Columbia Sportswear Co (COLM) 2004 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Columbia Sportswear Company's first-quarter 2004 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. (Operator Instructions).

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

I would now like to turn the conference over to Mr. David Kiser, Manager of Investor Relations.

Please go ahead, sir.

Thank you, (indiscernible).

Good afternoon and welcome to the Columbia Sportswear's first-quarter 2004 financial results conference call.

With me are Tim Boyle, Columbia's President and CEO;

Pat Anderson Columbia's COO;

Bryan Timm, Columbia CFO; and Karl Davis Columbia's General Counsel.

Gert Boyle, Columbia's chairwoman is unable to join us today due to other commitments.

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

You should've received a copy of the earnings release by now.

But if not, then please phone Carolyn Greenwood (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 call as you feel are necessary to understand the Company's business.

As a courtesy to all participants and consistent with prior quarters, we request that you limit your initial follow-up to one or two additional questions to allow all parties the opportunity to ask questions.

We invite you to re-enter the queue if you have additional follow-up questions.

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 results and uncertainties are described in Columbia's annual report on Form 10-K for the year-ended December 31, 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 changes in our expectations.

At this point I'll hand the call over to Tim Boyle to provide an overview of significant developments that occurred during the Company's first-quarter 2004.

Tim?

Thanks, David.

Welcome, everyone, and thanks for joining us.

As David mentioned, Gert is not here with us today due to other commitments.

In fact, she is fishing in the Florida keys right now with several of our customers.

We just celebrated her 80th birthday in early March.

She continues to be in very good health and actively involved in the business.

As you can imagine we're thrilled with our first order results and the positive momentum in the business.

Let's begin with a review of some of the highlights from press release -- Q1 2004 net sales for the Company grew by a strong 22.4 percent over the comparable period of last year to a first quarter record of $206.7 million.

Excluding changes in currency exchange rates, consolidated net sales increased by 16.5 percent in the first quarter.

First quarter sales were strong across product categories, driven by growth in sportswear and footwear, with healthy contributions in outerwear sales which increased 12.2 percent in the quarter.

Gross margins continue to hold steady at 45.4 percent benefited by strong foreign currencies.

Operating margins expanded 50 basis points to a first quarter record of 14.5 percent.

Net income was a record $20 million compared to 14.9 million for the same period of 2003 -- a 34.2 percent increase.

Diluted earnings per share for the first quarter of 2004 came in at 49 cents compared earnings per share of 37 cents for the first quarter of 2003.

Again we're thrilled with our first quarter results, driven by continued solid topline sales growth in our spring-related sportswear and footwear products, and strong financial leverage.

Updates -- small backlog -- we reported exceptional fall backlog results today.

Global fall backlog increased 12.7 percent to 664 million at March 31, 2004.

The backlog includes a component from Mountain Hardwear future sales for this year and for the comparative year.

Due to the timing of the acquisition last year, Mountain Hardwear's backlog was not included in prior years reported backlog results.

To provide comparability, on current year backlog and future revenue growth, fall backlog at March 31, 2003, has been increased to include the 17.7 million in Mountain Hardwear orders that existed in the prior year comparative period.

Consolidated backlog -- which includes spring worldwide orders -- increased 14.3 percent to 777.4 million.

Geographically, U.S. fall backlog was strong, particularly in the sportswear and footwear categories.

U.S. sportswear bookings were solid in all categories for men and women, with particular strength in men's bottoms.

U.S. footwear bookings were exceptional for both the Columbia and the Sorel brands.

Particularly in cold weather styles and in the hiking and trail categories.

International bookings were healthy, significantly strengthened by foreign currencies.

Excluding changes in currency exchange rates, fall backlog increased 8.9 percent.

Overall we're very pleased with the fall '04 order taking season.

Mountain hardware -- sales were 9.7 million during the quarter as mountain hardware continues to develop new and expand existing relationships within the specialty dealer base and begins to exploit international opportunities -- particularly in Europe.

During the quarter, mountain hardware added over 75 new specialty retail dealers nationally, with most of these representing snow sports-related products.

Fall '04 bookings were very strong -- particularly in apparel categories which represent more than 90 percent of the fall bookings.

Future orders for new product programs in snow sport-related outerwear were especially strong.

This was also Mountain Hardwear's first season offering fall sportswear products, which were received very well.

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

And we believe Mountain Hardwear's technical and competitive strengths will give them an opportunity to expand their business in this channel.

Sorel -- Sorel sales were 3.5 million in the first quarter as they continue to leverage Sorel's cold weather heritage and the spring-related apparel and footwear products.

Fall '04, Sorel bookings were very strong in the U.S. and Canada -- with particular strength in classic cold weather styles such as the caribou boot.

Fall orders for our relatively new Sorel outerwear and sportswear products also increased significantly -- particularly in Canada.

Sorel bookings growth was driven by the opening and improved productivity of key accounts in the U.S. and Canada, and the further development of Sorel's independent sales force in the USA.

Sorel's short-term growth will be driven by cold weather footwear products, with particular emphasis on new women's styles as they build on the strength of Sorel's cold weather heritage.

We're very pleased with the strategic direction of the Sorel team.

Licensing -- net licensing income increased to $700,000 with brisk first quarter sales of Columbia eyewear, watchers and hosiery.

We're particularly pleased with our new home furnishings license, which is experiencing strong fall 2004 bookings -- the first season the product is being offered.

During the first quarter we signed two new product licenses for hunting and fishing waders and ankle fit boots in North America, and shoe and apparel care products globally.

We now license our brand in 12 complementary product categories, which extend our product offering and expand the global awareness of our brand.

While we do not expect licensing to be a significant income driver, we're seeing healthy growth from many licensees producing highly profitable income for the Company.

Kentucky distribution center -- construction of the Kentucky footwear distribution center continues according to schedule, and we expect to begin shipping products from the facility in 2005.

To date we have incurred approximately $20 million in expenditures related to this project and expect to capitalize approximately 40 million in total CapEx for the facility.

Our retail footwear customers have expressed enthusiasm for this facility which will improve proximity to the majority of our footwear retailers, and should facilitate shorter shipping times and reduce customer shipping costs.

Stock repurchase program -- today we announced that our Board of Directors has authorized the repurchase of up to $100 million of Columbia's common stock.

We have a very strong cash position and expect to continue to generate significant cash flow as we continue to grow.

We believe that this share repurchase program provides us with an additional option for prudent usage of our cash to enhance shareholder value.

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

Brian?

Thanks, Tim.

Good afternoon, everyone.

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

Net sales for the first quarter were 206.7 million -- an increase of 22.4 percent over the 168.9 million of net sales for the same period last year.

Growth in consolidated net sales was the result of strong customer demand for our spring products, and the continued strength of foreign currencies on our international direct businesses.

Excluding changes in currency exchange rates, consolidated net sales increased 16.5 percent for the first quarter.

Included in consolidated net sales is approximately 9.7 million from Mountain Hardwear.

Our consolidated gross margins for the first quarter of 2004 were 45.4 percent or flat when compared to the first quarter 2003.

Foreign currency strength benefited gross margins, offsetting lower gross margins in the U.S. on sales of fall close-out product and the continued sales mix shift to sportswear and footwear product categories, which have lower gross margins than outerwear.

The company's SG&A expenses increased by 21.2 percent or 11.3 million on an absolute basis, to 64.5 million or 31.2 percent of sales for the first quarter of 2004 -- versus 53.2 million or 31.5 percent of sales for the comparable period 2003.

Some expenses increased in line with sales growth and remained fairly constant as a percentage net sales.

General and administrative expenses increased -- primarily due to the additional personnel related costs -- but decreased as a percentage of sales due to the strong net sales growth for the quarter.

Depreciation and amortization totaled 5.4 million for the first quarter of 2004, compared to 5.5 million in the same period of the prior year.

We continue to maintain a strong cash position at 288.1 million compared to 179.2 million for the same time year.

Net interest income for the first quarter was 898,000 versus 183,000 last year.

Our effective tax rate was 35.5 percent, which compared to 37.5 percent in the first quarter of 2003 -- due primarily to increasing revenues in jurisdictions with lower overall tax rates.

We reported net income of 20 million or 49 cents per share for the first quarter of 2004, versus net income of 14.9 million or 37 cents per share for the first quarter 2003 -- based on a diluted share count of 41 and 44,4 million respectively.

I will quickly touch on key items in the balance sheet, and again, I will be comparing March 31, 2004 balances to March 31, 2003 balances.

The balance sheet remains very strong, with cash and cash equivalents totaling 288.1 million versus 179.2 million for the same time last year.

Consolidated accounts receivable at March 31st was 170 million compared to 130.2 million -- a 30.6 percent increase and higher than the 22.4 percent quarterly sales increase due to significant volume of shipments later in the quarter, and appreciation in foreign currencies.

Consolidated inventories were 128.1 million, compared to 115.8 million a year ago -- an 11 percent increase.

Capital expenditures were 11.2 million during the first quarter, the majority of which to increase our distribution capacities.

We continue to model CapEx of approximately 45 million in 2004, consistent with approximately 15 million in maintenance CapEx and 30 million in distribution projects -- including expenditures related to our Midwestern Footwear Distribution Center.

We now expect approximately 19 million in depreciation and amortization in 2004, as we benefit from depreciation roll offs for previous IT and distribution capital acquisitions.

That covers the financials for the first quarter of 2004.

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

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

Now let's turn our attention to financial guidance.

Given the results and fall backlog we reported today, we're in position to give guidance for the second quarter, and update everyone on our guidance for the full year of 2004.

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 annual report on Form 10-K for the year-ended December 31, 2003, and which are expressed by David in his 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.

Based on our current outlook, we anticipate Q2 2004 consolidated revenue growth to be 8 to 10 percent when compared to the same period last year; and are anticipating Q2 gross margin expansion of approximately 50 basis points, placing us between 43 to 43.2 percent of estimated sales.

This expansion is isolated to the second quarter due to the relative low mix of international distributor net sales projected for the quarter.

The product mix shift to footwear and sportswear -- which currently have lower gross margins than outerwear -- is expected to be offset by gains from currency exchange rates.

Our current SG&A target for Q2 2004 as a percentage of estimated sales is 35.3 percent to 35.5 percent.

This increase is primarily due to additional marketing spend for the quarter, and increased personnel-related costs.

At present, we're modeling the company quarterly and full year effective tax rate at 35.5 percent, and we're using 41 million shares for purposes of Q2 and full year EPS calculations.

We anticipated net licensing income of approximately 600,000 and net interest income of 700,000 for Q2.

This analysis implies flat Q2 net income when compared to the second quarter of 2003.

Turning our attention to full year 2004, we believe that our strategies, as well as the fall backlog reported today, will enable us to generate consolidated revenue growth of 11 to 12 percent for the full year 2004 when compared to 2003 revenue.

We anticipate net income growth of approximately 10 percent for the full year of 2004.

Factored into this guidance is approximately 100 basis points of gross margin contraction due to the continued sales mix shift of 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 net sales at 2003 levels.

We anticipate net licensing income and net interest income for the year of approximately 3 million and 2 million, respectively.

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

Please consult the Company's annual report on Form 10-K for the period ended December 31, 2003.

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

Ten?

Thanks, Brian.

I will begin with a review of the first quarter 2004 consolidated categorical sales results, with comparisons to the first quarter of '03.

Outerwear -- 40.4 million versus 36 million last year -- a 12.2 percent increase.

The increase in first quarter outerwear shipments was driven by growth in international markets.

Sportswear -- 117 million versus 97.8 million in Q1 of 2003, an increase of 19.6 percent.

Sportswear growth was very strong contributing more than 50 percent of our sales growth in the quarter.

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

Footwear -- 38.4 million versus 29.7 million -- an increase of 29.3 percent.

Spring footwear were 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 footwear shipments, with particular strength in Europe.

Accessories -- 8.2 million versus 5.4 million -- an increase of 51.9 percent.

Accessory sales for the Columbia brand were very solid in the first quarter.

Geographic sales -- let me give you some additional geographic sales commentary for the first quarter with comparisons to the same period of 2003.

USA -- sales of 115.3 million compared to 99.6 million -- a 15.8 percent increase for the quarter.

Growth in first quarter sales was led by a continued demand for key styles in our sportswear category.

First quarter sales of shorts and bottoms were strong, and the retail sell through has been healthy -- particularly in the western U.S., where the weather has been warm this spring.

Products like the women's Shoshoni short and Rock Short and Rock Pant are performing well this spring.

Footwear sell through in the U.S. was also very good for the first quarter.

Sandals and slip on's are selling very well right now, and our hiking category continues to perform very well.

According to Sports Trend, the third party industry performance research Company, our Sawtooth Light Hiker is the number one style in dollars in units in the hiking category this spring, and Columbia footwear has the number two market share in this category year-to-date.

This is our second consecutive year of very strong performance in the hiking category.

In light of the strong sell through of our footwear products this spring season and the early excitement about our spring 2005 product line, we're feeling positive about the future of our footwear product lines.

Key outerwear styles and rainwear have been doing very well this spring, particularly in the eastern U.S. where the weather has been cooler and wet.

Overall, weather has been seasonally temperate the spring, positively impacting retail sell through.

Turning our attention to fall '04 backlog.

We're very pleased with U.S. fall '04 bookings -- sportswear bookings were strong in all men's and women's styles -- particularly in men's bottoms with the rock and GPS pants performing well.

One of our key strategies is to selectively broaden our retail distribution in the department store channel, which has particular relevance to the sportswear category.

Also included in our sportswear category are medium and heavyweight fleece products which booked extremely well for fall '04.

Footwear bookings for the Columbia and Sorel brands were also up significantly -- particularly in cold weather and hiking and trail styles.

(indiscernible) '04 outerwear bookings were essentially flat in the US.

Adult outerwear bookings were better overall, but youth continues to be challenging.

As we discussed last quarter, sales trends indicate that young people are wearing more light weight, middle layer products, instead of heavyweight jackets -- particularly interchange jackets.

Additional outerwear design resources have been devoted to the youth category, with new styles and product offerings entering the fall '05 product line.

Fall '05 youth outerwear will be overhauled with 90 percent new products and greater differentiation between boys and girls, and young children and preteens products.

Significant opportunities in adult casual outerwear and fabrics such as cotton, nylon and wool exist in all distribution channels -- but particularly in department store channel.

Outerwear design resources are now being focused on this product opportunity, with new styles and product offerings entering the fall '05 product line.

On the whole, adult outerwear will offer 85 percent new products.

Overall we're very pleased with the strength of our U.S. fall '04 bookings season.

Now the primary fall bookings season is largely concluded, the Company has completed its analysis to determine the appropriate level of speculative inventory to carry into the fall '04 season.

Based on a variety of factors -- including channel inventories, economic environment, financial health of customers, and the U.S. retail environment generally -- we have made the decision that a slightly higher than average level of unsold inventory position going in the fall season is prudent.

As you will recall, the old unsold inventory position allows some additional revenue and earnings if conditions permit.

While at the same time protecting the Company's gross margin structure in the event of a less favorable environment.

The financial guidance given today incorporates this level of speculative inventory.

Canada -- sales of 22.4 million versus 18.1 million -- an increase of 23.8 percent for the first quarter or 8.2 percent excluding changes in currency exchange rates.

Sportswear and footwear categories were key drivers of revenue growth in the first quarter.

Men's and women's bottoms and sportswear and sandals and slides in footwear shipped well in the first quarter.

Weather has been warm in western Canada, but late to arrive in East so there are no clear trends on retail sell through this spring.

Fall '04 bookings were up aided by strength in the Canadian dollar.

Columbia branded footwear increased nicely, offsetting soft bookings in outerwear on a currency adjusted basis.

The Sorel brand provides significant growth opportunity for the region going forward.

Sorel had a strong -- Sorel had strong growth in outerwear, sportswear and work safety footwear bookings in Canada, driven by significant orders with some key retailers.

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

Europe -- first quarter sales of 42.9 million versus 32.2 million for the same period last year -- an increase of 33.2 percent or 14.5 percent excluding changes in currency exchange rates.

The spring footwear sales led Europe revenue growth in the first quarter, with key styles in trail and sandals shipping well.

Reorder activity has been brisk the spring.

Overall, fall '04 bookings were up in Europe.

However, the increase was less than the corporate average excluding changes in currency exchange rates.

Bookings increased nicely in France and Spain, and in the outerwear and footwear categories, offsetting weakness in the UK and Germany and in the sportswear category.

We would like to announce an important change to our European team.

John Evans, General Manager of our European subsidiary and a citizen of Canada has resigned from the Company and will return to Canada.

John, who originally joined the European team as Director of Finance and Operations has served as the European General Manager since 1999.

We're currently in the process of conducting a global search for our new European General Manager to lead this business out of our European headquarters in Switzerland.

John will continue to consult with us to insure a smooth transition in the position.

John has made strong contributions to the growth of the Columbia European business, and we wish him well in his future endeavors.

I continue to believe that Europe is one of our most important growth opportunities among the international markets for the foreseeable future.

I am encouraged by the level of acceptance our brands have experienced in these markets.

Other international -- first quarter sales of 26.1 million versus 19 million for the same period 2003 -- an increase of 37.4 percent or 31.9 percent excluding changes in currency exchange rates.

International distributors -- a component of other international -- recorded sales of 11 million compared to 6.6 million in the first quarter of '03 -- a 66.7 percent increase.

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

Shipments to Russia and other Eastern European countries, which comprised the largest segment of international distributor business, were very strong in all product categories in the first quarter.

And spring sell through has been excellent in these markets.

All orders were up, but not to the recent historical levels, due to an unusually warm winter and increased competition in the Russian market.

Japan -- a component of other international -- reported first quarter sales of 10.1 million compared to 8.6 million -- a 17.4 percent increase, or 5.9 percent excluding changes in currency exchange rates.

Unseasonable weather hindered fall order taking activity, and spring sell through in Japan negatively impacting retail inventory levels.

Although indications are that the Japanese economy is starting to show some signs of improvement, the near-term business climate remains difficult.

And as such, we continue to maintain a cautious stance for the time being.

Overall, we're very pleased with our first quarter sales resorts -- results and the progress we're making in growing our business across geographic and product categories.

In closing, going forward, our business strategy remains steady and we will continue to focus our attention on growing the business through the 4.5 key growth strategies that we so frequently articulate.

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

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

Third, we'll continue to develop the merchandise categories of sportswear and footwear market more completely.

Fourth, we'll continue to selectively add distribution as we grow our department store and specialty footwear store businesses.

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

That concludes our report.

Thank you for listing.

We would be happy to field any questions.

Operator, could you please accommodate that?

(Operator Instructions).

Bob Drbul, Lehman Brothers.

Couple of questions -- first, Tim, in terms of the commentary you made around the youth outerwear business -- is that a channel issue are sporting good versus sort of the more (indiscernible) channel?

Is there a concern that you have around that?

And I guess, can you give us an idea in terms of how big that is as a percentage of the total?

Maybe in the different channels of your outerwear business?

Yes.

Certainly.

I will give it a shot, anyway.

It was not a specific channel issue.

We had weakness in sell through in all channels that handled youth outerwear for us.

And we believe that it is significantly due to the change in this apparel.

However, there are some things we can do about this.

We can improve our product offering.

Which we're in the process of doing.

And we can improve the value component that exists.

It was really the single largest disappointment in our product categories across-the-board for fall '04.

In terms of the channels, again, as we have grown our business in the department stores, our youth outerwear business has grown probably most dramatically in those (ph) categories.

But I would say, in terms of the weakness, it's probably equal across all channels.

About how big is that business -- the percentage, Tim?

If you had to break down sort of men's, women's, and the youth segment of your outerwear business --?

I would say all youth products -- and outerwear is by far the largest component -- is about 10 percent of the business -- of the winter business.

You talked about on the second quarter, an increased investment in marketing and personnel.

Can you elaborate on that a little bit more?

And when you look at the full year numbers, what is the marketing spend and your expectation sort of year-over-year both in dollars and percentage change?

Okay.

I can give you the strategies and maybe Bryan can follow-up with a little bit more color on the specifics.

But, we're in a unique position right now.

We have a number of customers requesting significant increases in their in-store fixturing programs.

So, we intend to take advantage of that position and add to our marketing spend slightly in order to accommodate these opportunities.

We would like to secure the real estate if we can.

And we think it's prudent to do so.

In terms of personnel, we're really talking about how the business has grown over the last several years.

Maybe slightly faster than our headcount.

So a bit of catch-up.

But we have some (indiscernible) of personnel hired over the last 12 months or so that is now slightly more noticeable in our headcount than would otherwise be the case.

In terms of our marketing spend, we don't want to get wildly out of line from where we have been in the past.

But there are slight increases going on.

And maybe Bryan can speak specifically to those.

Sure.

Traditionally, we spend I think we commented before, we spend 4 -- call it 4.5 percent of estimated net sales on advertising.

I think the other components that are driving that marketing budget would also be other marketing efforts such as I would point specifically toward POP or point of purchase type of co-op fixturing and what not.

Other selling expenses -- to market and brand.

We will see a little bit of an increase estimated for full year, and also for quarter two for that matter.

Okay.

All right.

Thank you.

Noelle Grainger, J.P. Morgan.

Let's see.

Let me ask two.

The first is -- in terms of your outlook for the second quarter with respect to the 8 to 10 percent topline -- if your total backlog is up 14 percent or so, and your sales have kind of been running a little bit ahead of backlog, why the 8 to 10 percent?

Can you kind of walk us through that?

And then my second question would be -- in terms of Europe and the backlog being a little weak there, can you talk about -- you mentioned the kind of countries of weakness, but are there any -- you know -- Columbia-specific issues?

Do you think it's largely macroeconomic?

Could you just elaborate a little bit?

Thanks.

Sure.

Well, this is Bryan.

I will take the first one with respect to backlog in our guidance for Q2.

I think, in terms of looking at our backlog that we announced today, around the 14 percent level for -- and that's kind of a combined 12.7 of fall backlog with some remaining spring to ship out.

I think it's probably more appropriate to look at the spring backlog that we announced back in October.

At that point in time we announced for a approximately a 26.7, I believe, backlog announcement on a constant dollar basis it was approximately 20 percent.

If you kind of backout Mountain Hardwear in terms of its backlog and it's -- the actual results, you take out another 2 percentage points.

And then also looking at that spring shipment that happened in Q4 of spring related products -- and that would be both international distributors, as well as just a lot of domestic spring shipment that happened here.

That brings you down another point or two.

So you're roughly looking at around 16 percent backlog to apples-to-apples.

And if you look at the first quarter, we did have roughly a little over 22 percent topline growth.

And there was a little bit of Q2 that came into the first quarter based on customer demand.

And also some international distributor business that came out of kind of Q2 end of Q1.

And so if you look at the entire guidance for the first half of the year, which is really kind of more comports to the backlog announced, that's roughly around 16 percent growth if you combine the quarters.

So I think they are roughly tied together, and not to be confused necessary with our fall backlog that was shipped the next -- in the back half of the year.

And then, Noelle, to answer your question -- regards Europe -- I think in the area of macroeconomics, Germany certainly has been weaker.

And we are suffering a bit from the fact that we had less than optimum weather and the economies are not doing as well as they are in other parts of Europe.

However, in the UK, certainly we can do a better job there (indiscernible) filling that marketplace.

We're just underperforming.

And we're in the process of making adjustments to get ourselves to that position.

It is a high-performance level in the UK.

We can certainly get there.

Is it product or is it delivery or (multiple speakers)?

No.

The deliveries have been spectacular from our distribution center in Cambrais.

Very high marks from all parts of Europe on our fulfillment service levels there.

There is some product issues and some people issues in the UK.

Thanks a lot.

Jamelah Leddy, McAdams Wright Regan.

In your financial guidance you indicated slightly higher speculative inventories than, I think, traditionally it's about 5 percent.

Are you willing to say what percentage it will be at?

We can certainly give you some ranges.

I think, in the Company's history as a public Company, we have always landed on around 5 percent.

I think at one time we went up as far as 8.

And we're sort in that approximate range there -- we certainly are below 10.

But we're slightly north of our typical 5 percent range, and maybe just slightly north of that.

But certainly not in the 10 range.

Okay.

And then you also indicated that that was included within your guidance.

But, in that guidance, are you anticipating that this extra inventory is sold at closeout levels?

Or at what we would consider more of a normal margin level?

No.

We always do an analysis of the inventory respective to portion at not being sold at, obviously, full price margin.

And we do a calculation which includes some markdowns and some mistakes etc.

Okay.

That's what I thought.

So, basically, in your guidance, assuming that things are sort of just base case, but because you have built this excess inventory and the potential for it to be sold better if it's a cold winter or other factors, would give upside to your guidance --?

Yes.

There is that possibility, yes.

Okay.

Thanks a lot.

Carole Buyers, RBC Capital Markets.

A couple of questions.

One, I was wondering -- could you review again the gross margin upside factors that benefited you this quarter?

And can you repeat your gross margin guidance for Q2?

That's my first question.

Sure.

Carole, for gross margins Q1, a couple of different things happening there.

I know for Q1, we guided to roughly around 100 basis point contraction -- and that's very consistent to our full year guidance.

As things turned out, currency appreciation lended a bit more of a hand than we anticipated.

I think that was probably close to about 100 basis points in the quarter.

Other factors that kind of took that, that 100 basis point gain down would be -- we had, as you'll recall, last Q1 in 2003, we had significant margin or profit from sales closeouts at very attractive margins, just because of the late market gains.

That's where we got that benefit, was in Q1.

We don't have that, as we were very clean at December 31st of this year.

We don't have a very good comp from a sale of inventory closeouts in the margin.

Also, that product mix shift -- and then also we had some certain indirect channels -- specifically, our international distributors, that have a little bit better margins than we initially projected.

Moving out of Q2, the reason we're really getting at that expansion for Q2 is both one of currency, as well as, if you'll recall -- in Q2 of 2003, we had significant growth in our international distributor business.

That international distributor business, if you'll recall, is at about half of the normal margins that we are able to get.

So, it puts quite a bit of pressure, just in terms of gross margin mix in 2003, versus what we're expecting for 2004.

It's a little bit left of the international distributor mix in Q2.

So that's going to tend to bolster the margin a bit on a comparative basis.

And you said the guidance was 43 percent gross margin?

Yes, it’s roughly 43 percent.

Up 50 basis points from '03.

Okay.

And then, you mentioned department store developments.

Can you elaborate?

Are we seeing any developments within a department store channel outside of your current retail base?

No.

No special areas of note.

It's just that, as the brand continues to be well-established in department stores, we're now getting requests from not only department stores but, I guess, across our retail base for larger presence and more value on the retail floor.

So that's -- these things come along infrequently.

We want to make sure that we take advantage of these opportunities.

Okay.

Thank you.

Jeffrey Edelman, UBS Warburg.

Thank you.

Tim, historically, how much fall product have you typically sold in June?

And are you assuming any fall product in your second quarter sales assumption?

Yes.

Typically we sell a portion of our Q2 sales are fall product.

Now, typically, that's -- generally the earliest selling product, meaning the earliest shipping product, is youth.

And when that gets impacted the way it was impacted this year, it will have some impact -- mostly in Q2 -- for a number of reasons, not the least of which is, it's such a small sales quarter.

Okay, then, I always have trouble adding up your back half sales when we get the futures and orders.

Presumably, the mix (technical difficulty) more towards getting orders later with international and footwear.

Am I correct?

Yes.

There is some movement that way, yes.

Okay.

So, we just take your fall backlog and subtract that to your sales guidance.

There is fairly -- a fairly widespread in there built-in for some sort of conservatism -- I guess.

Let me try to elaborate a little bit.

If you look at the fall portion of the backlog we announced today at 12.7 percent, and I think if you take our actual results for Q1 of about 22.4 and take -- whether it's 8, 10 -- one of those numbers -- in terms of where we're getting guiding Q2, it presumes, with full year guidance of 11, 12 that back half of the year is probably close to the 10 percent range.

So, if you look at our fall backlog, especially in constant dollars -- because I think we commented before it would not be prudent necessary to guide at the high rates, especially what the rates were at the end of March.

Which we're definitely higher than what the rates are currently.

Constant dollar backlog is around 8.9 percent.

You are seeing a little bit -- you are seeing a number that's kind of in between constant dollar and reported backlog at 331.

So, I think it is fairly in line with our backlog announced today.

Okay.

But importantly, you're faster growing businesses are booking later.

In the case of footwear, yes.

And I -- excuse me -- I hope Kurt's (ph) writing a lot of orders down there.

We do too.

We would not have let her go otherwise.

Thanks.

Virginia Genereux, Merrill Lynch.

A few questions, I guess.

Maybe for Brian -- on the gross margin, if I may, you came in better than you thought this quarter.

You got some currency help.

You're going to be a little bit better next quarter than I think you originally thought.

But I think you said your outlook for the year was still 100 bits (ph) of gross margin contraction.

That right, Brian?

And so I'm asking -- that says to me that you're looking for more gross margin pressure in the back half.

Is that -- maybe that's because it's more sportswear in your fall backlog?

I you could just comment on that?

Sure.

No, you are correct.

In our current guidance, it does suggest that we're looking for a little bit more pressure in our gross margin in the back half of the year.

Specifically, I would point to a couple different things.

First and foremost, we talked historically and today as well about a product mix shift.

It's certainly our intent to grow footwear and sportswear faster than the outerwear piece of the business.

That is happening.

That does put a little bit of margin pressure for those lower margin product categories.

Second thing that is happening -- I mentioned earlier, that our Q2 2003 had a significant amount of growth in the international distributor business.

What is happening this year is, instead of that business -- the growth in the business, really coming in Q2, that is coming in the back half of the year -- specifically Q3.

So that's going to put a little bit of gross margin pressure, specifically in Q3 of the back half.

Just because again, those international distributor sales are at about half the margin we typically enjoy.

Third, as Tim mentioned, we are going to have a little bit additional speculative inventory this year compared to the last year.

Those are modeled in at kind of historic rates, and not at full price sales.

So, that's a little bit of a margin.

Reduction at least as it relates to the guidance.

And then finally, currency always impacts -- if you look at where rates were last year.

I think rates kind of sparked up to around the 117 range on a euro in May.

So, I think if you look at the back half of this year, we don't see any significant upside or downside, necessarily from currency.

Specifically, the unhedged position of our international markets.

So, those, are, I guess, maybe four quick factors that are giving rise to a little bit of increased margin pressure in the back half.

Okay.

That's great detail.

But, Brian, wouldn't you still be -- I understand your unhedged portion, but relative to your hedged portion, shouldn't you still be getting a little currency help?

A little bit of currency help -- you're exactly correct.

And that's baked into the guidance.

Again, we're not always -- there is some unhedged portion and at this point in time, we really don't know specifically with the rates where they have moved here recently.

We are, maybe, taking a little bit more of a conservative approach with respect to currency rates further out.

That's great.

And then, may I ask on the additional speculative inventory position relative to your usual 5 percent?

Is that, Tim, then, I think you said -- well, I guess it wasn't -- the 90 percent backlog was apparel.

But I guess -- what type of product is in that?

Is that sort of speculative inventory?

Is it exactly the same mix as the backlog?

Or is it maybe a little bit more sportswear?

If you could comment on that?

No, in fact the way we -- by the way, I want to have somebody check on that 90 percent number.

Because I think you may have misheard something.

David, can you just go back through and find out what we're talking about there?

I will look in your transcripts.

Okay.

But generally, the way we calculate our speculative inventory position is we take a view of the landscape.

Where our customers are purchased, where we've gaining business, where we have lost business, to whom, why, etc.

And we get a view of the landscape of our customer base.

We have our orderbook, which obviously is spread across, I don't know, several hundred kinds of products.

And we take the best-selling of those several hundred and we heavy up in those items.

And in those colorways where we have a high degree of confidence in their ability.

Generally, from a historical standpoint, these have been our best styles.

And that is where we come to the additional inventories.

It's quite regulated.

Also, on the 90 percent that you referred to, I think that was in specific reference to Mountain Hardwear's bookings.

I think we commented that the fall '04 bookings for Mountain Hardwear were very strong, and represented more than about 90 percent in apparel of their fall bookings.

So, --

Thank you.

That's great.

And good to see the share repurchase.

Thank you.

David Campbell, Davenport Company.

I have a couple of questions.

First of all -- can you elaborate a little bit more on second quarter net income forecast, which you said was going to be flat?

Obviously you are assuming a large increase in SG&A percentage.

You mentioned the personnel and advertising costs.

But, could you maybe quantify the dollar amount of the increase you're talking about?

And what else might be causing the flat net income if your sales and gross margins are both up?

Well, David, as you'll recall, even Q2 of last year, it is such a low-volume quarter for us.

And, before I get into any specifics on an absolute dollar basis on SG&A, I think it's important to note that is very difficult just because we're not driving the gross profit growth in the second quarter.

And therefore to have the ability to leverage over the fixed cost of the business, it is increasingly more difficult to do so.

And yes, it is exactly what Tim referred to earlier with respect to the marketing expenses, advertising co-op, the point of purchase, concept shops, as well as just the additional people that we have really added to continue the growth -- specifically in the footwear product category.

So, it's all those fixed costs that we have added.

And really just not generating enough of -- enough gross profit growth to leverage the business model.

So, that is really all that is going on there.

And it's kind of consistent to the previous couple years Q2s.

Okay.

And secondly -- last fall you introduced a brand map for the outerwear business.

Can you update us on how that was received by both consumers as well as the retail customers?

And can you address the midtier business and whether you think you're gaining any more marketshare there?

And how you see that channel over the balance of this year?

Absolutely.

As you remember, we really defined the outerwear business specifically into three categories.

Which is, beginning with our core business.

Midtier being Vertex was our brand on that -- Columbia Vertex (indiscernible) products -- and then the cap is the titanium level.

And I would say that probably the best growth we had this year was in the core and titanium products -- Vertex products also were strong, but the other two were consistent.

The volume consisted of those two categories, primarily.

Well received -- we still need to do a better job, and we are continuing to enhance the ability to segment those pieces of business from each other.

We're working on it constantly.

It was well-received.

We know we're -- to continue to do more work and we will.

Okay.

Thank you.

John Shanley, Wells Fargo Securities.

Looking at the fall backlog and the U.S. specifically, are we likely to see any significant shift in terms of the channels of distribution from the orders that you have got in so far from what it may have been in the fall of '03?

Are you growing any component of your business little bit stronger than you may have done in the previous year?

No.

Other than categorically, in sportswear and footwear we're growing faster, the mix is almost unchanged, I was guess.

Of course we have not done a full analysis.

We won't do that until we have actually shipped the merchandise.

I would expect that our channels would be almost identical.

Once we get the analysis done.

Does it look like, from what you've seen so far, some of the big sporting goods guys -- like Sports Authority -- are they growing at a pretty rapid clip?

And is there a margin differential that you're able to get for most of your products in the sporting good channel versus what you may have traditionally gotten in the department store arena?

No.

The margins across the business are equal across channels.

We have had nice growth from the number of Sporting Goods operations.

But I would say that that would be probably equal with other department store channels.

So, again, I think the balance has been quite -- the lift and balance across channels has been pretty equal.

And looking at your European business, again, footwear obviously looks like it's doing (ph) really well.

Are you on plan, do you believe, in this sportswear and the outerwear product category?

And is there any significant differentiations in terms of where you likely will see the business growing as you get into the fall '04 selling season for those three European merchandise categories?

Well, the backlog we announced today includes our European backlog -- the bulk of it -- it's a little bit later than the balance of the world.

But for all intents and purposes, it's included in our backlog.

Certainly, it's included in the guidance.

We have had continued strength and, really, probably, growing strength in our footwear and outerwear businesses.

Sportswear in fall in Europe for us has been our most challenged area.

But, I think we've got those businesses pretty well in hand.

Sportswear across the globe for us in fall was a smaller business.

And an opportunity for us.

But, in general, I would expect the leading categories of merchandise in Europe will continue to be footwear and outerwear.

Is the outerwear, Tim, pretty much on plan in terms of what you expected to grow it in the European market?

Well, my personal goals are very high.

Almost never equaled.

However, looking at the landscape there, I think we've done quite well.

And based on the competitive situations, etc., we can certainly do better in the UK and in Germany.

As we talked about earlier on the call, those are areas where the Company is going to renew its focus.

Are you taking share away in footwear and outerwear from European brands?

Or are you competing with perhaps some U.S. brands, like Timberland in those categories, that you may be taking some share away from those guys?

Actually, our biggest competitor over there is the local brands by market.

And those areas we've done generally well -- in France, Spain.

And those are the areas where we have grown.

Again, though, if we look at the landscape, it's almost always a private-label competitor is our greatest competitor across those markets as well.

Okay, great.

Last question I have, Brian, I just want to make sure we understand how to model our SG&A expenses -- 300 basis point increase in second quarter.

I understand that may just be unique to that particular quarter.

It is likely that you will come in in the same ballpark range of the 26.3 percent that you had in -- for fiscal '03 and fiscal '04 -- is that a safe assumption?

Yeah.

I think at this particular time, we think that, even though Q2 is a bit of an anomaly -- as you pointed out, we do believe that it will be pretty much on par with '03.

One other thing I thought about to David's question earlier on Q2's SG&A -- goes back to the same point, when we talked about international distributors -- again, international distributors business in Q2 of 2003 led so much of a growth that quarter.

Again, one element is the margin impact, which is about half that normal that we enjoy.

The other piece about the international distributor piece is that we really -- we don't really have any SG&A costs associated with that.

So, in the event where it is in this particular Q2, where we have less of that mix, it's going to tend to impact SG&A upwards, because you don't have that piece in the mix.

Okay, great, I understand.

Thank you very much.

I appreciate it.

Robbie Ohmes, Banc of America Securities.

Thanks.

Two quick questions.

One, you know, you mentioned the fixture program and that being a pressure on SG&A in the second quarter.

Was that a situation where just one retailer came to you guys?

Or could you sort of let us know what happened there?

The second question -- I think you guys expanded your casual offerings for fall in footwear.

Can you talk about how the response was to that within the backlogs?

Thanks.

Sure.

Speaking about the first question, being the fixturing systems, that has really been across the board -- even in places in retail accounts where we have a significant presence of shops and in fixturing systems -- they want more.

So the demand -- that coupled with some newer accounts that don't have as many fixturing systems wanting to roll out a larger component.

Just put a lot of pressure on it.

It's one of those timing things where you just really -- they're so valuable for both parties we want to make sure that we can accommodate as many as we can.

I guess I would say on the casual footwear offering, we have done well there.

Again, my goals are higher than others, maybe in the Company.

So, it's a question sometimes of what's reasonable to expect.

But just basically, looking across the landscape of our footwear business -- we are still continuing to lead with our traditional cold weather products.

And those have been by far the best received.

Great.

Thanks a lot.

Bernard Dickens (ph), Barnhard Lewis Asset Management (ph).

Mr. Dickens, your line is open at this time.

Gentlemen, there are no further questions at this time.

Please continue.

We appreciate everybody listening.

Thanks and we will be talking to you soon at our next conference call.

Enjoy.

Thank you.

Thank you, sir.

Ladies and gentlemen, this concludes the Columbia Sportswear Company's first quarter 2004 financial results conference call.

You may now disconnect, and thank you for using AT&T teleconferencing.