products, similar products for the Columbia brand for several years.

We're pleased with the overall progress of our licensing initiatives.

We now license our brand in 14 complimentary product lines, including bags, leather outerwear, eyewear and watches, all of which extend our product offerings and expand the global awareness of our brands.

While we do not expect licensing to be a significant income driver, we are seeing healthy growth from many licenses, producing highly profitable income for the company.

Net licensing income was $1.8 million in 2003.

Promotional activities.

We have long articulated that one of the key growth initiatives at Columbia is to enhance channel productivity through the expansion of in-store concept shops and brand enhancement systems.

These displays enhance product appearance and strengthen brand awareness, driving sell through of our products at higher margins for the retailer.

During the fourth quarter, we stepped up installations of these point of purchase displays at many of our retailers globally, lead by a significant increase in the United States.

In response to customer demand in the fourth quarter, we allocated a larger percentage of our overall sales and marketing budget to installations of these points of purchase displays.

In the third quarter, we entered into a promotional agreement with Jeep for the introduction of a new, limited production, Columbia Edition Jeep vehicles, to provide broad brand exposure for Columbia in the U.S. and Canada.

Through the program we are receiving national media exposure, expanding Columbia's brand awareness and Columbia Edition vehicles are selling through ahead of Jeep's forecasts.

Mountain Hardware.

Excuse me.

Mountain Hardware sales were $8.4 million during the fourth quarter as Mountain Hardware continues to develop new and expand existing relationships within the specialty dealer base and begins to exploit international opportunities.

Although three (ph) retail sell-through was very strong across all product categories with in-season reorders, particularly strong in soft shells, windsopper fleece and insulated outerwear.

For the full year, Mountain Hardware sales were $35.5 million, of which $27.8 million were included in our financial statements post-acquisition.

Our plans are to keep Mountain Hardware keenly focused on designing and marketing innovative technical high-end products to the specialty dealer channel.

Many of the well-known high-end competitors are concentrating on price point styles that are less technical.

We believe Mountain Hardware's competitive strengths will give them an opportunity to expand their business in the specialty dealer channel.

Sorel.

Sorel sales were $15.8 million in the fourth quarter, a 52% increase over last year.

For the full year 2003 sales were a strong $33.4 million, an increase of 44% over 2002 results.

Growth for the year was a result of new account openings and improved productivity in existing doors as well as further developments of new product lines such as Sorel's work apparel and footwear.

Sorel continues to focus on the expansion of product offerings in the new categories, in order to leverage Sorel's cold weather heritage and make Sorel a year-round brand for outdoor oriented men, women and children.

We're pleased with the strength of the Sorel brand and its strategic direction.

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

Bryan?

Thanks Tim, and good afternoon everyone.

I will begin with a brief review of the fourth quarter income statement and as customary, I will compare current quarter line items with prior year periods to facilitate an accurate comparison.

Net sales for the fourth quarter were $257.4 million, an increase of 18.5% over the $217.3 million of net sales for the same period last year.

Growth in consolidated net sales were the result of the continued strength of foreign currencies on our direct businesses and domestic weather patterns that drove better December reorder demand from customers.

Excluding changes in currency exchange rates, consolidated net sales increased 13.1% in the fourth quarter.

Included in consolidated net sales is approximately $8.4 million for Mountain Hardware.

Our consolidated gross margins for the fourth quarter of 2003 contracted by 40 basis points to 46.8% when compared to 47.2% during the fourth quarter of 2002.

This contraction was expected and incorporated in our last guidance due to the higher mix of sportswear and footwear sales, which have lower gross margins than our outerwear.

This gross margin contraction was offset by foreign currency appreciation against the U.S. dollar.

The company's SG&A expense is increased by 23.8% or $13.4 million on an absolute basis to $69.6 million or 27% of sales for the fourth quarter of 2003, versus $56.2 million or 25.9% of sales for the comparable period in 2002.

(Inaudible) expense increased primarily as a result of sales growth and additional advertising and promotional expenses incurred during the quarter.

Operating expenses increased primarily due to the additional personnel related costs and depreciation expense.

Depreciation and amortization totaled $5.6 million for the fourth quarter of 2003, compared to $4.9 million in the same period as the prior year.

The increase was primarily due to the European distribution center, which was placed in service January 1st of 2003.

We continue to maintain a strong cash position at $264.6 million compared to $194.7 million at the same time last year.

Net interest income for the fourth quarter was 256,000 versus 316,000 last year.

Our effective tax rate was 37% as compared to 37.5% in 2002.

We reported net income of $32.2 million or 79 cents per share for the fourth quarter of 2003 versus net income of $29.1 million or 72 cents per share for the fourth quarter of 2002, based on a diluted share count of 40.9 and $40.3 million respectively.

Now focusing on full-year operations.

Net sales for the full year of 2003 were $951.8 million, an increase of 16.6% over the $816.3 million of net sales for 2002.

Growth in consolidated net sales was primarily the result of continued strength of our sportswear and footwear product categories, expansion of our international operations and associated foreign currency benefits and additional revenues from the acquisition of Mountain Hardware.

Excluding changes in currency exchange rates, consolidated net sales increased 12.1% for the year.

Our consolidated net sales includes approximately $27.8 million from Mountain Hardware.

Our consolidated gross margins for the year contracted by 10 basis points to 46.3% when compared to 46.4% during 2002.

This slight contraction was due to the higher mix of sportswear and footwear sales, which have lower gross margins than outerwear, the gross margin impact of amortizing the mark-to-market adjustment for the inventory acquired with the acquisition of Mountain Hardware offset by appreciation of foreign currencies and favorable weather patterns that permitted sales of close-out merchandise at higher margins.

For the full year of 2003, the company's SG&A remained constant as a percentage of sales at 26.3%.

On an absolute dollar basis, SG&A increased by 16.6% to $250.5 million versus $214.9 million for 2002.

Selling expenses were slightly ahead of last year, as a percentage of sales, as we made additional investments to promote our brands, while other operating expenses were down slightly as we continue to manage our cost diligently.

Depreciation and amortization totaled $22.8 million for 2003 compared to $18.1 million in 2002.

The increase was primarily due to the European distribution center, which again was placed in service, January of 2003.

Net interest income for 2003 was 480,000 versus 354,000 last year.

Our effective tax rate was 37% compared to 37.5% in 2002.

The company reported net income of $120.1 million or $2.96 per share for 2003, versus net income of $102.5 million or $2.56 per share for 2002, based on a diluted share count of 40.6 and $40.1 million respectively.

I'll quickly touch on key items in the balance sheet, and again, I'll be comparing December 31st, 2003 balances to December 31st, 2002 balances.

The balance sheet remains very strong with cash and cash equivalents totaling $264.6 million versus $194.7 million at the same time last year.

Consolidated accounts receivable at December 31, 2003 was $206 million compared to $154.1 million a year ago.

The accounts receivable balance, excluding Mountain Hardware receivables of $7.4 million was up 28.9%, which is higher than the 18.5% quarterly sales increase due to the significant volume of shipments later in the quarter and the appreciation in foreign currencies.

Consolidated inventories were $126.8 million compared to $94.9 million a year ago.

Excluding Mountain Hardware's inventories of six million, inventories increased 27.3%, primarily driven by a receipt of spring goods for upcoming shipments and is in line with our previously reported increase in spring backlog.

We expect our Capex to be $45 million in 2004, consisting of approximately $15 million in maintenance Capex and $30 million in distribution projects, including the expenditures related to our Midwestern footwear distribution center.

We are now modeling approximately $19.5 million in depreciation and amortization in 2004 as we benefit from the depreciation roll offs from previous IT and distribution capital acquisitions.

That covers the financials for the fourth quarter and full-year of 2003.

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

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

Now let's turn our attention to financial guidance.

Given the results that we have reported here today, we're in a position to update everyone on our guidance for the first quarter and full-year 2004.

As a reminder, spring accounts were a relatively small percentage of our overall business.

The bulk of our revenues and profits traditionally come in the second half 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 were described in our 10-Q for the period ended September 30, 2003, and which were expressed by Gert in her opening comments.

Based on our current outlook, we continue to anticipated Q1 2004 consolidated revenue growth to be 19-21% when compared to the same period last year and are anticipating Q1 gross margin contraction of approximately 100 basis points, placing us between 44.4% to 44.6% of estimated sales.

As we have discussed previously, this contraction is a result of the sales product mix shift to footwear and sportswear, which currently have lower margins than outerwear, and a higher mix of international distributor sales, also at lesser margins.

Our current SG&A target for Q1 2004 as a percentage of estimated sales is 31.4% to 31.6%.

At present, we are modeling the company's quarterly and full-year effective tax rates at 35.5% and we are using 41 million shares for purposes of Q1 EPS calculations.

This analysis implies Q1 net income growth of 14-16%, when compared to the first quarter of 2003.

Turning our attention to full-year 2004, we believe that our strategies, combined with our initial outlook, will enable us to generate consolidated revenue growth in the low double digits for the full-year 2004 when compared to 2003 revenue.

And we anticipate net income growth of up to 10% for the full-year 2004.

Now factored into this guidance is approximately 100 basis points of gross margin contraction, due to the continued sales mix shift to lower margin product categories and less benefit from appreciation of foreign currencies than we experienced in 2003.

Additionally, we plan to maintain SG&A as a percentage of estimated revenues at 2003 levels.

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 quarter report on Form 10-Q for the period ended September 30, 2003.

I'll now hand the call back to Tim, who will review both geographically and categorically our business environment.

Tim?

Thanks Bryan.

I'll begin with a review of the fourth quarter 2003 consolidated categorical sales results with comparisons to the fourth quarter of 2002.

Outerwear, $140 million versus $130.8 million last year, an increase of 7%.

In the fourth quarter we saw healthy growth in international markets in the outerwear category with significant contributions from Europe and other international markets, which offset a decline in U.S. outerwear sales.

Sportswear, $58.7 million versus $40.7 million, an increase of 44.2% during the fourth quarter.

Sportswear growth continues to be robust, lead by strong growth in the U.S., Europe and other international markets.

Footwear, $44.4 million versus $34.2 million, an increase of 29.8%.

Footwear sales growth was well above the corporate average in all major geographic markets with particular sales strength in Europe and Canada.

Accessories, $13.4 million versus $11.6 million, a 15.55 increase.

In the fourth quarter, we saw double-digit growth in all global markets in the accessory product category.

Equipment, equipment sales through Mountain Hardware were $900,000 in the fourth quarter.

Now let's run through the categorical results for the full-year 2003 with comparisons to the full-year 2002.

Total sales for the year were $951.8 million, a 16.6% increase over last year.

Outerwear, $443.7 million versus $422.5 million last year, an increase of 5%.

For the full year, outerwear sales were 46.6% of total sales compared to 51.8% last year.

We're pleased with the growth of consolidated outerwear sales worldwide.

Outerwear growth was driven by strong gains in Europe and other international markets, offsetting a decline in U.S. outerwear sales.

Sportswear, $311.3 million versus $245.2 million, an increase of 27%.

Sportswear sales were 32.7% of total sales compared to 30% last year.

Sportswear growth was exceptional in all global markets in 2003, led by strong gains in the U.S.

Our bottoms business in both men's and women's and our niche brands, GRT, PFG and Titanium MultiSport have been very strong this year in the Sportswear category.

Footwear, $148.6 million versus $110 million, an increase of 35.1%.

Footwear sales were 15.6% of total sales compared to 13.5% last year.

We're particularly pleased with the resurgence of our footwear product category in 2003.

Our spring products such as our light hikers and sandals were well received and the momentum carried into fall.

Footwear shipments for the period were strong in all major geographic markets, led by strong gains in Europe and other international markets.

We're thrilled by the reception consumers have given the Sorel brand, and the renewed sales momentum of our Columbia branded footwear products.

We have made significant strides in migrating from mostly a winter footwear supplier to a year round source for our customers.

Accessories, $43.5 million versus $38.6 million, an increase of 12.7%.

All major foreign markets experienced strong accessory shipments for the period.

Equipment.

Mountain Hardware equipment sales were $4.7 million for the year, close to acquisition.

Overall, during 2003 we made significant strides in diversifying our revenue base, increasing our footwear and sportswear categories from approximately 43.5% of sales in 2002 to 48.3% in '03, further establishing Columbia as a complete outdoor lifestyle brand.

Geographical sales.

Let me give you some basic background and additional sales commentary for the fourth quarter and for the full year 2003 with comparisons to the same periods of '02.

U.S.A., fourth quarter sales of $156.9 million versus $145.8 million, an increase of 7.6%.

Sales for the full year 2003 were $596.8 million compared to $557.5 million, a seven percent increase for the year.

U.S.A. sportswear sales were very strong in the fourth quarter.

Men's in general is very encouraging.

Products like the Heart (ph) Mountain Hoodie and half zip plaid shirts and ROC pants are performing very well in the men's line.

Overall sell through of our sportswear products was very healthy in the fourth quarter.

Footwear sell through in the U.S. was also very good, favorably impacted by weather in many parts of the U.S.

We're pleased with the consolidated growth in outerwear as we gain market share worldwide in this category.

However, U.S. outerwear sales were soft in the fourth quarter.

Sales trends indicate the consumer is purchasing more lightweight, middle layer products instead of heavy weight jackets.

We're seeing strong sales trends of heavier weight sportswear items such as our fleece sweaters, vests and pullovers.

This trend is particularly evident in the youth category.

To confront the needs of the changing U.S. youth outerwear market and to address increasing competition in that category, we're taking steps to realign our youth outerwear design resources.

Our 2005 product line will have greater differentiation between boys and girl's products as well as greater clarification between products for little children and pre-teens.

The youth outerwear line will offer fresh new products at better value offerings for the consumer with input from our retailers to enhance the line.

Canada, sales of $28.3 million versus $24.9 million, an increase of 13.7% for the fourth quarter but a decrease of four percent in the period excluding changes in currency exchange rates.

Sales for the full year 2003 were $106.7 million compared to $86.7 million, a 23.1% increase for the year excluding changes in currency exchange rates sales increased 9.6% for the year.

We're pleased with the sales growth in Canada during 2003.

Excluding changes in currency exchange rates, fourth quarter sales were down primarily to conservative inventory positions during the quarter that restricted customer's reorders.

Generally sell through at retail for fall products in Canada has been inconsistent with healthy sell through in the west part of the country offset by weaker sales due to mild weather patterns in Ontario through the end of the quarter.

However, favorable weather conditions in central Canada since the end of the year should improve retail sell through.

Sorel cold weather footwear has sold well, particularly in the west and the new Sorel safety footwear has had solid sell throughs as well.

In general, the current retail climate in the region remains steady for sporting goods retailers and strong and growing customers in the region bode well for future growth in Canada.

Europe, fourth quarter sales of $37 million versus $23.1 million for the same period last year, an increase of 60.2% or 35.6% excluding changes in exchange rates.

Sales for the full year 2003 were $135.2 million compared to $95.9 million, a 41% increase for the year.

Excluding changes in currency exchange rates, sales in Europe increased 18.5% during 2003.

Overall fall 2003 sell through has been at acceptable levels influenced primarily by inconsistent weather patterns during the fourth quarter of '03.

October was cold followed by mild temperatures in November and December, effecting sell through at retail.

Outerwear shipments were very strong in the quarter, leading strong growth in shipments in all other product categories.

Proportionately, we saw more sportswear and footwear in Europe than in the U.S., however, as we grow our business in Northern European countries, we see significant opportunities to increase our outerwear penetration in Europe.

The competitive landscape remains stable.

Columbia is one of the few outdoor brands that is growing market share on a pan European basis.

Most other competitive brands are only relative in their respective markets.

While the current retail environment continues to be challenging, I believe that we will continue to be well positioned in the European market when compared to our competitors.

Other international, fourth quarter sales of $35.2 million versus $23.5 million for the same period of '02, an increase of 49.8% or 42.6% excluding changes in currency exchange rates.

For the full year 2003 other international sales were $113.1 million compared to $76.2 million during 2002, an increase of 48.4% year over year.

Excluding changes in currency exchange rates, other international sales increased 43.5% during 2003.

International distributors, a component of other international, recorded sales of $13.6 million compared to $8.5 million in the fourth quarter of '02, a 60% increase.

The vast majority of all sales to international distributors are denominated in U.S. dollars.

Fiscal 2003 international distributor sales were $56.5 million compared to $31.2 million during 2002, an increase of 81.1% for the full year.

Shipments to Russia, which comprises the largest segment of international distributor business, were very strong in all product categories in the fourth quarter, however, retail inventory levels are up due to an unusually warm winter.

Cold weather footwear has been particular impacted due to lack of snow in western Russia.

That said, Columbia is by far the dominant outdoor apparel brand in Russia.

Consumer research indicates that Columbia is the fourth most recognized sport brand after Nike, Adidas and Reebok.

Japan, a component of other international, recorded fourth quarter sales of $15 million compared to $10 million, a 50% increase or 36.2% excluding changes in currency exchange rates.

In the full year 2003 sales in Japan were $38.7 million compared to $31.4 million during 2002, a 23.2% increase.

Excluding changes in currency exchange rates, Japan sales increased 14% during 2003.

Shipments of all product categories were strong in the fourth quarter, led by growth in the sportswear and outerwear categories.

Overall, retail sell through has been strong.

While we remain optimistic about the prospects for growth in the Japanese market over the long term, the near term business climate is difficult and as such we continue to maintain a cautious stance for the time being.

Overall we're very pleased with our fourth quarter and fiscal 2003 sales results and the progress we're making in growing our business across geographic and product categories.

In closing I'd like to thank our hardworking employees for a job well done as we wrap up another successful year.

Due principally to employee efforts, we were able to grow every product category in every region around the world during the year.

Going forward our business strategy remains steady and we will continue to focus our attention on growing the business through our four and a half key growth strategies.

To reiterate, first we will continue to enhance the channel productivity of our existing customers to effective point of purchase marketing activities.

Second, we'll continue to leverage our brand internationally and focus on building the business in Europe.

Third, we will continue to develop the merchandise categories of sportswear and footwear more completely, and fourth, we will continue to selectively add distribution as we seek to grow our department store and specialty footwear businesses.

And last, but not least, we will continue to seek out attractive licensing opportunities as we leverage the strength of our brands.

That concludes our report.

Thank you for listening in.

We'd be happy to field any questions.

Operator, can you help us?

Thank you sir.

Ladies and gentlemen, at this time we will begin the question and answer session.

[OPERATOR INSTRUCTIONS].

First question comes from Bob Drbul with Lehman Brothers.

Go ahead.

Good afternoon.

Afternoon Bob.

A couple of questions.

The first one revolves around the distribution here in the U.S.

Can you give us an update in terms of your top ten retailers, including and update on your department store penetration?

The second one would be, can you talk about the inventory levels as you see it especially for outerwear at retail currently, Tim?

And then the third one, you know, sort of stems from that, which is can you talk about how much of your order book for fall of '04 you already have in?

Certainly.

Thanks.

First of all, as far as our U.S. distribution I would think that it - on a top ten side it's probably near - very similar to what it was last year.

Sorry, '03 is very similar to where it was in '02.

And, you know, we have healthy customers in that group and we're pleased with that.

Our department store penetration, I believe, will probably increase as the percentage of our total customer base.

We basically have some significant successes in department store channel primarily in the area of regional department stores.

Inventory at retail, I believe its got to be very clean.

We're looking at weather patterns that we consider to be quite good for our company and I would think that our customers have low inventory levels at this point in weather sensitive merchandise.

Order book, at the most recent time we've looked at it, was about the same as it was last year, so I would say we're somewhere in the half booked in that range.

Please remember that the order book for footwear and for Europe and other parts of the world bills slightly later than in the U.S.

Tim, within that half number, do you have a lot of your larger accounts already in, you know, sort of what's left to do in terms of that standpoint?

Well, we've got a pretty complete book, I would guess, by comparison to prior periods.

I would say it's very analogous.

You know, the guidance we've given you today is mindful of the position we're in today and I think it would be about where we have been in prior periods.

OK.

Just one final question.

Is - in terms of the distribution, there's a lot of noise right now about some of the sporting goods channel situation there.

Can you give us an update in terms of where you think your brand is within, you know, some of the key retailers in the sporting goods arena?

Certainly.

I think - we've said that the - while we believe there's lots of opportunity to grow our business, the most mature area is North America and within that the most mature is sporting goods channel.

We believe that there is significant opportunities for us to continue to grow with those customers, not only in our historical outerwear base but also in sportswear and footwear.

And so we think that there is still room to grow in those areas, but we think the opportunities for us to grow more rapidly probably exists out in other customers, which are in the department store and specialty footwear categories.

Thank you.

Thanks Bob.

Thank you.

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

Hi.

Good afternoon.

Couple of questions.

I was wondering if when you look at 2004, could you review the items, once again, that impact margins by order of impact?

And then, second, I was wondering - you were talking about receivables and you said that you had a number of items that shipped late in the quarter.

I was wondering if you could elaborate on that?

And then, finally, could you comment on Mountain Hardware?

Sales seem kind of weak there.

Is there anything specifically going on and how is the order book shaping up for Mountain Hardware for '04?

All right.

Carole, as it relates to the guidance provided in 2004 with respect to margin, that I would say the vast majority of the anticipated degradation there would be a product mix shift.

So if you look at what happened for full year 2003, I think that it was somewhat the same.

We did have some degradation caused by the product mix shift from outerwear to footwear and sportswear.

Of course, as you know, this year we had some very good currency movements where we have subsidiaries abroad.

So in Europe, Canada, Japan, we've had some nice currency against the U.S. dollar and therefore some of that also counteracted some of the degradation caused by the product mix shift.

As I look to next year, again, we're not really counting on any further currency appreciation necessarily in the guidance that we're giving here today.

And really it's more or less a product mix shift.

As it relates to the later shipment that we commented on, this was really just - it was more of just a timing of customer orders along with some reorder demand.

In certain fleece categories, cold weather footwear categories were - it was just the demand thereafter the selling season to get some additional product.

And Carole, as it relates to Mountain Hardware, let me just speak to the acquisition in general and then I think Bryan can talk specifically around the Q4 number.

We're very excited and continue to be about the prospects of Mountain Hardware.

Great brand, very well respected, terrific products and substantial opportunities in the U.S. and in Europe as well.

We also believe that in the future that there is significant opportunities for us as it relates to integrating our sourcing and distribution management into the company, and that together we'll put together a great team.

So it's a very exciting opportunity.

We think it's huge and maybe Brian might just kind of talk a little bit about (inaudible).

Yes.

I mean, Mountain Hardware came in for the entire year at around 35.5.

We certainly - we had some goals close to that range at around 37.

I would say that from kind of their shipping patterns to our shipping patterns, it is a little bit different in that they do hold over a little bit of what I'll call our fall '03 goods that we try to clear in the channel in the fourth quarter, they do just as normal part of their business carry a little bit of that over in Q1 of 2004.

So we add a little bit of a shift, I think, in their selling patterns.

But other than that nothing out of the ordinary in that business.

And then what about your outlook for Mountain Hardware for '04?

It's baked into the guidance that we've given you today.

Maybe Brian can be more specific.

Yes.

I mean, it's certainly along the lines when we purchased that asset, I know we commented that we believed that the synergies and their operating plans for that business were going to grow that business on the top line, you know, to quote around $100 million over five years.

So I would say that if you took an average taker (ph) to get you there, I mean, that's kind of our plans for growing that business in 2004.

It's certainly greater than the corporate average.

Great.

Thanks a lot.

Next question comes from Jeffrey Edelman of UBS.

Please go ahead.

Thank you.

Good afternoon.

One follow up question on distribution.

There has been consolidation within the sporting goods sector and couple of large ones have really talked about expanding their presence or their exposure to you or with you.

Is that - has that been fully reflected in your order book or is this something we're going to see develop likely throughout the course of '04?

Yes, Jeff.

We have spoken with several of our larger customers in the U.S and some of the consolidated customers and we expect, as they do, to have a larger presence in their stores.

Some of that is going to be footwear related, which is a later time development but we fully expect that those more impactful product presentations in their stores and larger penetration will both be present.

Right.

OK.

And then secondly, if you were to hit your low double-digit sales forecast, you indicated you would expect you to hold your SG&A ratio.

Are you budgeting your SG&A in dollars at this juncture?

I'm going to let Bryan speak to that, Jeff.

Yes, Jeff.

As we look out to next year, again, we've - as I think I mentioned on the call, with respect to depreciation expense we do have some roll-offs that are positively impacting us for 2004.

And again, we've added - as I think we mentioned in our last conference call, we have added some personnel to really help grow the business specifically in the footwear - Sorel and other departments within the company.

So, that's really budgeted more on an absolute basis, and as we look out at the guidance that - the top line guidance that we're giving here today, it's very relative to 2003 as a percentage of sales.

OK.

So, if it were to be - turn out to be a little better, the expenses would not go up proportionately.

Right - at least the fixed costs of the business that would be correct.

Right.

OK.

And then finally, is there much carryover fall/winter inventory in your distribution centers now or is that pretty much out?

I would say we're very clean, Jeff.

OK.

Great.

Thank you.

Thanks.

Our next question comes from Noelle Grainger with JP Morgan.

Please go ahead.

Hi.

Good afternoon.

Hi, Noelle.

Hello.

Just an SG&A follow-up.

Can you address what your plans are in terms of advertising and marketing?

Are you going to be ratcheting that up in dollar terms or percentage of sales for 2004?

That's my first question.

Certainly in dollar terms it'll go up.

You know, we're migrating slightly our mix of investment into in-store fixturing systems.

We find the much greater return there.

And so that will be the only change and it probably is a few percentage points, frankly, from prior periods.

But it is a - it's a heavy up in that category as opposed to the others.

How many of the shops do you expect to add in '04?

Well, we've talked about it.

It's very difficult to categorize these things as shops and then - as opposed to a focus area, as opposed to a - just a brand enhancement fixture.

But suffice it to say it'll be a significant increase.

Certainly in the U.S., it'll be a good increase.

Can you talk a little bit about your outerwear business down in the quarter, down for the year?

How do you feel about your relative positioning in the marketplace, particularly in the U.S.

Obviously it's a mature business.

Do you feel you're losing share to other brands, private label?

And can you address what you're doing in terms of this?

Absolutely.

Certainly.

I just want to make sure you - we didn't mean to mischaracterize.

We had a growth of around 7% in our outerwear business this year, so ...

But in the U.S. it was down, right?

Yes, the U.S. was down.

Yes.

I think there's a few things going on there - a shift in the - what people are wearing as it relates to outerwear with more emphasis on fleece, polyester, and cotton fleeces as opposed to our traditional outerwear merchandise.

And the biggest area of concern for us is the youth products, and we addressed that in the call talking about changing our focus and our design targets in that area to be more specific to what our customers are requesting.

As it relates to competitors, you know, there've been a lot of people who have come into our business over the last several years.

I would put Timberland, Nike ACG, North Face, Marmet (ph), and others.

But all those branded competitors pale by comparison to what our private label competitors are.

So, there's been some movement around all those competitors.

OK.

And my last question would just be can you talk a little bit about the sourcing environment?

It seems like the complexity of sourcing is ratcheting up with some uncertainty around what's going to happen with quotas.

How are you managing the process and how have you assumed that impacts your gross margins in 2004?

Well, as we've talked a lot, we consider sourcing to be one of the company's particular strengths.

And we think we're benefited by the complexity because we think we do a better job at it than others.

The sourcing environment right now is obviously questioning exactly how the quota abandonment will be treated country by country, what impact there'll be on foreign currency revaluations, and other issues that are myriad.

But suffice it to say we think we've got it - we understand that business and know how to do it quite well.

The bulk of this, however, will be a 2005 issue and - at least as how it's related to company, we're in the planning process for '05 and how that will impact us then.

You haven't assumed that there's a material change either way in your product cost for '04?

Not for '04.

OK.

But, again, believe me, we're on this.

This is an area of significant investment for the company.

OK, thank you.

Thanks, Noelle.

Thank you.

Our next question comes from David Campbell with Davenport.

Please go ahead.

Hi.

Thanks very much.

Hi, David.

I was wondering if you could go back to the private label issue.

Do you think that your customers have been more or less successful with private label in 2003 and what is your outlook for their private label businesses in general in 2004?

Well, as we look across the landscape of all of our customers globally, we see some customers increasing their private label dependence and others reducing it.

And, again, that's category by category.

In general, I see us still - as we say often, that's our single biggest competitor.

So, we have some customers that are having a larger penetration of private label in their businesses.

At the same time, we have a lot - we have a lot of customers that are giving us significant business at the expense of their own private label.

So, it's a mixed bag, but it is our single largest competitor globally.

How do you see the pricing environment evolving within the private label arena?

Well, it's - you know, retailers can be - can buy products at private label less expensively than they can buy them from Columbia.

What they don't get, in addition to the brand, is all the other things that we provide as a significant sourcing expert.

That would include quality, timeliness, fit, correct color, more limited risks as - you know, as a vendor of - as a branded vendor.

And all those things add up to customers making decisions to give us business in lieu of private label or vice versa.

And it's a moving target.

But generally the bulk of our large volumes come at the expense of private label business.

OK, thanks very much.

Thanks, David.

Thank you.

The next question comes from Virginia Genereux of Merrill Lynch.

Please go ahead.

Thank you.

A couple questions if I may - first, maybe, for Bryan.

Can you quantify the gross margin boost from currencies in the December quarter?

I'm asking because you and I have spoken before about this and I think you said that you basically price your European product to hit your margin targets, but based on where you know your hedge rates are.

So, I guess, when you say you got a gross margin benefit from currencies, I'm just trying to see whether currencies ran up on you in the quarter or how that sort of flowed through.

Thank you (inaudible).

Sure.

In quarter four, it's - and again, I think the movement in currencies specifically in quarter four wasn't as drastic it was for the entire year.

And that's true - to say that Columbia does - we do try to manage our risk in foreign currencies and we do take out forward contracts when we price a season, much as you said, Virginia.

So, with respect to a lot of the run-up in the Euro over the course of the last year, we will forego some of that gain because we do take contracts out initially to protect our margin.

But just simply on a contracted, you know, hedged rate basis year-over-year, there is some margin lift just in the comparability of those two cost of goods hedged at different rates.

So, but - that's again, I don't want to make it sound like that's a major impact, but it certainly can be impactful as those two hedged rates move around especially as they have over the course of the last year.

OK, so I mean would you say, Bryan, it was - I mean was it 50 basis points (inaudible)?

For the fourth quarter, absolutely not.

No, it's not that dramatic at all.

OK.

I think for the full year if you look at our margin degradation of about 10 basis points, certainly we've commented before about the quantification of what the Mountain Hardware mark-to-market adjustment was.

I think that was in the neighborhood of 15 basis points.

And then you have a little bit of - for that other - those other two pieces that I mentioned earlier was a lift by currency offset by a degradation of the margin based on a product mix shift.

So I think those fairly net each other out and you're down, you know, 10 basis points for the full year.

OK, thank you.

And then, I think you also said that gross margins saw a boost from cleaner sell-throughs given weather, but then, you know, you talked about outerwear in the U.S. being a little weakish.

So, in the U.S. was sportswear - was it sportswear and footwear that saw some stronger sort of sell-throughs given weather or was it outwear as well?

I think it was parts of outerwear.

I think you're correct in it was the - some of the sportswear product.

We characterize fleece products within the sportswear product category, so fleece was very strong; cold weather footwear, as you mentioned; and then, also, I would say that the rainwear piece of outerwear as a category was also strong.

OK, that's great.

And then lastly, could you just give us a little more color on maybe quantifying the savings - the shipping savings - and you commented on this on the last earnings call - from the new Kentucky DC (ph).

Right, right.

Yes, the Kentucky DC (ph) is very proximate to our customers - to the majority of our major customers in footwear, and because footwear is bulky, it will be a cost savings and a time savings in the shipping.

The bulk of the savings - in fact all the savings will be - will inure to our customers because we ship everything FOB.

So, I don't know what exact percentage, but around 70% of our major customers are within a day of that Kentucky DC (ph).

OK, great.

So, effectively, it'll be a savings for them, Tim, and you'll be - I mean that'll effectively be some sort of margin IMU (ph) benefit to them.

Yes, exactly.

Great.

Thank you all so much, and good job.

Thank you.

Thank you.

Our next question comes from Jamelah Leddy of McAdams Wright Regan.

Please go ahead.

Hi.

Hi, Jamelah.

I was wondering if you could talk a little bit about how the distribution center in Europe was going and when you anticipate adding additional capacity to that facility.

I'm going to let Pat speak to that specifically.

Yes, as far as the (inaudible) facility goes, we've had it up and running for two seasons now, and everything's been going fine.

I think we're really pleased with the start-up.

It started up without really a hitch, and we just continue to refine that.

And as far as capacity goes, we're a few years out before we're looking to do any adding to that.

We track our sales growth and have a model, but no current plans for an addition at this point.

OK.

And you had talked a little bit, Tim, I think about the cold weather patterns benefiting your current inventory position.

Will we see some margin benefit in Q1 from any additional inventory that is still out there or has that really been moved through in the fourth quarter?

I think we've got inventories that have been moved through fourth quarter.

Maybe I'll let Bryan speak specifically of the way he's got that mixed in the guidance.

Jamelah, one thing I'd point to, if you'll recall in Q1 of 2003, I think the weather patterns from the winter of 2002 really kind of shifted into more of the January/February timeframe of 2003.

And we got a really late winter that helped us move a lot of closeouts at some very good margins, and therefore the first quarter of 2003 that had quite a significant boost to our anticipated gross margins.

So, I would think that, again, we've had good closeout activity in quarter four.

We're very clean on an inventory position, so I don't believe you can necessarily anticipate a similar gross margin levels and attractive closeout prices in Q1 of 2004.

And again, that's all baked into the guidance we've given here today.

OK, great.

And then just my last question - relative to a year ago, I would assume that based on your full-year '04 guidance that you have more visibility and comfort with your fall backlog at this point than you did a year ago.

Is that a correct assumption?

No, I think we're just at about the same point this year that we were last year.

So, we think we're (ph) around half booked, and again, we have to be mindful that footwear books later, Europe books later, and some of our other distribution internationally books later, as well.

So I'd say that we're - we think our guidance today is mindful of those more delayed quarter book deadlines.

OK, great.

Thanks a lot and congratulations on a great quarter.

Thank you.

Thank you.

Our next question comes from John Chanley (ph) with Wells Fargo Securities.

Please go ahead.

Good afternoon.

Tim, I wonder if you could give us a little further insight into what's really driving the major growth of the European business up 60%.

Is it specific to certain countries or certain retail channels within the European market and do you expect that to change appreciably going forward into '04?

Certainly.

Well, the business there we're very excited about.

I know we've quoted 60% on a poor (ph) currency exchange basis, and maybe Bryan will help me out with the exact number after.

I just want to make sure that that's been fully talked about.

But it's interesting to note that our distribution in Europe is very analogous to I would say the early days of Columbia, meaning in the '90s where we had a very high percentage of sporting goods business as opposed to department stores.

So, our channel of distribution in Europe is really a sporting goods-based distribution channel.

So, ...

Is it being driven by people like Sport2000 or Intersport or are you dealing directly with some of the big sporting good chains?

We're dealing - it's both.

We have a nice-sized business with Intersport International, which is the aggregate of all the Intersport businesses in Europe.

But I'd have to say that our business in Germany in the German Intersport business is probably on the weaker side.

We believe Germany in general is our second-largest market in Europe.

It's just slightly ahead of Spain.

France is our biggest market.

But we believe that there's huge opportunities for us in Germany as we continue to penetrate that.

And that'll mean more business with Intersport.

Carjstad (ph) is good, solid customer as well, but we have pretty significant business with Sportshack (ph), who's an Intersport customer, Decathalon (ph), which is not, and other large chains there.

But we do have business with Sport2000, and it's a good relationship and growing.

OK, the onset of your distribution center facility outside of Paris, has that allowed you to move away from using distributors in Europe so that you're doing more direct business and will that have any effect on your margin opportunities in European sales?

We've been working directly in Europe in every market with the exception of Greece.

Now - excuse me, every market in the EU with the exception of Greece for some time.

The move to the distribution center was really to give us better control over our service levels, which on (ph) our former third party distribution company, our service levels were not as high as they are in the U.S.

I think our opportunities in Europe are to continue to be a very high-quality supplier and - so that when European retailers are comparing us with the dominant local brand, we can provide all the services that a retailer has been receiving for years from the local supplier.

And that's really the opportunity.

But the margin changes there will not be as a result of changing our direct businesses in markets that we don't really have under direct (inaudible).

OK, great.

In the domestic market for both footwear and sportswear, was there a noticeable change in terms of the product margin levels in 4Q '03 versus what you had attained in the corresponding period of a year ago?

I'm going to let Bryan speak to that specifically.

He's got that in front of him.

Yes, I think if we go back to 2002, we had some significant sourcing benefits especially for the fall 2002 season, so - and that carried forward into spring 2003.

So, I think we got a bit of a gross margin lift at the front half of this year, and then (inaudible) relates into fall, I think that's flattened out.

And I think as we look out to next year, I think we haven't baked additional sourcing benefits.

You have not?

We have not.

OK.

Are you getting an indication, Bryan or Tim, in terms of the pre-line discussions you've had with some of your domestic retailers whether they're - there's been an improvement in their likelihood to absorb somewhat higher margins on your part due to the fact that the inventory levels seems to be pretty flushed out.

Not only of your market but a lot of retailers are telling us that they have blown through a lot of their outerwear and sportswear and insulated footwear due to much colder weather that we've had in the country.

That likely to see a benefit or are you getting any indication from them that they're a little bit more generous in terms of what they're paying for products?

Well I certainly - John, this is Tim, we certainly think our retailers are getting much cleaner.

These guys are in a position now where they've had great weather, really, around the country and this last bit of weather is really cleaning everything up.

Our prices, basically, get baked in real early in the season.

We do a significant portion of the business early on and so they are what they are, really, starting from the first part of November.

But we certainly see that the customers are getting liquidated as it relates to their inventories of cold weather merchandise.

I did want to - I mentioned that you're accurate on the 60% increase in Europe.

But that's currency adjusted it, it's around 35.6, which is still terrific but we think that there's opportunity well beyond that, obviously.

Yes.

Last question I had is on that currency exchange issue.

Bryan, can you give me an indication of how much of both fourth quarter and fiscal '03's earnings results were derived from the currency exchange rates?

Yes, as I mentioned earlier, it's definitely as I - currency fluctuations or the benefit in our inner gross margins were, was definitely more impactable for the full year just because currencies, if I recall correctly, at the start of the year in the Euro was maybe to 105 where they ended up at a 1.6, .9 or something to that effect.

So in the fourth quarter it was less dramatic than that.

I think they were - they might have only five or six points of total variance.

So the specific basis points, I can't - I don't have it at my fingertips necessarily but Q4 it was less impactful and it was more just a product mix shift, the degradation of 40 basis points for the entire year, the degradation of 10 basis points as I mentioned was really the mountain hardware of 15.

And you had an offset between the product mix shift and currency.

Right.

So the exact basis points I don't have currently.

And if you looked at your $2.96 for the full fiscal year earnings results, do you have a - can you give us a sense of how much of that may have related directly to exchange rates?

You know we haven't necessarily got into that degree of specificity.

But I know at least on the margin line we talked about more of an impact for the full year.

I think on the top line, you're probably talking close to, out of the 16.6% increase in our top line, I would say that maybe close to four percent of that was due to the effects of currency exchange rate changes, just in the translation from local to reporting currencies.

All right, so if we factored that into our models, we should be able to come out with some approximation on the bottom line in contribution then?

Yes.

OK.

Great.

Thank a lot.

Appreciate it.

Thanks, John.

Thank you.

Your next question comes from Margaret Mager with Goldman Sachs.

Please go ahead.

Hello.

It's Margaret.

How are you?

Good.

How are you?

Great, thanks.

I actually, I want to ask about the gross margins by segment.

Could you update us on how the gross margins are stacking up by outerwear, footwear, and sportswear and if you've had any improvement in that year-over-year or and what you expect for 2004? 'Cause it's obviously important because there's mix shifts going on in the company.

Sure.

No, I agree.

It's very important.

And I would say that what happened in 2003 compared to 2002, for each product category not a lot of movement there with respect to overall raw margins.

For outerwear again, we're all in margins, the mid to high 40s, sportswear, footwear both in the low 40s, accessories following more the outerwear traits with respect to margins.

And again, as Tim said, we really priced the season.

Albeit we haven't issued all of our purchase orders yet for the '04 season, but we do have a pretty good indication of our costs and therefore don't expect huge changes.

Actually I should say more significant changes to margins by product category in 2004, at this point.

So do you think that this is what it will be?

Or is there any sort of volume breakpoint where these margins in sportswear and footwear can move up?

Yes, I mean I think we saw a good margin increases as it relates to, well sportswear for sure in spring, 2003.

There was probably less of that variance in fall, 2003.

The footwear margins, I know we've talked many times about this.

As we gain more scale in that product category, we expect our margins to improve.

That's - so they might be ever increasing slightly but I think we need to get a little bit more scale to really the kind of margin improvement that would be meaningful.

What do you think is the right - where is there a break point at the margins that'll benefit from scale?

Is it 200 million, 250?

Yes, it's difficult because it also - it relies on a mix inside the footwear division.

It's a function of amortization of the tooling.

So if we have successful, highly successful single style that utilizes the same tooling, we'll have quicker amortization and higher margins.

So it's a question of how I - how the footwear line develops.

And we're searching for this great product that we believe can propel the business into really rapid growth in footwear.

OK.

But in the meantime, we're hitting singles and doubles, which means we have more tooling and sort of a margin issue that's about on average of where we've been.

OK.

All right.

And then I was just curious, with the outerwear in the U.S., can you say how much it was down for 2003?

Was it single digit, low single, mid single, high single, how much was it down in the U.S.?

I think it was pretty close to high single digits within the U.S.

OK.

Actually I think that, actually more like I'd say mid single digit.

It wasn't ...

OK.

Yes, because overall, of course, we grew in the outerwear category and, as you know ...

Right.

... most it's still sold in the U.S., so probably mid single digit.

OK.

And do you think in your outlook for 2004, are you assuming that outerwear in the U.S. will be down again?

Well, again, the book's only half full.

But we don't, we're not estimating that and we've got the full global look at all the product categories is baked into the current guidance.

Right.

I would hope so, that you consider all pieces of your business in your guidance.

But I'm curious about the outerwear in the U.S. in particular what you assume.

And I understand that your book is not done yet.

I'm just talking about your assumptions for next year.

Yes, the assumption is that we'll not be down.

OK.

And then if I could ask about Europe, the European mix, Tim, you said that you have a higher penetration of footwear and sportswear in Europe versus the U.S.

Can you just elaborate on that?

What is the mix?

What the mix is?

Yes.

I'm going to let the guys look it up.

But I can basically tell, I mean just to give you some color on the issue.

Our best markets, I guess by that I should say the ones where we have the highest penetration, would be France, Germany number two but for a long time Germany was our fourth or fifth market.

So for a long time Spain was our second biggest market.

And those are not markets typically that have outerwear as a high percentage of their mix.

Right.

Sort of A, we entered the business in Europe really as a full-blown company with many product categories.

And as opposed to the U.S. where there are still people who consider us to be an outerwear company only.

And so we had a fresh look from our customers in Europe.

So they tended to buy our products more broadly ...

Yes.

... than in the U.S.

So, anyway, that's sort of by way of background.

Maybe ...

And on the assumptions that we've made for 2004, again, it's really not indifferent to what the strategies are here in the U.S.

I mean we're growing very good rates with respect to footwear.

So I think our assumptions would be to continue to grow footwear at a rapid pace, followed by outerwear and sportswear.

OK.

Yes, just Tim, do you have the roughly the mix, the outerwear, footwear, sportswear mix in Europe versus the U.S. for just a sense of how different it is there?

I would say the outerwear is maybe in the mid single digits, lower as a percentage of total sales in Europe.

OK.

And Margaret?

Yes?

This is David.

We've got a number of other people that are in that are in, that we'd like to get them the opportunity to ask questions, if you'd like to step into the queue that would be great.

Oh, thanks.

You mean you want me to get off the line and come back on at the end?

Is that the idea?

There are a number of people that we'd like to have - to ask another follow up, that would be great.

OK.

No it's all - the questions are all related to the gross margin.

And just trying to understand the mix shifting that's going on in your gross margin related to mix shift in the U.S. as well as geographic mix shift given that Europe is going to be one of your fastest growing regions.

So that's the line of questioning.

So if there's any sort of wrap up that you want to throw at me on that, Tim that would be great.

And I will not bother to come back on the queue.

OK.

We'd love having you come back.

Well just to wrap up, all these various parts and pieces are again baked in the guidance.

And the expectation is that Europe will grow more rapidly than the average of the company.

At today's Euro values, so we have a higher margin there.

But I would say our margins in Europe are probably more average across the product categories than they are in the U.S.

OK.

That's very helpful.

Thanks, Tim.

All right.

Thanks, Margaret.

OK.

Thank you.

Our next question comes from (inaudible) with Catalyst (ph).

Please go ahead.

Hi.

I just want to follow up on the inventory.

Of the 129 million of inventory, how would you break that down in terms of spring?

If we've cleared out a lot of the winter, thanks to the bad weather, or you're happy about the weather.

Right.

How do you break out that 130 million of inventory?

Yes, I don't have specifics necessarily by spring and fall season but as I mentioned earlier on the call, I think the fall component or the fall carry-over component is quite small.

It certainly over 100 million of that number would be considered spring goods ready for sell in Q1.

And what was that equivalent last year of spring for '03?

For '03 ...

If it's 100 million in - I'm trying to understand comparable inventory year to year.

Sure.

No, I think as we also mentioned, Q1 of 2003, we moved quite a bit of fall close out merchandise.

Right.

That's what ...

So in terms of that carry-over, I think the carry-over fall product was definitely more at year ends 2002 than December 31, 2003.

Right.

But at the end of 2002 you ended with 95 million of inventory and so of the 95 million of 2002, what was its spring versus winter?

So I can apples to apples.

If it's 100 million of spring this year, what is that 100 million of spring compare to?

Again, I don't have the specific spring/fall break out.

But just anecdotally the fall/spring mix for 2002 was a little bit more in the fall inventory.

We sold those off in Q1 2003.

Now it's much less this fall because we're very clean with our inventory position in the fall.

And if you'll recall, our spring backlog was an increase of 2003 spring backlog was an increase of 15%.

We have 27% spring '04 backlog or increased orders.

So there's definitely a heightened degree of inventory to supply the orders for the selling season in 2004.

OK.

So that the order number, you said you were about halfway through the number now?

It's about half ...

That's the fall book.

OK.

That's what I'm trying to do, apples to apples.

Can you give us also a sense perhaps of how conservative you are with regard to planning for retailers that are potentially have announced more difficult financial times?

Well, yes, our guidance as we've given it to you today is mindful of all parts of the business that are known to us today.

So we've incorporated all of our views of the globe and our customers as we know them today.

So do you put, how quickly do you put somebody on potential credit watch?

Well we want all of our customers to be very profitable and do well.

But we have a history of very significant and conservative credit policies.

And we review our, all of our customers' financial statements diligently in order to make sure that we are extending credit to those that are creditworthy.

So it's a mixed set of variables.

But we are very good at managing our accounts receivable.

I know you want me off the call, so I'll be very quick.

But my last question is with regard, again, to sort of the outerwear issues with the teen, who do you think is giving you the most?

Is it a change, in other words are teens wearing more fleece and lighter weight?

Or is it, or is there somebody else producing a product that you feel that you want to try to get ahead of?

No, no.

It's - I guess when we talk about youth business, that's all the way from our you know, our very young children, you know, child's business all the way through the pre-teen years, or 10, 12 years old, and we see, you know, a couple things happening there.

Our products weren't as sharp, we believe as they could have been, A. And B, there's a sort of general shift in that group of kids to be wearing hooded sweatshirts and fleece products as opposed to more heavy outwear.

So there's a couple things going on there.

We need to be better at the product side in order to make sure that we get our share.

So you think it's more a change in the lifestyle of how that group is dressing as opposed to somebody else creating a better product.

It's a combination, frankly, it's a combination.

OK, thank you.

Thank you.

Next question comes from Mitch Cummins (ph) with DA Davidson.

Go ahead.

Yes, thank you.

Just to start with, a few quick housekeeping items.

Bryan, what are you assumptions on the tax rate and interest for '04?

Interest is somewhat negligible, just in the current rate environment.

It's probably a number close to a million, give or take.

I would, the tax rate assumption is 35.5% as we expect, you know, from a geographic mix of income, we expect the mix from, you know, European subsidiaries level of income to grow and taxed at a lesser rate than there in the U.S.

So our overall effective tax rate will be down to about the 35.5% range.

And would you expect that to continue to go down as the European business becomes a bigger part of the mix, beyond '04?

Beyond '04, that will continue to have an effect, absolutely.

OK, and what's your FX assumptions imbedded in your sales forecast for '04?

Are you assuming that rates are going to be you know, in line with what they are right now or that the foreign exchange rate or do you think that, is there some other assumption that you're making?

Yes, I mean consistent to kind of how we've forecasted and guided in the past, we try to normalize the exchange rates in our forecasting techniques, so no, I wouldn't necessarily take today's rates and say that they, you know, that they don't fluctuate for the remainder of the year.

So I try to normalize that from kind of where they've been in a relevant past.

OK, and then the Kentucky DC opens in FY '05.

When?

Is it the first quarter?

We're, as you know, we do, it's a seasonal business for us and it would be a seasonal opening, so, but we don't, we don't specifically have that date yet, '05, I believe, Pat, am I correct?

Right, we need it in place definitely for fall '05 shipping, so the latest would be May.

We may open that on a more limited basis prior to that, if everything's up running and ready to go.

OK, and then in terms of the depreciation on that, I know, you know, you're just starting the construction, but you mentioned $40 million Capex, what would you expect for the annual depreciation coming out of that once it's functioning?

I would expect that to be pretty close to $5 million.

OK, five mil, and then lastly, just in terms of your order book, you mentioned that you're about halfway in, but then, you know, Europe, footwear and other international book a little later, so I would imagine though U.S. you're more than half in, and in answer to Margaret's question about your FY '04 outerwear look for the, I think it was for the U.S., you said you expected to be up.

I'm just curious, you must have, your order book for the U.S. must look pretty good in outerwear then.

Well, you know, this stuff is all baked into the guidance and not to not answer your question, but we've been pretty clear that we get the highest degree of visibility once the smoke settles and the dust is all done around the end of the first quarter.

That's why we've been pretty steadfast in reporting much more visibility during that period of time at our April conference call.

So yes, we're pleased with the business so far and our guidance reflects sort of where we think it will shake out, but we'll have much more visibility when the dust settles and we've had a chance to analyze all of our orders in April.

OK, fair enough.

Thanks.

Thank you.

Your next question comes from Elizabeth Montgomery (ph) with SG Cowen.

Please go ahead.

Hi.

I have two questions.

The first is I wondered if you could talk about how your SKU count is changing in each of the different product categories, and how that may impact margins going forward, I guess especially in footwear, where you said you need to get a lot of volume in a few key styles, to really amortize the last and drive the margin prior.

Right, yes, I think our SKU count has probably been increasing over the years, and again, our future opportunities in footwear are to, you know, to find this innovative, unique style.

So we've been more generous with our footwear merchandising teams, allowing them to have more latitude and a larger SKU count than maybe we otherwise would.

But we have again, a highly automated distribution facilities and that allows us to move the merchandise around, you know, efficiently regardless of SKU count, and as long as we manage our inventories correctly, the impact should be minimal.

We think the benefits of allowing those kinds of additional, minimally additional costs will be significant once we create this great new product in footwear, which we're diligently trying to do.

OK, that makes sense.

I apologize, I had to hop off the call for a second, but did you give the licensing income number.

We did for '03, the licensing income, net income number was a million, eight.

And that flowed through SG&A as an offset?

No, no, that's, I'm sorry yes.

It does currently.

OK, and then my last question, perhaps I'm confused on this, it seems like you're maintaining the revenue guidance for Q1 although you're taking up EPS, even though you seem to be anniversarying very high close-out margins for the prior year.

And I wondered kind of what the driver for the increase in the earnings guidance was?

Right, yes, on the top line I think our earnings, or top-line guidance hasn't changed from when we last met in October.

That, you'd expect that maybe to increase a little bit because of the currency offset by a little bit of our Q4 shipping as you know, we did sell a bit more than the guidance that we provided.

A little bit was at customer ordering patterns for spring, for spring goods.

On the margin line, it changed ever so slightly, probably up 10 basis points, because again, of some small currency benefits anticipated for Q1.

SG&A was fairly flat to the guidance earlier provided, and of course the tax rate change had a positive effect on the bottom line and that's the reason why we did increase our EPS from the guidance provided before.

OK, that helps a lot.

Thank you.

You bet.

Thank you.

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

Go ahead.

Congratulations you guys on a good quarter.

Thanks.

Thanks.

Just, I wanted to get an idea on the amount of hardware mark-to-market at inventory.

You're going to get an impact of that still in Q1 '04, I think you guide to.

Can you go over again what that impact is and when that goes away?

You know, Harris for all intensive purposes, that's you know, it's gone away.

It's just very, very insignificant amount that will be flowing through in Q1.

For the most part, the entire, you know, close to about a million and a half, give or take was ran through in fiscal year 2003.

OK.

Because again, that mark-to-market flows through just on the inventory purchase as part of the acquisition.

Right, and you said it was a 15 basis point impact to 2003 gross margins?

Correct.

OK, and then again, going to back to the, you said the mix and FX effect netted each other out for 2003 and the 10 basis points was just the non-hardware.

When you said that, you including the distribution sales as part of the mix, the higher distributor sales?

Absolutely.

OK.

I wondered, OK.

Yes, sorry, if I wasn't clear, no, yes, I mean, it's, that's a very good point, actually, it is part of that international distributor mix as well as the shift from outerwear to footwear and sportswear, good point.

OK.

And then just lastly, you this quarter last year, you released some kind of disappointing guidance and then when on to beat that pretty significantly.

I'm just wondering, you know, what, what happened in 2003 that changed from your guidance last year's first quarter that let you beat that so much and why would you release the kind of guidance you released today?

You know, we're obligated to let our investors know what our view of the world is, our world is today.

Certainly last year at this time, we had, you know, I don't think anybody had an idea that the currency exchange rates would be as impactful as they have been, certainly not in hardware, was not contemplated at this time last year.

And you know, there were just other things that you can't predict.

So our job is, as managers here is to guide based on what we know today and that's what we've done.

Great, thanks, that's really helpful.

Thank you.

Thank you.

Our next question comes from Dale Neebert (ph) with MK Financial (ph).

Go ahead.

Hi there, good afternoon and congratulations on a great fourth quarter and continued success through '04.

Thank you.

I'm looking at on the balance sheet, it looks like you guys have about 265 million in cash and cash equivalents.

Do you guys have, what is your basic forward-looking spending plan over the next year or two with that asset?

That's an issue that we speak about with investors and with our board on a very regular basis.

The company's been successful and profitable and has grown a lot, but cash buildup has been a subject of discussion at length.

You know, really, there's several uses of cash that get discussed, they're limited, but would include acquisition.

It would include share buybacks and it would include dividends.

And those issues get discussed at every board meeting that the company has with the, an outside board.

And we discuss, you know, various uses of cash each time.

You know, the state of the retail environment today and the world, we think it's a great time to have a strong balance sheet, and so, so far we've held our cash positions in the company in order to continue to make sure we have a fortress balance sheet.

But as we continue to go forward and grow and throw off more cash, there'll be further discussions and we'll have, as soon as there's a decision that's been made on what our use of cash is going to be, then we'll be happy to share it with you.

Very good, and then my final question is, and I apologize if this is redundant, regarding the stable currency effect that you guys experienced during the fourth quarter, are you guys, are you forecasting basically a similar environment for the Q1 of '04?

I'm not sure I would characterize Q4 as stable, but it was certainly less impactful for the full year of 2003 and again, as we look out into at least the guidance for Q1, 2004, I would say, you know, again, with a relative range, we try to normalize the effect of exchange rates and model in an appropriate level.

OK, very good.

Thank you very much.

Thanks.

Certainly.

Thank you.

Our next question comes from Sam Poser (ph) with Mosaic Research.

Please go ahead.

Good afternoon.

Hey Sam.

Sam.

How are you?

Good.

Good.

I have a question, a follow-up on the inventory levels, because, last year you ended the, you ended the fourth quarter with your 95 million, which was 17% less than the year before and you had an increase in both that quarter and the following quarter of, double digits in the following.

Right now your inventory's almost 34% above last year and you're only looking, you're looking at a range of around 19% revenue increase for Q1 and you're up against, and you're coming off and 18% increase in Q4.

Is there some extra inventory sitting around there?

Absolutely not.

No, I mean, I think if you take the increase in our inventory at 12-31-2003, again, part of that's Mountain Hardware, so deducting out, I believe I mentioned that inventory was up close to 27%, don't remember the ...

Without Mountain Hardware?

Without Mountain Hardware.

So just, I guess, in a broad brush, if you look at the backlog increase or spring backlog for '04 increase of 27%, you know, it's somewhat in line, in fact, very close to in line.

So with respect to the earlier question, with respect to fall inventories, it's you know, it was, you know, fall inventory level, year over year, as I mentioned were very, we're very much clean at 12/31/2003.

The other impactful item there is just a timing of spring receipts and to be honest with you, I don't have numbers for spring receipts year over year, but I do know that that can be very impactful as well with inventory levels.

So you brought, you think you might have brought in significantly more this year relative to the total than last year.

Yes.

OK, great, that's my question.

Thank you very much.

You bet.

[OPERATORS INSTRUCTIONS] One moment for our next question.

At this time we have no further questions.

I'd like to turn the conference back over to management for any concluding comments.

Well we want to thank you all for joining in and we look forward to talking with you in late April with our first quarter conference call.

Thank you very much.

Thank you.

Ladies and gentlemen, thank you for participating in the fourth quarter 2003 financial results teleconference.

Thank you for participating in today's conference.

You may now disconnect.