Columbia Sportswear Co (COLM) 2005 Q4 法說會逐字稿

Good afternoon, my name is Richard, and I'll be your conference facilitator.

At this time I'd like to welcome everyone to the Columbia Sportswear fourth quarter and year end financial results conference call.

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

After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS] Thank you.

Mr. Kiser, you may begin your conference.

Thank you Richard.

Good afternoon and welcome to Columbia Sportswear's fourth quarter and fiscal year 2005 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 Peter Bragdon, Columbia's General Counsel.

Continuing our standard practice we'll review the results of the fourth quarter, provide some guidance on future periods, and field any questions that you might have.

You should have received a copy of the earnings release by now, but if not, please phone Trudy Collins here at Columbia, at 503-985-4310, 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, please limit your initial follow up to one or two additional questions, to allow all parties an opportunity to ask questions.

We invite you to reenter the queue if you have additional followup 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 period ending September 30th, 2005.

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

Thank you.

Thank you, Gert, I'll hand the call over to Tim Boyle who will provide you an overview of significant development that occurred during the Company's fourth quarter of 2005.

Thanks, David.

Welcome everyone.

Thank you for joining us this afternoon.

Let us begin by reviewing some highlights from the earnings announcement.

Q4 2005 sales for the Company increased 4.1% year-over-year to 314.1 million, a fourth quarter record.

Excluding changes in currency exchange rates, consolidated sales increased by 5% for the fourth quarter.

Net income for the fourth quarter was 36.6 million, a 7.1% year-over-year decrease.

However diluted earnings per share were $0.97 unchanged year-over-year, due to our ongoing share repurchase program.

Full year 2005, we reported sales of 1 billion 155.8 million, a 5.5% year-over-year increase.

Net income for the year decreased 5.7% to 130.7 million, and full-year diluted EPS came in at $3.36, compared to $3.40 for 2004.

Updates, Montrail acquisition, today we announced the acquisition of Montrail, a premium outdoor footwear brand, with an excellent reputation for technical high-performance trail running and hiking products, developed for outdoor enthusiasts.

Montrail was recently recognized in the SNEWS outdoor retailer survey, as both the best selling men's and best selling women's footwear brand in the outdoor specialty channel.

Montrail has the top three best-selling trail running styles, and the top-selling hiking style in this channel.

We understand the unique value, positioning and integrity of the Montrail brand, and we're committed to providing technically advanced leading edge footwear to hard core outdoor enthusiasts and professionals.

We can leverage our sourcing, logistics, and capital strength to develop Montrail's opportunities in the specialty footwear channel, and to expand the brand globally.

We also believe we can leverage the performance and fit characteristics that Montrail has developed to improve the fit and quality of all of our brands.

We expect Montrail's integration to have minimal impact on the ongoing operations of our organization.

We paid $15 million cash in consideration, plus the assumption of certain liabilities, for substantially all of the assets of Montrail.

Mon trail's unaudited 2005 net sales were approximately $16.5 million.

We expect the transaction to be neutral the first quarter earnings, and slightly dilutive to earnings in 2006.

Brad Gebhard, our new VP of Footwear has accepted responsibility for the design and product line management for all of our footwear brands, including Montrail, Columbia, and Sorel.

Brad will direct the cohesive integrated, multi-brand footwear strategy.

Scott Tucker, Montrail's former President, will lead the Montrail brand as General Manager.

Sean Beers has accepted the position of General Manager, Sorel, and will report to Brad.

Sean has been Sorel's Director of Merchandising and Operations, and has capably managed the Sorel brand on an interim basis since June of last year.

Sorel, Sorel sales were 21.5 million for the fourth quarter, a 14.4% increase over the same period last year.

For the full year 2005, sales were 47.6 million, an 11.2% increase over 2004 results.

Sorel growth has been driven by shipment of key classic footwear styles.

Retail sellthrough of cold weather styles in this fall season has been very strong in the U.S., Canada, and Japan, and early feedback on the fall 2006 line has been very good.

Fall '06 Apparel has also been receiving good reviews.

Our Sorel team is committed to establishing the brand as a dominant cold weather footwear resource globally.

Mountain Hardwear, Mountain Hardwear sales were 15.5 million for the fourth quarter, a 38.4% increase over last year.

Full year 2005 sales were up 30% to 59.7 million with strong growth in the U.S. and international markets.

U.S. sellthrough rates have been strong this winter, and the fall '06 line is showing very well, particularly in the new snowwear product line.

The Mountain Hardwear brand is very strong in the specialty dealer base.

SNEWS outdoor retailer survey, named Mountain Hardwear as the best supplier in the business for the specialty retailer channel, and the brand is solidifying its premium market position in U.S. specialty and sporting goods distribution channels.

Mountain Hardwear's international growth opportunities are also very strong, and we're seeing increasing demand for the brand in Europe, Korea, and many other brands globally.

Licensing, net licensing income increased 60% to 1.6 million in the fourth quarter, with strong contribution in licensing income from socks, leather outer wear, home furnishings, and our new bicycle license.

For the full year, net licensing income increased 10% to 4.4 million, driven by the continued growth of maturity of our licensee programs across multiple categories.

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

Bryan?

Thanks, Tim, good afternoon, everyone.

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

Net sales for the fourth quarter were 314.1 million, an increase of 4.1% over the 301.8 million of net sales in the same period last year.

Growth in consolidated net sales was driven by strong growth in footwear and sportswear and better than expected domestic reorders, and accelerated fall close-outs of weather sensitive outer wear products.

Excluding changes in currency exchange rates, consolidated net sales increased 5% in the fourth quarter.

Our consolidated gross margins for the fourth quarter of 2005 contracted by 170 basis points to 42.8%, compared to 44.5% during the fourth quarter of 2004.

This contraction was primarily the result of a sales mix shift from outer wear to sportswear and footwear products, which have lower gross margins, as well as an intraproduct mix shift within the outerwear and sportswear product categories.

The fourth quarter the Company's SG&A increased by 9.1%, or 6.8 million, to 81.8 million, or 26% of sales for the fourth quarter of 2005, compared to 75 million, or 24.9% of sales for the comparable period in 2004.

Selling expenses remained essentially flat at 8.9% of sales for the fourth quarter 2005 and 2004.

Operating expenses increased primarily due to the additional personnel related costs, and additional depreciation and operating costs associated with our Kentucky distribution center.

Depreciation and amortization totaled 5.8 million for the fourth quarter 2005, compared to 4.4 million in the same period of the prior year.

Net licensing income increased 0.6 million, or 60% to 1.6 million for the fourth quarter of 2005.

Net interest income for the fourth quarter increased to 1.2 million from 0.6 million last year, due to our strong cash position, and the higher interest rate environment.

Effective tax rate was 34.1% for the fourth quarter 2005, compared to 35.5% in the same period of 2004.

Due primarily to higher income in jurisdictions with lower overall tax rates.

We reported net income of 36.6 million, or $0.97 per share for the fourth quarter of 2005, versus net income of 39.4 million, or $0.97 per share for the fourth quarter of 2004, based on diluted share count of 37.7 million, and 40.6 million respectively.

Now focusing on full year financial results.

Net sales for the full year of 2005 were 1 billion155.8 million, an increase of 5.5% over the 1 billion 95.3 million of net sales for 2004.

Excluding changes in currency exchange rates, consolidated net sales increased 4.5% in 2005.

Growth in consolidated net sales primarily the result of the continued strength of our sportswear and footwear product categories, and the international expansion of our business.

Our consolidated gross margins for the year contracted by 190 basis points to 43.6% compared to 45.5% during 2004.

This contraction was due to the higher mix of footwear and sportswear sales, which have lower gross margins than outerwear, intraproduct mix shift within the outerwear and sportswear categories, increased air freight costs resulting from previously discussed isolated supply chain issues, and the lower margins on close-out product sales in the first half of the year.

For the full year 2005 the Company's SG&A increased 31.7 million, or 10.9%, to 322.2 million, or 27.9% of sales compared to 290.5 million, or 26.5% of sales for 2004.

Selling expenses remained flat as a percentage of sales at 9.7% for both 2005 and 2004.

Operating expenses increased in 2005 primarily due to the additional personnel related costs, and additional depreciation and operating costs associated with new distribution projects.

Depreciation and amortization totalled 22.7 million for 2005, an increase of 4.7 million compared to 2004.

Net licensing income increased 0.4 million or 10%, to 4.4 million for the full year, driven by growth and maturity of our licensee programs.

Net interest income for 2005 was 4.9 million compared to 3.5 million last year, due to our strong cash position in the higher interest rate environment.

Our effective tax rate was 31.5% compared to 35.5% in 2004, due to the favorable conclusion of various income tax audits of several tax years, and to a lesser extent higher income in jurisdictions with lower overall tax rates.

The Company reported net income of 130.7 million, or $3.36 per share for 2005 versus net income of 138.6 million, or $3.40 per share for 2004, based on diluted share count of 38.9 million, and 40.8 million respectively.

I'll quickly touch on key items on the balance sheet, and again I'll compare December 31, 2005 balances to December 31, 2004 balances.

The balance sheet remains very strong with cash equivalents and short term investments totaling 260.2 million versus 290.2 million at the same time last year.

We successfully repatriated approximately 135 million in international earnings during the quarter, part of which we elected to apply the provisions of the American Jobs Creation Act.

In connection with the repatriation, our short term borrowings increased to 39.7 million at December 31, 2005, in order to maximize the amount of the dividend paid by our international subsidiaries.

We expect to repay these borrowings from cash flow generated by the subsidiary operations.

Consolidated accounts receivable in December 31st, 2005 was 287.4 million, an increase of 7.4% over the prior year balance of 267.7 million.

The increase is more than the 4.1% quarterly sales increase, due to the significant increase in the December shipments.

Consolidated inventories were 185.9 million, compared to 165.4 million a year ago.

A 12.4% increase.

Our increased inventory is primarily attributable to the spring season inventory on hand at year end, due to the earlier spring inventory receipts in 2005, compared to 2004.

We also have more fall and spring 2006 carry-over products than we had December 31, 2004 primarily due to increase level of core and replenishment inventory for our year round products.

Capital expenditures were 11.8 million during the fourth quarter.

The majority of which were to increase our distribution capacity.

Total capital expenditures were 39.7 million in 2005, consisting of approximately 9.3 million in maintenance CapEx, and 30.4 million for distribution related and other projects.

During the fourth quarter we repurchased approximately 1 million shares, at an aggregate purchase price at 44.7 million.

We have repurchased 4.5 million shares in an aggregate purchase price of 208.8 million of the 400 million authorized, since the inception of the program.

Now let's turn our attention to financial guidance.

Given the results we have reported today we're in a position to update everyone on our guidance for the first quarter of 2006.

Please keep in mind this information is forward-looking in nature, and is therefore subject to a number of risks, many of which described in our 10-Q for the period ended September 30, 2005, and which were expressed by Gert in her opening comments.

Based on reported spring backlog and a shift in timing of the shipments for the first quarter, we currently anticipate Q1 2006 consolidated revenue growth to be approximately 1%, when compared to the same period last year.

And Q1 gross margin expansion of approximately 20 basis points placing us between 43.7% to 43.9% of estimated sales.

Current SG&A target as a percentage of estimated sales for Q1 2006 is approximately 35%.

This target includes stock option expense of approximately 3 million for the quarter.

We expect the depreciation amortization will be approximately 6 million for the first quarter.

The Company's 2006 effective tax rate is modeled to be at 34.5%, and we're using 37 million shares for purposes of Q1 EPS calculations.

This analysis implies Q1 2006 net income decline of approximately 25% when compared to the first quarter of 2005.

Excluding the expensing of stock options in the first quarter, our estimated net income decline would approximate 15% on a comparative basis.

This guidance does not include projected financial results from Montrail, which we expect to be neutral to earnings in the first quarter, and slightly dilutive to earnings in 2006.

Please note that we are still taking orders for our fall 2006 season, and do not have complete visibility of our fall order backlog.

We expect to provide detailed full year 2006 guidance at our first quarter conference call in April, when we will have substantially completed our fall 2006 order taking season.

Again, please understand that the guidance provided today is forward-looking in nature, and is therefore subject to a number of risk and uncertainties, as previously mentioned.

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

Thanks Bryan.

I'll begin with the review of the fourth quarter 2005 consolidated categorical sales results with comparisons to the fourth quarter of '04.

Outerwear, 147.4 million versus 154.7 million in the comparable period, a decrease of 4.7%.

In the fourth quarter outerwear sales in international markets, particularly in Europe and Korea, partially offset expected weakness in North American outerwear.

Sportswear, 90 million versus 80.7 million, an increase of 11.5%.

U.S. sportswear growth was very strong in the fourth quarter, driving overall sales growth for the product category globally.

Footwear, 63.3 million versus 52.8 million, an increase of 19.9%.

Footwear shipments increased in all markets globally, led by strong sales in North America driven by cold weather products, where we had a resumption of demand due to colder weather conditions.

Accessories, 12.2 million versus 12.6 million last year.

Equipment, 1.2 million versus 1 million in 2004.

Now, let's run through the categorical results for the full year '05 with comparison to full year '04.

Total sales for the year were 1 billion 155.8 million, a 5.5% increase over the prior year.

Outerwear, 440 million versus 460 million last year, a 4.4% decrease.

Full year outerwear sales were 38.1% of total sales, compared to 42%.

We are pleased with the growth of outerwear sales in international markets, which partially offset an expected decline in North American outerwear sales for the year.

Sportswear, 450.3 million versus 396.4 million, an increase of 13.6% for the full year.

Sportswear sales were 39% of total sales compared to 36.2% last year.

Authentic outdoor sportswear is now Columbia's largest product category.

Sportswear increased in all markets globally, led by exceptional gains in the U.S.

Footwear, 211.2 million versus 184.6 million, an increase of 14.4%.

Footwear sales were 18.3% of total sales, compared to 16.9% last year.

We're particularly pleased with the continued strength of our footwear product category in 2005, for both the Columbia and Sorel brands.

Columbia spring products, such as our sandals and light hikers, were well-received and growth continued into the fall.

Footwear shipments increased in all geographic markets, led by gains in Other International, and European markets.

We have made significant strides in migrating from mostly a winter footwear supplier, to a year round footwear source for our customers, and believe the investments in footwear management, product development, supply chain logistics, and our recent acquisition of Montrail, will continue to develop Columbia into a world class footwear company.

Accessories 45.2 million versus 46.1 million, Equipment 9.1 versus 7.9 million last year.

Geographical sales, let me give you some basic background and additional sales commentary by geographic region for the fourth quarter and full year 2005, with comparisons to the same period of 2004.

USA fourth quarter sales of 185.4 million versus 181.1, an increase of 2.4%.

Sales for the full year 2005, were 676.9 million, compared to 666.7 million, a 1.5% increase for the year.

For the full year, U.S. sales were 58.6% of total sales, compared to 60.9% in 2004.

U.S. sales of key cold weather footwear styles were strong and drove overall U.S. sales growth in the fourth quarter.

Fall '05 footwear sellthrough was generally healthy in the fourth quarter, and the fall '06 footwear line is also showing well.

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

Shipments and sell-through of fleece, pullovers, sweaters and men's pants were robust and represented the primary driver of sales growth in the sportswear category.

Fall '05 sellthrough has also been very strong, and the fall '06 sportswear line is being well received.

U.S. outer wear sales were down in the quarter but not to the degree initially expected, due to healthy outerwear reorders, and some close-out sales late in the quarter, driven by strong retail sell-through, and very favorable weather conditions across much of the U.S.

Fourth quarter outerwear retail sellthrough rates were exceptional, driven by the cold and snowy weather conditions late in the quarter.

Youth outerwear sell through improved, and sell through of our core interchange parkas was better.

Retailer margins were strong in the fourth quarter.

The domestic cold weather and related retailer sell-through helped us write outerwear orders earlier for fall '06, which is encouraging.

January weather has been mild, reducing close out margins for some of our U.S. retailers.

However, we believe we have a compelling outerwear product line for this coming fall, and are encouraged by the U.S. outerwear booking patterns we're seeing for fall '06.

As Bryan commented earlier, we're still taking orders for our fall 2006 season, and do not have complete visibility of our fall order backlog.

Europe, fourth quarter sales of 50.3 million versus 44 million, an increase of 14.3%, excluding changes in currency exchange rates, sales increased 21.6% in the fourth quarter.

Sales for the full year 2005 were 184.4 million, compared to 170.3 million, an 8.3% increase for the year.

Excluding changes in currency exchange rates, sales increased 7.7% for the year.

For the full year sales in the region were 16% of total sales, compared to 15.5% in 2004.

Fourth quarter sales were very strong in Europe, driven by increased outerwear sales.

Shipments of interchange parkas drove fourth quarter European outerwear sales.

Footwear sales were also strong in the quarter, led by strength in cold weather footwear.

Retail sellthrough of fall 2005 products was very good in December, following a slow start in the first two months of the fourth quarter.

Retail sell through has continued in January.

Our relationship with key customers across the continent are deepening, and our European team is focused on developing new relationships, and identifying additional distribution opportunities.

Our goal is to grow the business by increasing product lines, and improving productivity within our existing channels, and by adding new customers and doors.

We recently entered into a joint branding effort with Nissan Automotive Company to launch a new Nissan X-Trail Columbia Edition SUV, this collaboration will compliment our marketing efforts as we work to build the Columbia brand awareness across Europe.

The new Nissan vehicles will ship to 21 European countries this month, and will be accompanied by a series of marketing and promotional events and advertising, to promote both Columbia and the new vehicle.

Overall we continue to be well positioned in the European markets when compared to our competition.

Canada, fourth quarter sales up 26.6 million versus 32.6 million, an 18.4% decrease.

Excluding changes in currency exchange rates, sales decreased 22.2% in the fourth quarter.

Sales for the full year 2005 were 114.8 million, compared to 116.9 million, a 1.8% decrease for the year.

Excluding changes in currency exchange rates, sales decreased 9.1% for the year.

For the full year sales in the region were 9.9% of total sales, compared to 10.7% in 2004.

As expected from the fall backlog, reports reported last spring, back half outerwear shipments were weak in Canada.

Early cold weather contributed to good sell through rates during the quarter, but warmer weather in January reduced retailer close out margins for outerwear.

Columbia's outerwear penetration in the Canadian markets is high.

The greatest opportunity for growth in the region are in sportswear and footwear under the Columbia brand, footwear and apparel, under the Sorel brand, and to a lesser extent Montrail footwear.

Fall 2005 sportswear and footwear sell-through has also been good, and retail inventory levels are down.

All '06 Sorel apparel is receiving good reviews and sales of Sorel cold weather footwear should also continue to grow.

In general we are well positioned with strong and growing relationships with key customers in the region.

Other international which consists of the collective geographic regions of Japan and Korea, where we sell direct, and other international markets worldwide, where we sell through independent distribution relationships, reported fourth quarter sales of 51.8 million versus 44.1 million for the same period of 2004, an increased of 17.5%, or 19.7% excluding changes in currency exchange rates.

For the full year 2005, Other International sales were 179.7 million compared to 141.4 million during 2004, an increase of 27.1% year-over-year.

Excluding changes in currency exchange rates, other international sales increased 25.7% during 2005.

For the full year, other international sales were 15.6% of total sales compared to 12.9% in 2004.

International distributors, a component of other international, representing collective markets worldwide, where we sell through independent international distributors, recorded fourth quarter sales of 21.5 million, compared to 19.1 million in the fourth quarter of '04, a 12.6% increase.

Fiscal 2005 international distributor sales were 96.3 million compared to 74 million during '04, an increase of 30.1% for the full year.

We saw exceptional growth across multiple independent international distributor markets during the fourth quarter and for the full year, with specific emphasis on growth in Hong Kong, China, and Russia.

These are both very significant long term market opportunities, and we are pleased with the progress our partners are making, to effectively expand and deepen distribution of all of our products within their respective markets.

Japan, a component of Other International, recorded fourth quarter sales of 16.9 million, compared to 15.8 in the fourth quarter of 2004, a 7% increase.

Sales for the full year 2005 were 48.1 million compared to 43.1 million during '04, an increase of 11.6%.

Sell-through rates have been very strong this fall season, due to the improving Japanese retail environment, and cold weather conditions that have been in place since late November.

We are optimistic about the prospects for growth in Japan, as the economic environment in that market continues to improve.

Overall, while we came into the fall 2005 season with a weak fall backlog, due to the well-discussed issues, we are generally pleased with our fourth quarter and fiscal 2005 sales results, and the progress we're making in growing our business across geographic and product categories.

The business is developing a diversified revenue base, driven by market opportunities and multiple product categories, and seasons throughout the world.

In closing, in going forward our business strategy remains steady, and we'll focus our attention on growing the business through our 4.5 key growth strategies.

To reiterate, first we will continue to leverage our brand internationally and building business in Europe.

Second, we will continue to develop the merchandise categories of sportswear and footwear.

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

Fourth, we will continue to enhance the channel productivity of our existing dealers through effective point of purchase marketing activities and, last but not least, we'll continue to seek out favorable licensing opportunities, as we leverage the strength of our brands.

One final note, I contemplate selling up to 167,000 shares of Columbia stock over the next year for approximately 1% of my stock ownership, for personal reasons.

Following these sales I will continue to own 15.2 million shares, or more than 40% of Columbia's outstanding shares.

I'm deeply committed to the long term success of Columbia Sportswear, and there are no further sales planned by me at this time.

That concludes our report.

Thank you very much for listening in, and we'll be happy to field any questions, operator, would you please help us?

At this time ladies and gentlemen, [OPERATOR INSTRUCTIONS] We'll take a brief pause to compile the Q&A roster.

Your first question comes from Bob Drbul with Lehman Brothers.

Hi, good evening.

Hi, Bob.

Tim, congratulations on the acquisition.

Thank you.

Best of luck with it.

If we could just talk again on the outerwear business, can you give us any further read in terms of like how much you have booked so far for fall '06, or any early trends in terms of, you know, percentages and how complete you are?

Well, we always want to be cautious at this time of the year, because the book is incomplete, and we want to make sure that we abide by our well-stated policy of reducing a complete backlog view at the end of the first quarter.

But certainly the trends are very pleasing, and to the rate of fall '06 orders, looks like it's improving and from that standpoint, we're quite excited about the potential for '06 getting back on-track in the outerwear business.

I guess, as you look at the plans that you have on the product offering, can you maybe talk a little bit about your expectations for pricing in volume, and whether or not your outerwear business year-over-year, in terms of the quantity of your higher-priced jackets, and if there is going to be a mix towards lower-priced goods, or any change that we should be thinking about on a dollar basis?

Again, it's early, it's very early to be talking about it, but I know that our Titanium level product looks like will be the fast-growing product category for us in that outerwear area.

That's not to say when it all shakes out it, it might be different but at least early signs quite encouraging.

There was a lot that went on this past year with you and Columbia, Tim, when you look at '06 in general, if you just had to point to one or two things that you're most excited about from a growth prospective, what would you point to?

I think, as we discussed at length that the keys for the Company over the next several years, and that would include '06, as well, would be our, the opportunities internationally for us especially in Europe, and our footwear business.

We think the the combined Columbia, Montrail, and Sorel brands, really allow us to be hitting on all cylinders, and we may on the footwear business be slightly sort of still in a building phase.

Brad Gebhard has only been here three months, and he's just beginning to be impactful, but those are the two categories of the Company that are going to grow, in my opinion, and lead the growth, and so I would expect that both of those would be impactful in '06.

Just one final question.

When you look at the consolidated gross margin where this year ended up, Tim, there were a lot of factors that impacted that.

Do you believe in general, that you'll be able to have improving gross margins in '06 in general?

Yes, I think that's we're still a little unclear on that one as of yet.

You know, Bryan, I know, has done quite a bit of work on that, and it also contemplates some assumption on foreign exchange which, you know, at this point in the year is difficult to really pin down with certainty.

So I would want to wait on answering that question until we're further along in the year.

All right.

Thank you.

Thanks, Bob.

Your next question comes from Ed Aaron with RBC Capital Markets.

Nice job on the quarter, guys.

Thanks, Ed.

I was hoping you could expand a little bit on the Montrail deal, maybe talk about the economics of the business today, and you know where the distribution is, and then where the opportunities are going forward, and if you could maybe just include some numbers for, you know, sales and margins in that business?

Well, let me talk a little bit about the sort of the reasons we did the deal, and some of the distribution, when I talk about distribution, not the physical distribution but the actual economic distribution of the company's products, and so basically Montrail is a very well-known trail-running and hiking high-end supplier, to many of our specialty store operations.

They've got a terrific reputation for technology and especially fit in their products, which are for the most part more expensive than any Columbia product that we offer.

Their distribution is primarily in specialty stores and sporting goods operations, although the distribution hasn't in our opinion, been anywhere near in that channel what it can be, so our intention is much like with the Mountain Hardwear acquisition, we don't need another brand to compete with Columbia's positioning, we need brands that can surround the Columbia brand in a halo fashion, to help us to lift the entire corporate multi-brand strategy.

So we expect that, you know our first order of business is going to be with additional capital that Columbia can provide, continue their product development, maybe even accelerate it slightly.

We think that we can increase the distribution of the products, that's now speaking in specialty stores, by using our brand new facilities in Kentucky, that make the products more available for East Coast retail operations and the specialty trade.

And then we think ultimately there is an opportunity for the company's products internationally.

So that's really the sort of the backbone of why we made the acquisition.

There are some very talented people up there, that can help we believe in the Columbia footwear as well.

I'll let Bryan speak a little bit to the specific economics.

I guess in terms of, I don't want to get into too many specifics.

I'd rather wait until wait until our first quarter conference call in April to do that, both for not just, you know, the rest of the Columbia's brands, but for Montrail as well.

From a net sales standpoint, unaudited sales were about 16.5 million.

From a margin standpoint, their gross margins are a bit behind where Columbia enjoys it, around the low 40's.

From SG&A perspective, I guess you should plan on us making some integration and tagging on to the infrastructure that we have built here at Columbia, and creating some efficiencies there.

Again, I'll give more guidance to that in April both on Montrail, as well as the rest of the company.

Okay.

Great.

And then the timing issue that you mentioned for the first quarter, what exactly was that again?

Timing issue for the first quarter?

I guess I was just trying to let everybody know that in terms of, you know, obviously Q4 came out from a top-line perspective, a little bit better in terms of the guidance that we previously get.

We were close to about 10 million over on the topline, you know, that did come a little bit the expense of Q1, that's a good thing because obviously the weather worked in our favor.

Reorders as well as some of the close-outs that would have otherwise been shipped in Q1, got pulled into Q4, so there was a little bit of a shift, and that's why the net sales for Q1 were going down a little bit, and that's really commensurate with the sales that moved into Q4.

Great.

Lastly, a couple questions on inventories.

Both kind of on the balance sheet and at the retail level.

You mentioned that some of the increase in our balance sheet inventories was because of early receipt of spring products, but there was another component you said that I just missed.

What was the balance of it?

The balance was what I referred to as more core and replenishment type of products.

I think we have talked about these before.

For footwear it is a little bit more of higher reorder percentage, for a lot of the sportswear products, men's pants, shorts, just more of some core styles that are a little bit of a year-round business, and causes us to keep a little bit bit more inventory on hand for our retailers to make sure that we can fill in.

But it is all pretty current , right?

You don't have much in the way of '05 outerwear in there that you weren't able to clear during the quarter?

No, right, again, in terms of the outerwear perspective, again, the weather was a good thing for us this last Q4, so we were able to move a lot of our outerwear out.

That doesn't mean that we still have some of our close-outs to move in Q1, but obviously a lot less than we had a year ago today.

Great.

On retail side presumably the retail inventory levels are quite a bit lower than they were a year ago, but could you maybe help us, give us a sense of you know order of magnitude of where they are now, versus where they were last year?

I'm not sure if there was an actual number you can put around it, but just some more of a sense there.

Yes, this is Tim, I think more importantly today than the quantity of inventory, which I believe is lower today than it was last year, retailers in general had a higher gross margin in outerwear in '05, tha they did in '04, because of when the weather hit, it was very conducive to sales prior to Christmas.

And that is when we chose in outerwear to make a more significant gross margin than if they do if it is after the traditional clearance time during January.

That having been said, U.S. or North American weather has not really been conducive to outerwear sales in the last three weeks, but in general, inventory levels are lower, and I think people are much more pleased with the return they got on their outerwear investment this year.

Good.

Looking out to 2006, and you guys spent quite a bit on investment and infrastructure spending, especially you know back a year ago, and you know if you look at the top line for 2006, I know you don't, you know, not prepared to give guidance yet, but can you give us a sense of where your leverage point is, in terms of generating operating leverage, and what rate of sales growth do you think you need to reap some benefits of the infrastructure spending that you put in place last year?

Well, I guess I would answer it this way: In terms of the specific leverage point I guess I'd rather just say that, in terms of obviously in 2005 it was a bit of an investment year for us just as you mentioned.

So we did have a lot of incremental fixed costs that we added on to the business model.

Looking out into 2006 I wouldn't expect we would have that, so definitely a resurgence in some of our outerwear sales, as Tim talked about earlier, and again I think we're going to wait and see what happens.

Obviously we're encouraged by the activity in Q4, but again we'll know better in April, and I'll give you that leverage point.

All right.

Great, congratulations on the quarter.

Thank you.

Your next question comes from Lizabeth Dunn with Prudential.

Hi, congratulations on the acquisition.

I guess my first question is a followup to the last question.

Can you give us a sense as to how much SG&A will be up year-over-year?

Not talking about leverage or basis points or anything like that, but just, you know, the aggregate kind of increase you're looking for?

Again, Liz, I'd rather hold off in terms of full year guidance as I think we've said a couple times until our April conference call.

Again, the incremental fixed costs for 2005 was, you know, right around the $20 million mark.

I would expect fixed incremental fixed costs in 2006 to be substantially less than that.

Okay.

My second question is sort of bigger picture.

Looking at, what percent of your business in 2005 was prebooked?

I know you kind of entered with a higher percentage, but prebooked and actually shipped, because I think there were some cancellations.

And then, you know, conceptually help me understand what's happening with your retailers.

I mean, could it be that perhaps they're not ordering as much up-front, and just kind of waiting to see if the business materializes in the season, which I would imagine challenges you from a forecasting perspective, and also from an inventory risk perspective.

Yes, just let me take those, the question is really in two parts.

The percentage of the business last year that was prebooked, I would say would be on par with prior years.

Again, we take almost, we take very, very little risk in spring inventories, because that is typically a difficult season for us to be taking speculative positions on.

So I would say the 2005 year we had about the same percentage booked in spring that we did in fall, and in the fall we had I would say we took a slightly larger speculative position than on average, but lower than the year before.

So we worked hard at trying to manage that inventory levels last year, so I would say overall the percentage of prebookings was about the same as prior periods.

Now, the only little asterisk I would put on there, as Bryan said, as our men's pant business and our spring weight fishing shirt business has continued to expand, we have carried a little bit of replenishment inventory on those specific two categories.

It is not a big part of the business, and certainly not a big part of our inventory but those two areas require higher service levels for our customers.

But in general, I would say the customers are being responsive, and purchasing their products in advance, in exchange for discounts as they have in the past.

Okay.

And then just one more if I may, I know you can't comment on fall bookings, but, you know, last time you reported you gave spring bookings I think up 5.8%.

Can you update us, did that come in better than expected?

Were there some orders that came in late relative to spring?

Or was that about the level that spring settled out?

Well, as you know, Liz, I'm always disappointed if we don't have a very significant increase in our seasonal business in advance, and we had basically no changes in that, in that backlog, so no, there haven't been any.

I personally am disappointed in that level of growth.

I personally expect higher.

Okay.

Thank you.

Thanks.

Ladies and gentlemen, as a courtesy to all participants, please limit your initial your follow up to one or two additional questions, to allow everyone to ask a question.

Your next question comes from Kate McShane with Citigroup.

I wonder if you could talk quickly about the competitive environment in footwear during the fourth quarter.

Was it as promotional as what you saw during the third quarter?

Well, I think if we're talking about North America, and again our primary fourth quarter business is winter, cold weather winter products, and I don't think it was as competitive as, you know, I think it was probably less competitive based on the weather being so conducive to full priced sales.

Okay.

Thank you.

Okay.

Your next question comes from Margaret Mager with Goldman Sachs.

Hi, Tim.

Hi Margaret.

Hi, Gert.

Hi Margaret.

Okay.

I wanted to ask about the SG&A in the quarter, this quarter that you just reported, looks like it was pretty good, a little better than what we were expecting, anyway.

Was there anything that you did in particular to manage it?

I guess I would start by saying, first, it's a little bit of a top line, in terms of percentage of sales, the SG&A looks a little bit better just again, we probably had a shift from, you know, some of the fall close-outs that would have otherwise gone in Q1, did go into Q4.

From just an absolute dollar standpoint, advertising domestically probably came in a bit light from us, as we kind of reduced the cost of some of the concept shops, and also as we kind of reconfigure some of those concept shops, it is costing us a little bit less money.

So there was a little bit of, you know, less advertising costs in Q4, that probably led to a piece of that absolute dollar decrease.

And those were probably the primary reasons.

I thought Gert might have been managing the T&Es.

She's always doing that, there's no question.

Absolutely.

All right.

That's helpful.

Thanks.

And then, I'm just, I want to make sure I understand clearly, last quarter the guidance for 1Q '06 for revenue was up 4%, and now it is up 1%.

Why is that?

Margaret, a piece of it is really where exchange rates have gone.

I think that's one thing that hopefully was one of my caveats in the guidance that I give at the end of third quarter was where rates can go.

I think on a constant dollar basis we have probably lost on a constant basis, we probably would have been closer to 3%, as opposed to the 1% we're guiding here today.

Other than that, you know, again, there is a little bit of shift into the Q4 from Q1, so those two factors are really it.

On an underlying trend basis, I heard you call out Europe as being a bright spot still in the fourth quarter for Columbia.

Is that true in the first quarter, is Europe still up or down, or what's happening?

There, we're looking at pieces of paper spread all over the place here Margaret.

Okay.

Well, you know, give me your sense of it when you consolidate.

I guess I wouldn't say that in at least in the spring business that Europe would necessarily, I think they would be closer to flat than really any movement or surge.

It kind of right in line with, you know, with kind of the backlog that we announced a couple months back.

Okay.

All right.

And then I know you said limit it.

So I have a couple more, but let me just ask one.

Any thoughts on revamping marketing or advertising, or any kind of consumer communications in 2006?

Well, the only modification, I mean, there is no modification in the amount of advertising.

You may have noticed the Nissan announcement earlier today or yesterday, in Europe, that's really the only departure.

It wouldn't be any significant change in the amount of money we would spend as a percentage of sales.

One small point we want to make out is, that we are going to be on the Titanium products for fall '06, bringing a little bit more aspirational flavor into that product category.

It is still a small percentage of the Company's overall business but it is the higher end, and so we've emphasized that a bit more, with a slight modification in the advertising, you still recognize it as a Columbia ad, but it is more aspirational.

You'll continue with the Gert/Tim tongue in cheek type of advertising?

While I'm alive, yes. [laughter] Maybe even longer than that.

Yes, we're still going forward with that, it really works, plus Gert won't allow us to do anything different.

Well, she knows a good thing.

Stick with it.

The comedian has it all.

All right.

Guys.

I'll come back for a followup later.

Thanks.

Your next question comes from Sam Poser with Mosaic Research.

Good afternoon.

Congratulations.

Thanks, Sam.

Could you break out in the footwear business, Sorel and Columbia and just give us some more color on the two sort of separately, and their footwear and their businesses separately?

Yes, we've got of course we'll give you the primarily just the footwear business on the Sorel side, because the apparel is really in a sense, it is just beginning.

We're looking for our--

Sam, was your question more related to the year or for the quarter?

Actually both would be fabulous.

I mean, I think for the quarter Sorel was probably, in terms of all, because I do have a little bit of apparel but from a footwear standpoint, from total branded standpoint for the quarter they probably grew definitely north of that 20% kind of range, but again that's their big quarter, so you would expect that from them.

In terms of the Columbia, in the Columbia brand, footwear would have grown, again, on a consolidated basis right in the, well, again probably right around the same as Sorel grew, in that quarter.

From a yearly basis I think we already commented that, you know, Sorel was probably around the 11% range, if I remember correctly.

And for the total footwear product category, I think that was right around 14.

Okay.

And but in Q4, the cold weather and then what was sort of the difference in the performance of cold weather year-over-year versus basic hiking, and so on?

I don't think we have that kind of granularity here, Sam.

I think you can assume that the bulk of our fourth quarter sales will be in cold weather, both in Sorel and Columbia brand.

Okay.

Let me just I just want to confirm on the inventory levels, that is, could you just walk through the inventory levels at the end of the year one more time for me, please?

Sure, in terms of inventory levels on a consolidated basis I think we mentioned that inventories were about 185.9 million.

This year end versus about 165.4 million.

About a 12.4% increase.

That increase is really and I think again, the majority of which is spring product.

We talked a little bit about the spring receipt, so if you look at spring '06 receipts, received in Q4 versus spring '05 received in Q4 of '04, it is a substantial increase.

I don't know, I think a piece of that is some what related to the prior year, of course, as you, there was and as we commented in Q3, little bit of supply chain issues.

I don't know if we're a little gun shy, but I think we brought in a lot more spring products than we did in the prior year.

And then of course the second piece is kind of to an earlier question, which is really kind of the core replenishment type of items, that is maybe just a little bit of a build or layer, that we're adding on to our overall inventory position on a go-forward basis.

What percentage of your business right now is that basic replenishment business?

It is a small percentage, I would say.

I don't have that stuck in front of me, but it is a small percentage, call it a 3 to 5% range, something in that range.

Okay.

Great.

Thanks so much.

You bet.

Your next question comes from Virginia Genereux with Merrill Lynch.

Thank you, all.

Bryan, I think you guys said you don't see a lot of incremental fixed cost investment in SG&A, why would March SG&A be up, by my math, up 7 million, even ex options, that's what your guidance says, you're saying it is going to be up 10 million, but you said 3 million of options expense.

So up 7 when D&A is not growing that much anymore.

You are anniversarying a quarter of big spend.

Is there anything going on in March?

You know, I'm trying to think in terms of any specifics.

I guess for, you know, no incremental costs for full year 2006, again, I mentioned it was slight, but please recall that we did have some incremental fixed costs to the business from last Q1.

So we have had some personnel additions in Q2 through Q4 of last year, and some additional maintenance CapEx that is also being depreciated, so there is a little bit of a buildup in the fixed cost base in Q1.

My comment earlier, was really related to all of 2006 that the incremental costs for the full year would be less than '05.

Okay.

You are still anniversarying some things in March.

Yes.

Tim, can you tell us sort of what has changed on the outerwear side in your view?

I think this is almost a year ago you said that weather had really hurt you, and that the competition had gotten more difficult, frankly at the high end and at the low end.

Has competition abated, or do you have better product or is it a better environment, and are you seeing this relative improvement at your department store retailers in the U.S., or more at sporting goods and specialty?

I would say, Virginia, there is a bunch of components here, but if I tick them off, absolutely weather is impactful.

So we talked about that at much different Q4 in 2005 versus '04.

So significant help there.

We have retailers who had high margins and good sell-through, and were just much more bullish about the category.

You know, competition is always tough.

We always talk about our biggest competitor globally being our own customers' private label and that is not changing.

However, I think our retailers have realized when they analyze the Columbia business and look at, you know, other brands and their own merchandise collection that they've done private label, they realize the value of the Columbia's brands on its returns, so we've had some look there.

And then on the lower end part of the competitive set from other brands or quasi-brands, we've just seen some higher return rates at our customers on some of those less expensive lower-quality items, and we've had some resurgence in the higher quality Columbia brands, and we've been able to rely on that for a little bit improvement against sort of that value-priced competitors that we've had.

You know, that plus just continuing strength in our international markets and gaining traction there, in some of those markets of, in northern Europe.

That's great.

And then just, Tim, sort of retailer-wise in the U.S., would you say this, the changes that you've mentioned are more acute at the sporting goods guys, or at the sort of Penney's and Kohl's really.

I see the lift really across all of the categories, or all the channels of distribution.

I wouldn't point to any one particular channel, especially in the outerwear category, that's an exceptional or a big delta.

It is more a broad lift.

Okay.

That's great.

Quickly, Bryan, why, if your inventory levels are up 12%, why wouldn't spring revenues be up a little more?

I know it sounds like sort of a snapshot in time, but you know what I'm saying?

Absolutely.

I know exactly what you're saying.

It is really just kind of a timing issue that, again, we're, as you can imagine, the bulk of our receipts for spring are kind of coming in a little bit before for some early December shipments and, you know, there is a lot on the water and a lot of shipments and though the accruals of inventory, stuff on the water, that is ready for shipments into, you know, first part of January.

So it is a bit of a timing issue, and that's why the sales guidance is not necessarily commensurate with that inventory growth.

Okay.

Thank you all.

Your next question comes from Jeffrey Edelman with UBS Securities.

Hi, there, well at least I still have two questions.

One, as we look at the margins now by product category, for quite a few quarters you've been talking about the shift in mix as being a negative.

Are we at the point where with your increased sourcing capability and quantities, the gross margin is starting to get closer to each other at this juncture?

Outerwear versus sportswear, footwear.

This is Bryan.

Yes, I don't believe, I think we still have a pretty good sized margin in terms of our outerwear business, and the margins we enjoy there.

From an overall standpoint for '05, I would say again, the outerwear is still around in the mid to upper 40's, sportswear might have had a little bit of a lift, but again, still staying in low 40s along with footwear.

I think the big margin contraction for us this year, as you mentioned, is really the volume issue with out outerwear products.

We are encouraged with some of the weather we've had in Q4, and if we can get a little of this business back that obviously that we lost, due to a lot of the weather and some other issues that we spent some time talking about, then that's going to, you know, be able to come back the other way for us a little bit.

I think the biggest pressure I think we can have on our gross margins in 2006 is really currency, just on a hedged rate basis.

Okay.

But then within sportswear and footwear, you would begin starting to leverage that overhead, wouldn't you?

So it is not just really total loss of profitable business, or a lesser profitable business?

No, I think what Bryan is talking about is really on the gross margin side that, you know, we've got significant volumes in outerwear and great brand recognition, which allows us to lead in that product category.

Sportswear is the most, is the easiest category of merchandise for our retailers to make on their own, so and it's the most difficult for us to be providing highly unique product.

So it's sort of in that process is dampening the opportunity for gross margin expansion, although there has been some.

And then in footwear, that's where our scale really will kick in, and we're just not there yet to the point where we can provide scale to the level we want to.

But's that's in my opinion an area where the Company will have very significant opportunities for gross margin expansion, but based on scale.

Right.

Okay.

And then finally, you talk about scale and then we look at Europe.

Have all the, or most of the relationships now been mended now with the new management team there, and are we likely to see increasing penetration in the accounts that you've got there?

Right, and really the issues in Europe were not really anything to do with poor relationships.

It was more a lack of relationships.

I'm sorry.

That's okay.

I just want to make sure we were clear there.

But yes, the teams are almost totally new in Germany and Austria, and some of the Scandinavian countries, so our expectation is that, you know, as these teams, you know, get their legs under them, that we'll see some very significant opportunities and significant growth there.

Great.

Thanks.

Thanks Jeff.

Your next question comes from John Shanley with Susquehanna Financial Group.

Good afternoon, guys.

Hey, John.

Bryan, can you give us some insights in that shift in shipping timing, was that across all product categories where some merchandise, and was it also across most geographic areas, or was it more concentrated in specific products or market areas?

Yes, John, it was definitely concentrated.

I would say it's, when I say predominantly I would say even 90-plus percent was really a domestic outerwear timing shift.

So again the weather that we had, the you know just provided us, and certainly on a comparative basis from last year, just provided us an opportunity to shift outerwear products to a lot of our dealer base, a little bit earlier than what we would have otherwise planned in our forecasting.

So that's it is really domestic outerwear.

So that is obviously your higher margin, which helped to drive up the EPS for the quarter.

Is that a good assumption?

Yes, but there was obviously there was some other things just on a year-over-year basis that drove down our margin a bit in Q4.

You know, and in the overall margin for close-out products doesn't move the needle a lot, with respect to really raising the margin.

Okay.

And then either Tim or Bryan, you know, during the third quarter conference call you had mentioned that footwear was having a tough environment, particularly in the U.S.

What occurred during the fourth quarter that really seemed to have turned things around?

Was it the new product, was it the new management team, Kentucky DC kicking in?

What was the result of allowing you to have a big 20% gain in terms of revenue base and footwear during the quarter?

Well, there was a number of factors and certainly the ability for us to react with the new Kentucky DC was a portion of it, but really at the end of the day was about the weather improvement, and being very conducive to the cold weather sales.

So we were able to get merchandise to our customers quickly out of that DC, and so there were a number of factors.

But I would say it was mostly the effect that the weather was so conducive to the pull through.

And then lastly, you mentioned in early discussion on the outerwear, that you may be seeing some additional pressure from some of the big accounts for discounts.

Can you give us an idea of what magnitude of discounts that you may be looking at?

I'm not looking for percentages or anything, but is it substantially above what it was for fall '04 delivery versus, or '05 delivery, rather, versus what you're going to likely encounter for delivery in fall '06?

John, we haven't been talking much about discounts.

There really hasn't been a change in the Company's approach to the trade.

So that hasn't been an issue that has been impactful for us.

What we did talk about was, you know, the timing, and that we're seeing an earlier order book than we have in last year.

But discounts are not at this time significantly different from what they have been in the past.

Are the retailers willing to take the outerwear in, in the same early timing that you've traditionally been able to do?

Well, they're certainly willing to give us their orders and that's been, you know, a primary, it's primarily key for us to get the orders in early, so we can plan the inventory purchases, and be very close to need there.

Certainly the more sophisticated retailers were asking us, okay we want to buy X number of jackets, and we'd like them shipped over next several months, and specifically to some locations versus others, but other than that, they haven't really had a change in the dynamics of the order pattern.

Okay.

Good enough.

Thanks a lot, guys.

Your next question comes from Jim Duffy with Thomas Weisel Partners.

Hi, everyone.

Thanks for taking my question.

The European results were very strong and showed a nice acceleration.

To what extent would you say this is weather-related, or do some of your new people on the ground there, is this evidence that you're starting to get some traction?

Well, I know our guys in Europe would like to take all the credit, but I really think it has at least as much to do with weather, and possibly even more.

We've had very conducive weather and so the expectations are, you know, that our team in Europe is working diligently, and I know they are.

I don't mean to minimize their efforts but we've been very, we've been helped by the weather there.

Is it appropriate to say that your fall business is further along in Europe, and maybe has more momentum than the spring business?

Well, you know, the order deadlines for winter merchandise for Columbia and Europe are behind the U.S. deadlines.

So we have discussed the visibility here, and we even have less there.

However, it is our expectation, certainly based on the great weather that they had there in Q4, and the even better weather that they're having through January, that it we'll be looking at pretty clean shelves when we go talk to these retailers, and we have a new team there in many of these countries, and the expectation is that we'll have, you know, a healthy book to talk about when we talk about it at the end of Q1.

Okay.

Very good.

And then final question, how much further opportunity in the U.S. do you see in the sportswear business, and where do you really see that opportunity?

Is it across all channels of distribution, or some more so than others?

Okay.

Well, we talk about the market size being around $35 billion in U.S. sportswear and,

Gives you running room.

So we have got some room there.

But really at the end of the day, we see it in two parts.

American shop for their sportswear needs in department stores.

So our business in department stores we would expect to grow especially in the sportswear category.

But as we get scale there, we'll be able to offer our traditional sporting goods operation is more compelling, better priced products and so what we'll see growth there as well.

So I think there is two parts, but really at the end of the day if we look back five years hence, our business will have expanded in department stores, just because that is where most Americans shop for sportswear.

That additional volume gives you scale that you can then bring a better value proposition to your sporting goods retailers.

Right.

Right.

Thanks very much.

Thanks, Jim.

Your next question comes from John Rouleau with Wachovia Securities.

Hey, guys, nice quarter.

My first question has really to do with pricing or mix, either in the outerwear and footwear.

Consumers seem to be embracing some of the new fabrics, new technology, trading up a bit when it comes to the merchandise out there.

Are you, you know, taking prices up a little bit, and maybe adding more features to the product?

I know you're always going to be value based, but what are you doing on the pricing or mix side to maybe incorporate that?

In the Titanium category of merchandise we call it our best merchandise, we've added lots and lots of features, not only the technical fabric features, but also design components, et cetera, and that looks like it is going to be the fastest growing part of our fall 2006 outerwear line.

So in our more specialized distribution and our chain and regular sporting goods stores looks like that is growing more rapidly.

However, some of the design queues and just things we learn about insulation and other technical parts of the outerwear and protective clothing business, we can certainly apply that to our department store channel in the more core business, and those will be impactful there as well.

So, you know, we're hopeful that these steps we've taken over the last several months to get our merchandise back in-line, and more timely and with more value, are really going to pay off this year.

So is it kind of fair to conclude on the outerwear side at least, your average wholesale price if had to put something out there is increasing a little bit, because of the mix shift towards the Titanium?

I don't know without having done the analysis.

However, one thing I can tell you is that some of our most technical Titanium pieces are what is called Soft Shell.

Those items tend to be a little less expensive than a traditional interchange Titanium jacket.

That has been a growing category.

I don't know that we can extrapolate that, but I think, you know , the more technical pieces in general, is going to be more fast, more rapidly growing than our core business.

Okay.

Fair enough.

Next question, the youth category, I mean that's been an area you've been working on for some time.

There has obviously been some shifts in the way youth are buying outerwear and wearing sportswear.

You've highlighted in the past, just wondering is you can you take a minute to update us on youth and what you're seeing there.

And the trends there.

Certainly.

Well, yes that is an area that has been tough over the past several years.

I want to reiterate that we don't want to, don't have enough visibility in the book to really give significant guidance, but we can see that it looks like the changes that we've made there, have also been well received by customers.

We're excited about that.

Again, we're looking at our retailers having better inventory open to buy position based on the sales that they had in Q4, through that great weather.

Okay.

Last question, the I know it was just announced the other day, but the buyout of TSA, any initial thoughts there about, you know, perhaps their intentions of closing a few stores, or maybe even accelerating store openings, or perhaps adjusting the mix there.

Maybe you can comment on how big of a customer they are?

We don't have a 10% customer, and all of our customers are important, TSA is a great long time customer we have dealt with for many, many years, and the request for specifics you'll have to talk to them.

But I think their their business in almost any metrics, looks to be improving, and we've had great successes there this fall, and would expect it to, you know, we always expect when we have great performance on the products that we get rewarded by our customers, and hopefully that will in fact happen.

Fair enough.

Thanks.

Thanks.

Your next question comes from Mitch Kummetz with DA Davidson.

Thanks, just two quick questions.

First, Tim, you've mentioned a couple of times on the call that January weather has been mild.

I'm curious to know how much that really matters, given that holiday sell throughs were very good, and the retail outerwear inventory levels are pretty lean right now.

Do you almost prefer that January weather be mild, in order to kickstart the spring season, or is that never the case?

We always like cold weather regardless.

It is so good for our business.

No, you're right, the key, the critical time periods for this fall season, I think, were the the great weather in the fourth quarter.

We always love it to be cold in January, because it just means retailers do make more, even though they're on clearance, the margin rates are higher, et cetera.

But in general the critical time periods are November/December.

And those were quite appropriate this year.

But we always like cold weather.

Okay.

Got it.

Quick question for Bryan.

First quarter gross margin guidance, it's coming up a little from where you had it on the third quarter call, but I'm almost surprised I guess that it isn't coming up a little bit more, given how well you move close-outs in the fourth quarter, relative to what you were originally thinking, where you thought they might be falling more in the first quarter.

Is there anything else happening on the gross margin line, that is constraining that a little bit from say where it was a couple years ago, aside from currency?

Aside from currency, because that's probably one of the primary drivers there, again, that's come off a little bit, and is pressuring our spring gross margins, and I guess the other thing, Mitch, would be obviously with the new accounting pronouncement and the expensing of options, there is a little bit of options expense also included in our gross margin, from the stock options that are granted for some of our sourcing offices, which are included in cost of goods sold.

That is also a factor in that.

I wasn't aware of that.

Thanks.

Okay.

Your next question is a followup question from Margaret Mager with Goldman Sachs.

Hi, not a lot left at this point, but what's your take on Spyder Marmot this past winter season?

How did they do in your view, and I just wanted to say congratulations to Sean, that is a promotion right, to General Manager of Sorel.

No, yes, he's getting more work to do, and he's got plenty of time to do it.

Once he got out of law school, he had more time for his Columbia responsibilities.

But those two particular customers, you know, we never want to--

Competitors.

Sorry.

Competitors.

You know, they're very viable, and they've had strong, you know, they're strong companies.

I think since both of those companies had capital changes last year, they maybe were more top of mind with out customers when we discussed sort of the Columbia position against other competitors.

And I don't want to minimize their, you know, their strength at all, but we just haven't heard as much about those two, as we have in the past.

Okay.

So the effort to maybe strengthen Titanium a little bit, wouldn't that be more position against those two?

Or North face?

Against competitors that were more technically, considered more technical, yes.

And, you know, it just was a function of I think the revigorated, the invigorated design teams, and the amount of time that they put into that, looks like we're going to bear some nice fruit there.

Okay.

Well all the best to you in 2006, Tim, look forward to talking to you soon.

Thanks, Margaret.

Your next question comes from Lizabeth Dunn with Prudential.

I'm sorry, I'll follow up off line.

I don't want to be here all night.

Thanks.

There are no further questions.

We want to thank you all for listening in and look forward to talking to you with more specificity about our fall backlog at the end of Q1, at the conference call.

Thank you.

That concludes today's Columbia Sportswear fourth quarter and year end financial results conference call.

You may now disconnect.