Columbia Sportswear Co (COLM) 2006 Q4 法說會逐字稿

Good afternoon.

My name is Richard, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Columbia Sportswear fourth quarter and year-end financial results conference call. [OPERATOR INSTRUCTIONS] Thank you, I would now like to turn the call over to Director of Investor Relations, Mr. David Kiser.

Please go ahead, sir.

Thank you, Richard.

Good afternoon, and welcome to Columbia Sportswear's fourth quarter and fiscal---fiscal year 2006 financial results conference call.

With me are Tim Boyle Columbia's President and CEO, Bryan Timm, Columbia's CFO, Pat Anderson, Columbia's COO, and Peter Bragdon, Columbia's General Counsel.

Gert Boyle, the Company's Chairwoman and a normal participant on our quarterly calls is currently taking a well deserved vacation.

Continuing our standard practice, we will 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 you have not, you can access a copy on our Company website at Columbia.com.

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 the opportunity to ask questions.

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

Before we begin, I'd like to remind everyone that 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 quarterly report on Form 10-Q for the period ended September 30th, 2006.

Forward-looking statements on 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 will hand the call over to Tim Boyle who will provide an overview of significant developments that occurred during the Company's fourth quarter 2006.

Tim?

Thanks, David.

Welcome, everyone, and thank you for joining us this afternoon.

Let's review by -- excuse me let's begin the review of some highlights from the earnings announcement.

Q4, 2006 sales for the Company increased 15.2% to 361.8 million, a fourth quarter record, compared to 314.1 million for the same quarter last year.

Excluding changes in currency exchange rates, consolidated sales increased by 13.3% for the yea---for the fourth quarter.

Net income for the fourth quarter was 38.4 million, a 4.9% year-over-year increase.

Diluted earnings per share for the fourth quarter were $1.06, net of $0.03 per share of stock based compensation expense compared to $0.97 for the fourth quarter of '05.

For the full-year 2006, we reported record sales of one billion two hundred eighty seven point seven million [sic] an 11.4% year-over-year increase. [Net] income for the year was 123 million, a 5.9% year-over-year decrease and full-year diluted EPS came in at $3.36, net of $0.18 per share of stock based compensation expense compared to $3.36 for 2005.

Updates: distribution projects, we're pleased to report that we recently completed the expansion of our distribution center in Cambray, France to support our European business.

The newly expanded facility was successfully placed in service this month and is operating effectively.

As discussed previously, we have also made capital investments in our Portland, Oregon apparel distribution center to substantially increase the throughput capacity of the facility.

Shipping volumes were very high in the third and fourth quarter in that facility, which delayed integration testing of the new equipment and systems.

Integration testing continues and we currently anticipate that these capital investments will be placed in service at the beginning of April of this year.

Montrail and Pacific Trail integration.

We're pleased to report that the systems and operations integrations for both Montrail and Pacific Trail are complete and functioning in Columbia's infrastructure.

Pacific trail, acquired in an expedited bankruptcy court auction in March of 2006, has a rich 60-year outdoor industry heritage.

Pacific Trail sales were 8.6 million in the fourth quarter and 22.4 million for the 9 months we owned the brand.

We are pleased to report presented that despite the levels of complexity that Pacific Trails' order book presented at acquisition, we have successfully delivered Pacific Trails orders this fall season.

We believe there are significant long-term opportunities for that brand.

Pacific Trail provides opportunities to address distribution channels previously underserved by Columbia.

The brand also provides meaningful opportunities to more effectively address promotional retailing strategies in existing channels.

Footwear management transition.

We have proactively made significant improvements to our footwear organization while continuing our search for a new VP of Footwear.

We believe we have built a strong team and have a portfolio of authentic outdoor brands to execute our footwear strategies.

We believe we are well positioned today to create market relevant footwear products and to execute our sourcing and product delivery initiatives.

As we recruit for our VP position, our confidence in the existing organization provides us with flexibility in our search time line.

Our Footwear strategic vision continues to focus on fortifying our strong cold weather market position, developing our water and sandal offerings and expanding our trail and hiking products.

Our team is also more aggressively addressing the outdoor lifestyle footwear market opportunity to leverage the strength of our apparel offerings.

Under Mick McCormick's interim leadership we have organized interdisciplinary footwear product creation teams to more closely align product creation with the consumer and retail marketplace and to leverage the strength of our brands.

Each product creation team is aligned by brand and product category: Trail and Hiking, Water, Cold Weather and Outdoor Lifestyle.

They draw from key footwear development disciplines: design, development, merchandising, sales, marketing, and costing.

We are also drawing on outside design talent to supplement our creation teams.

Under the stewardship of Pat Anderson, we have also strengthened our footwear sourcing and development processes and personnel to execute our sourcing and product delivery initiatives.

Montrail, a previous outdoor footwear brand with an excellent reputation for technical high performance trail, running and hiking products recorded sales of 2.2 million in the fourth quarter and 14 million for the 11 months we owned the brand.

We understand the unique value positioning and integrity of the Montrail brand and are committed to providing technically advanced, leading edge footwear to hardcore outdoor enthusiasts.

Montrail continues to further develop distribution in its core outdoor specialty channel and to explore new opportunities in the running specialty and better sporting goods channel.

Sorel: Sorel sales were 19.2 million for the fourth quarter a 10.7% decrease over the same period last year.

For the full-year 2006 sales were 45.8 million, a 3.8% decrease over 2005 results.

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

While executing on the strategy, our Sorel team has recognized the opportunity to lengthen the fall season wearing cycle and mitigate weather sensitivity by targeting female consumers seeking cold wear footwear products that combine fashion and performance.

All '06 sell through has generally been weak due to unseasonably warm weather conditions in key cold weather markets, and reorder activity was soft in the fourth quarter.

That said, in our opinion Sorel as a brand has generally outperformed its cold weather competitors.

Fashion-driven performance based product from Sorel has performed well this fall season and Sorel will continue to develop this aspect of its business.

Hardware: hardware sales were 20.7 million for the fourth quarter, a 33.5% increase over last year.

For the full-year '06, sales were up 23.3% to 73.6 million.

Shipments of not hardware outwear products in the U.S. and Europe drove growth for the brand. sell through rates and reorder activity was strong early in the season due to favorable weather patterns.

Warm weather in December mitigated early strong retail sell through for the brand.

Fall '07 line presentations are very positive for mountain hardware, but it's still early in the order taking season.

Mountain hardware's international growth opportunities are also very strong.

And we're seeing increasing demand for the brand in Europe, Russia, Korea and many other markets globally.

Licensing: net licensing income increased 31.3% to 2.1 million in the fourth quarter driven by hosiery, leather accessories, and cutlery.

For the full-year net licensing income increased 25% to 5.5 million driven by hosiery, bicycles, camping equipment, and the continued growth and maturity of the other licensee programs.

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?

Thank you, Tim.

And 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 periods to facilitate an accurate comparison.

As Tim mentioned, sales increased 15.2% to 361.8 million in the fourth quarter.

Growth in consolidated net sales was driven by strong growth in outerwear and sportswear in both the U.S. and international distributor markets offset by softness in footwear in North American markets.

Our consolidated gross margins for the fourth quarter of 2006 contracted by 140 basis points to 41.4% compared to 42.8% during the fourth quarter of 2005.

This contraction was primarily the result of fall 2006 product line inefficiencies and increased competition, lower margin Pacific Trail and Montrail businesses, various less significant items including stock based compensation, European anti-dumping duties and certain international promotional campaigns partially offset by a reduction of sales of closeout products.

For the fourth quarter, the Company's SG&A increased by 18.1% or 14.8 million to 96.6 million or 26.7% of sales for the fourth quarter of 2006 compared to 81.8 million or 26% of sales for the comparable period in 2005. [Selm] expenses increased in absolute dollars, but decreased slightly as percentage of sales to 8.7% from 8.8% due primarily to planned increases in advertising and promotions offset by lower commission expense.

Operating expenses increased primarily due to additional personnel related costs, which increased because of personnel added to support our growth strategies as well as stock based compensation expense.

Depreciation and amortization totalled 5.6 million for the fourth quarter of 2006 compared to 5.8 million in the same period of the prior year.

Net licensing income increased 31.3% to 2.1 million and net interest income decreased 33.3% to 0.8 million in the fourth quarter of 2006.

Our fourth quarter effective tax rate was 31.6% which resulted in a full-year effective tax rate of 33.6%.

The change from the third quarter effective tax rate of 34.5% was primarily related to a shift in the geographic mix of our taxable income to lower tax jurisdictions than we had previously anticipated.

Furthermore, we received clarification from the IRS related to the use of certain foreign tax credits which enabled us to recognize a related tax benefit in the fourth quarter.

We reported net income of 38.4 million or $1.06 per share for the fourth quarter of 2006 versus net income of 36.6 million or $0.97 for the fourth quarter of 2005.

Based on the diluted share count [inaudible] 36.3 million and 37.7 million respectively.

Now focusing on full-year financial results.

As Tim mentioned, net sales increased 11.4% to one billion two hundred eighty seven point seven million [sic] for the full-year 2006.

Growth in consolidated net sales for the year was driven by sportswear and outerwear product categories and the acquisitions of the Pacific Trail and Montrail brands.

Geographic sales growth was driven by domestic and other international markets.

Our consolidated gross margins for the year contracted by 160 basis points to 42% compared to 43.6% during 2005.

As previously discussed, this contraction was due to fall 2006 product line inefficiencies and increased competition.

Lower margin Pacific Trail and Montrail businesses, various less significant items including stock based compensation, European anti-dumping duties and certain costs associated with international promotional campaigns.

Offset in part by a lower volume of sales closeout products.

For the full-year 2006, the Company's SG&A increased by 44.6 million or 13.8% to 366.8 million or 28.5% of sales compared to 322.2 million or 27.9% of sales for 2005. [Selm] expenses were 8.9% of sales in 2006 compared to 9.7% for 2005 as a result of lower levels of commissions and other promotional expenses in 2006.

Operating expenses were 19.6% of sales compared to 18.2% for 2005.

The increase is almost entirely due to stock based compensation expense.

Depreciation, amortization totalled 22.5 million for 2006, a decrease of 0.2 million compared to 2005.

Net licensing income increased 1.1 million or 25% to 5.5 million for the full-year.

Net interest income for 2006 was 5.6 million compared to 4.9 million in 2005.

Our effective tax rate was 33.6% compared to 31.5% in 2005.

Resulting from the favorable conclusion in 2005 of various income tax audits, several tax years.

The Company reported net income of 123 million or $3.36 per share for 2006 versus net income of 130.7 million or $3.36 per share for 2005.

Based on a diluted share count of 36.6 million and 38.9 million respectively.

The combined results of Pacific Trail and Montrail acquisitions were $0.05 accretive in a diluted share basis in 2006.

I'll quickly touch on key items in the balance sheet and again I'll be comparing December 31st, 2006 balances to December 31st, 2005 balances.

The balance sheet remains very strong with cash equivalence and short-term investments totaling 220.1 million versus 260.2 million at the same time last year.

Consolidated accounts receivable in December 31st, 2006 was 285.9 million, an increase of 1% over the prior year balance of 284 million.

The fact that our receivable balance remained essentially flat when compared to the incremental sales growth in the quarter, the result of earlier shipments and related collections within the quarter.

Consolidated inventories were 212.3 million compared to 185.9 million a year ago, a 14.2% increase.

Our increased inventory is primarily attributal to finished goods inventory on hand to support spring growth.

We are also carrying additional inventory to support our newly acquired Montrail and Pacific Trail brands and additional mountain hardware finished goods to support international growth.

We were very encouraged with our working capital position entering 2007.

Capital expenditures were 7.4 million during the fourth quarter, the majority of which were to increase our distribution capacity.

Total capital expenditures were approximately 51 million in 2006, consisting of approximately 13 million in maintenance CapEx and 38 million for distribution related and other projects.

Included in these capital projects are the Portland distribution center, retrofit and [end of life] equipment and systems and the European distribution capacity expansion.

We placed our European distribution center project in service earlier this month.

We currently anticipate that the improvements to the Portland distribution center will come online at the beginning of the second quarter in 2007.

These additions to our capital expenditures will generate incremental depreciation and amortization expense of approximately 10 million in 2007.

Capital expenditures were less than planned in 2006 due primarily to the delay in integration testing of the new equipment and systems in our Portland facility as Tim previously addressed.

We currently anticipate approximately 35 million in total capital expenditures during 2007.

Today we announced that the Company's Board of Directors has approved a quarterly dividend of $0.14 per share, payable on March 1st, 2007 to shareholders of record on February 15th, 2007.

During the fourth quarter, we did not repurchase any shares under our share repurchase program.

Now let's turn our attention to financial guidance.

Given the results that we've reported today, we're in a position to update everyone on our guidance for the first quarter of 2007.

Please keep in mind that this information is forward-looking in nature and therefore subject to certain risk factors, many of which were described for our 10-Q for the period ended September 30th, 2006 and which were expressed by David in his opening comments.

Based on our early reported spring backlog, we continue to anticipate Q1, 2007 consolidated revenue growth of approximately 11% when compared to the first quarter of 2006.

And now estimate EPS to be between $0.57 and $0.59 per diluted share.

This model anticipates slight operating margin expansion consisting of approximately flat gross margin and approximately 10 basis points of SG&A contraction.

Please note that we're still taking orders for our fall 2007 season and do not have complete visibility of our fall order book.

We expect to provide detailed full-year 2007 guidance at our first quarter conference call in April when we will have substantially completed our fall 2007 order-taking season.

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

I'll now turn the call back to Tim to review both geographically and categorically our business environment.

Tim?

Thanks, Bryan.

I'll begin with a review of the fourth quarter 2006 sales consolidated, categorical sales results with comparisons to the fourth quarter of '05.

Outerwear, 180.3 million versus 147.4 million in the comparable period, an increase of 22.3%.

We're very pleased with the strong growth in outerwear shipments in the fourth quarter with category growth driven by significant increases in shipments of Columbia brand outerwear in the United States.

Sportswear: 108.5 million versus 90 million, an increase of 20.6%.

Sportswear shipments in the fourth quarter were also very strong, led by continued strong sportswear domestic growth of the Columbia brand.

Footwear: 56.4 million versus 63.3 million, a decrease of 10.9%.

Shipments of cold weather footwear products in the U.S. and Canada were weak, primarily due to the impact of warm weather conditions on preseason and in season orders.

Accessories: 13.6 million versus 12.2 million.

Equipment: 3 million versus 1.2 million in '05.

Now let's run through the categorical results for the full-year '06 with comparisons to the full year '05.

Total sales for the year were one billion two hundred eighty seven point seven million [sic] an 11.4% increase over the prior year.

Outerwear: 496.5 million versus 440 million last year.

A 12.8% increase.

For the full-year, outerwear sales were 38.6% of total sales compared to 38.1% in 2005.

We're pleased with the continued strength of the Columbia brand outerwear sales in international markets and the rebound in domestic outer wear sales for the year.

We're also pleased with sales of Pacific Trail outerwear and the opportunities that that brand provides.

Sportswear: 509.1 million versus 450.3 million, an increase of 13.1%.

For the full-year, sportswear sales were 39.5% of total sales compared to 39% last year.

Authentic, outdoor Sportswear is Columbia's largest product category.

Sportswear increased in all markets globally led by exceptional gains in Columbia brand sportswear in the U.S.

Footwear: 219.7 million versus 211.2 million, an increase of 4%.

Footwear sales were 17.1% of total sales compared to 18.3% last year.

Growth in footwear sales for the year was driven by acquired Montrail sales.

Organic footwear sales were soft, primarily in cold weather products due to the global warm weather conditions in 2006.

Given the warm weather conditions globally, we currently maintain a cautious outlook for near term footwear growth.

Accessories: 42.7 million versus 45.2 million, a 5.5% decrease.

Equipment: 19.7 million versus 9.1 million, a 116.5% increase.

Shipments of Columbia branded bags and packs drove equipment sales growth for the year.

Geographic sales: Let me give you some basic background and additional sales commentary by geographic regions for the fourth quarter and for the full-year 2006 with comparisons to '05.

U.S.A. fourth quarter sales of 212.4 million versus 185.4 million, an increase of 14.6%.

Sales for the full-year 2006 were 752 million compared to 676.9 million, an 11.1% increase for the year.

For the full-year U.S. sales were 58.4% of total sales compared to 58.6% in 2005.

Fourth quarter U.S. outerwear sales were very strong and we were particularly pleased with the rebound in domestic Columbia outerwear shipments.

Pacific Trail and mountain hardware also contributed to strong U.S. outerwear growth in the fourth quarter.

The warm weather during the holiday period has affected fall '06 outer wear retail sell throughs across all distribution channels.

However, colder weather in January has incrementally improved sell through this month.

Lighter casual jackets have sold well, soft shells are gaining acceptance across broader distribution channels and provide significant opportunities in the category.

All '07 outer product line has been well received by our retail customers.

As we have discussed previously in fall 2006 we offered an overly expanded line of outer wear styles, which generated growth in the category.

As evidenced by our fourth quarter results, but did not provide economies to scale and sourcing and negatively impacted outerwear gross margins.

For fall 2007, our outerwear offering is more targeted and designed to gain efficiencies and sourcing to enhance our outerwear gross margins.

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

Shipments of Columbia brand fleece jackets, pullovers and bottoms in men's and women's styles were robust and represented a primary drivers of sales growth in the sportswear category.

Fall '06 sell through has been good and fall '07 sportswear line has been well received by our retail customers.

U.S. footwear shipments were soft in the fourth quarter.

Discussed previously, warm weather conditions in January and February last year negatively impacted our fall '06 order book and the warm weather conditions during the fourth quarter also negatively impacted reorder activity.

As Bryan commented earlier, we're still taking orders for our fall 2007 season and do not have complete visibility of our fall order backlog.

Europe.

Fourth quarter sales of 55.7 million versus 50.3 million, an increase of 10.7%, excluding changes in currency exchange rates, sales increased 4% in the fourth quarter.

Sales for the full-year 2006 were 199.2 million compared to 184.3 million, an 8.1% 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 15.5% of total sales compared to 15.9% in '05.

Fourth quarter European sales were driven by shipments of Sorel and Columbia footwear; outerwear and sportswear shipments were also increased in the quarter.

Weather conditions were very warm in Europe during the third and fourth quarter creating a very promotional retail environment and high inventory levels of weather dependent merchandising retail.

All the six sell through rates of our products have also been challenging.

However given the difficult weather conditions, our seasonal products have sold through relatively well.

The fall '07 product line has been received generally well.

We're still early in the selling season.

The poor sell through rates and high inventory levels at retail are creating a difficult order taking environment in Europe.

Canada.

Fourth quarter sales of 27.7 million versus 26.6 million, a 4.1% increase.

Excluding changes in currency exchange rates sales were flat on a comparative basis.

Sales for the full-year '06 were 120.2 million compared to 120.8 million, a 4.7% increase for the year; excluding changes in currency exchange rates, sales decreased 2.4% for the year.

For the full-year, sales in the region were 9.3% of total sales compared to 9.9% in '05.

Sportswear sales drove growth in Canada during the fourth quarter, but softness in cold weather footwear shipments for Sorel and Columbia offset overall growth.

Warm weather conditions primarily in eastern Canada hampered sell through rates in the region indicating a cautious view for fall orders in Canada.

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 distributor relationships recorded fourth quarter sales of 66 million versus 51.8 million for the same period of '05, an increase of 27.4% or 24.3% excluding changes in currency exchange rates.

For the full-year '06, Other International sales were 216.3 million compared to 179.8 million during '05, an increase of 20.3% year-over-year making Other International our second largest geographic region after the U.S.

Excluding changes in currency exchange rates, Other International sales also increased 20.3% during '06.

For the full-year, Other International sales were 16.8% of total sales compared to 15.6% in '05.

Excuse me, international distributors, a component of other international representing the collective markets worldwide where we sell through international, independent distributors recorded fourth quarter sales of 31.2 million compared to 21.5 million in the fourth quarter of '05, a 45.1% increase.

Fiscal 2006 international distributor sales were 118.7 million compared to 96.3 million during '05, an increase of 23.3% for the full-year.

Distributor sales continue to be exceptionally strong in the fourth quarter with very healthy growth in Russia and China.

Shipments of the Columbia brand, sportswear, and outerwear drove distributor growth in the fourth quarter.

Fall '06 sell through in our key Russia distributor market has been slow due primarily to warm weather conditions throughout Russia through December.

However, we have very high consumer brand awareness and our products are well-positioned and represented in this growing large market, which position us for continued strength.

We continue to see very strong growth in Hong Kong, China.

We are represented by a solid distributor in this key market.

The Chinese markets are very competitive, but our distributor's making exceptional progress in our brands and products are receiving very strong consumer acceptance.

Very capable distributors who manage the logistics, marketing and sales of their products in their respective regions.

While international distributor sales produced lower gross margins for Columbia, the sales generated are very accretive to our earnings as we have minimal overhead associated with the generation of these sales.

Japan, a component of other international recorded fourth quarter sales of 19.4 million compared to 16.9 million in the fourth quarter of '05, a 14.8% increase.

Sales for the full-year '06 were 54.6 million compared to 48.1 million during '05, an increase of 13.5%.

Shipments of Columbia brand outerwear drove growth in Japan during the fourth quarter.

Retail inventory levels of outwear in Japan are higher than average due to warmer than normal winter weather conditions in the market.

Our sportswear and less weather dependent footwear merchandise continues to do very well and should positively impact fall '07 orders in the region.

We are pleased with our progress in Japan and believe we are well-positioned for growth as the Japanese economic conditions improve.

For the Company as a whole, we are very pleased with our fourth quarter and year-end results.

We're very proud of the way we've managed inventories and overall working capital on our balance sheet at year-end, particularly in light of the very warm global weather conditions.

Strong consumer demand for our brands and effective cost management has enabled us to deliver solid, financial results in a competitive market.

In 2006, we have made significant strides in our business.

Coming into the year, we were very focussed on stabilizing our North American outerwear position while continuing the momentum in our newer product categories.

Most specifically in our less weather sensitive sportswear product category.

We're pleased to report that we were successful in both of these goals.

We have also made acquisitions that opened new distribution channels and marketing strategies and which go at our portfolio brands.

We are also slowing the pace of infrastructure investments following several years of significant investments in product design and development in distribution capacity both in the U.S. and in Europe.

These investments have been critical to support our long-term growth strategies and have enabled us to develop and merchandise compelling market relevant product while continuing to excel operationally for our customers.

As we have articulated previously, we're very focussed on reversing the decline in the Company's operating margin and improving returns on invested capital 2007 and beyond.

We intend to do this through improved product design and merchandising efficiencies and by taking a more measured approach to the fixed cost additions to our SG&A infrastructure.

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

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

Second we will continue to leverage our brands internationally.

Third, we will continue to develop the sportswear and footwear merchandising categories and strengthen our core outerwear business.

Fourth, we will continue to selectively add distribution as we seek to grow our less developed department store and specialty footwear businesses and finally we will continue to seek out favorable licensing opportunity as we leverage the strength of our brands.

That concludes our report.

Thank you very much for listening.

We'd be happy to field any questions.

Operator, could you please help us with that?

Sure. [OPERATOR INSTRUCTIONS] Your first question comes from Bob Drbul.

Hi.

Good afternoon.

Hey, Bob.

I guess first question on inventory levels, Tim or even Bryan, can you talk a little bit about inventory levels that retail where we are today?

Given some of the weather trends that we've seen?

And then, Bryan, can you elaborate a little bit in terms of the numbers?

Or quantify when you look at the inventory level coming out of the fourth quarter how much of it was to support spring goods and how much of it was mountain hardware, international, Montrail, Pac Trail?

And, I guess is there any clearance inventory left in what you have on the books today?

Well, I'll let Bryan handle the second part of that question.

I'll just take the retail inventories.

I think they're slightly higher than we want them to be and than our retailers want them to be.

And probably most of the products some form a clearance today.

And so, I would expect that depending on the weather that our retailers will become cleaner as the year goes on, but they're probably today slightly higher than they want to be.

But I think the expectation for most of these, most of our customers is that they will in fact clear the merchandise through the year.

And Bob, in terms of our inventory levels and in kind of how that breaks out by brand and/or season, the bulk of our inventory level right now is for spring growth.

As you may recall, I think our spring '06 backlog was somewhere right around 5.9% and as you know, our reported spring '07 backlog was around 15.2.

So we've got definitely a lot more spring growth to get inventory in our warehouses to deliver to customers.

The other two issues I mentioned in terms of the fall excess, I would say we're in very good shape on the fall excess.

You may recall that when we initially give guidance at the front-end of this year, we actually mentioned that we were also taking a little bit less speculative inventory risk this year, obviously a good decision in retrospect as the winter really didn't cooperate in Q4.

The mountain hardware level of inventories internationally, again, that's a very small component.

And really just something, again we're focussed on in terms of broadening the reach of that brand outside the U.S.

So really it is spring growth, very good shape with respect to fall for the most part.

However, as you probably noticed in our Q1 guidance, we are expecting some -- some additional closeouts to go out in Q1.

But it's very normal, normal type of levels.

Okay.

And then just one final question.

I know that you guys do not have complete visibility on your fall order book, but I have to ask, where are you right now in terms of retailers ordering earlier or are they procrastinating?

Sort of overall, Tim, any directional information that you could share with us in aggregate?

Well, I want to be careful because we do want to make sure that our backlog announcement is concise and gives a lot of direction to our investors.

But suffice it to say that today I'm looking at a position in the business where I feel comfortable that we've got guys about on track with where we expect them.

Okay.

Thank you very much.

Your next question comes from Jeffrey Edelman.

Thank you.

Tim, just a follow -- one follow-up on the fall booking question fall outerwear.

Are we likely to see any notable changes in your, let's say account structure for the Columbia brand as we look at fall '07 versus fall '06?

Either additions subtractions, what not?

No, I think we're looking really at the base business, staying about the same.

Okay.

And then secondly, fleece really drove a lot of your sportswear business here in the fall.

What have we got product wise to drive footwear and sportswear for spring?

And have you seen anything that's going to make those products more important?

Well, our spring business in footwear as you know is really supported by sandals.

And initial reaction from our customers that where the weather-sensitive product like sandals is selling is quite good right now.

Early indications.

And then in sportswear, the basis of our sportswear business, really our shorts and, I think it's probably too early -- I don't have any anecdotal information regarding our short business today.

But the expectation is that those will continue to be solid performers for us.

Okay.

Thanks.

Your next question comes from Kate McShane.

Hi.

Thank you.

Can you just touch on how winter 2007 footwear is being received by your customers?

You'd mentioned sportswear and outerwear, but if you could go into a little bit more detail or customer reaction for the footwear?

Yes.

Well, as you know, the basis of the brands in winter is really with Columbia and Sorel winter product.

So winter -- winter footwear products were not robust at sales in retail.

We have a dampened enthusiasm in general from our customers.

In addition to that, we significantly edited our line from '07 to make it more efficient and more compelling to the marketplace.

And frankly, in summary, we've been pleased with the reaction so far.

Our customers realize that we have gone back to more basic products in both of those categories, meaning the winter footwear in both brands and the other trailing and hiking products that the Company offers from the Columbia brand and Montrail.

And so the reactions have been actually quite good.

And, again, we don't have the product -- the creative differentiated product which is going to make a significant impact on the business and footwear as of yet.

But what we do have is solid basic merchandise and recognition by the customers that we've gone back to where we belong, at least for the short-term.

Okay.

And just one other question, if I may.

Can you give us also a little bit more detail about Pacific Trail, where it's selling, have you identified additional doors and channels as to where to sell the brand and the time of when we expect you to expand into those new doors?

Certainly.

Well as with the Columbia brand, we want to be able to report backlog on the Pacific Trail brand in April at our first quarter conference call.

But again, going back to our original focus on buying the brand, it really is to allow us access with our great products into markets and channels of distribution that we couldn't take the Columbia brands.

That's primarily the clubs and other levels of distribution where we wouldn't want to take the Columbia brand.

And the sales there on the product we delivered was quite good for fall '06 and our expectations they would be in the same channels for fall '07.

Okay.

Thank you.

Your next question comes from Robby Ohmes.

Oh, thank you, hi guys.

Couple of quick questions.

Just a follow-up on Pacific Trail, are you expanding the sku count for fall '07 as you keep it in existing channels?

There's a slight expansion, actually over what -- remember we received this order book when we purchased the company which had a lot of different products in it.

I think we slightly expanded it for this year, but I wouldn't say meaningfully.

And when do you expect to do Pacific Trail sportswear and I know footwear is probably further down the line, but could you give us a guesstimate of when you could see both of those come out?

I would say it's really going to be dependant on a level of acceptance that we see in fall '07, but actually we've done a little bit of spring '07, Pacific Trail sportswear.

It's yet to be delivered.

Our expectation it'll be pretty good -- pretty well received by customers.

And that's in the club channel, Tim?

Yes.

And hate to bug you on backlogs, but you kind of said relative to expectations fall is kind of tracking, I don't want to put words in your mouth but sort of as you expect.

And when you commented on Europe and the slow start to backlogs over there; can you just give us a sense is U.S. sort of tracking better than you would have thought at this point and Europe behind to get to the rough place you think you would be?

Well, I think when we look at the weather conditions and sell throughs, our expectations will be publicly in line with where we are today.

I really don't want to get too deep into that, but you can expect sell throughs which will continue all the way through the season are going to be impactful on the backlog.

I don't want to get too much detail on that.

All right.

Got you.

Very last question.

If you look at the fall '06 performance of retail, can you talk about the difference between how Columbia outer wear did in the sporting goods channel versus the department store channel?

Yes, I think our business actually, it's more developed in the sporting goods channel.

And I think we're very pleased with how the business performed there, especially in the sportswear.

And then in the department store channel, it's very undeveloped, so of course, we had a, I think stronger, stronger performance there.

But in general, we had a very significant increase in Columbia outerwear in both places.

And I think we were pleased with how it ended up performing, especially based on the weather, which was not helpful.

That's great to hear, thanks a lot, guys.

Your next question comes from Jim Duffy.

Thanks, hello, everyone.

Hey, Jim.

Tim, I guess a question for you.

In the '06 season you expanded the outer wear assortment, what are the big things that you learned from having this expanded line that you think will influence your line going forward?

Well, we -- categorizing them good and bad, we covered more categories of merchandise and that was a positive.

We covered those additional categories with too many items.

So we really precluded ourselves from having efficiencies in operations.

What we did learn was where the Company really does well.

And for '07, we focussed products.

I think we probably had somewhere greater than a 15% style count reduction and in some markets greater than that for fall '07.

And so the expectation is we really focussed ourselves, our design talent and our sourcing operations in the real critical areas that worked well for '06.

Is there anything you can share about what in particular worked really well?

Well, I think the soft shell products were quite--were very good for us this year.

As obviously fleece was really a significant contributor in the sportswear area.

Okay.

And then, not taking a big speculative inventory position worked well for you this year, does that change your philosophy going forward?

What is the philosophy on that, do you think?

Well, what we try to do and what we've been successful at over the last several years is looking at the order book at the end of March and then looking at the channel and then deciding based on market data what our bet ought to be.

That makes sense.

Yes, so we will do -- we will follow the same procedure.

It's based on the last couple of years, it would be tough to say we would take an aggressive stance, but we really have to wait and see.

And then Bryan, a question for you, I guess it's early to talk about the '07 numbers, but would you expect that you would be able to deliver SG&A leverage in '07?

Well, you're right it's a little early in terms of until we have the fall '07 order book in hand.

I guess I'd point to an encouraging fact, which is actually if you exclude the stock based compensation expense for 2006, we actually had slight, call it 10 basis points worth of SG&A leverage in 2006, X the accounting rule change.

So I guess, looking out to 2007, I know we'd been very forward with the investment community about our internal goals of the Company to leverage the business model.

And so, part of that is managing the business so that we can show operating margin in 2007.

So I guess I don't have any specifics.

Obviously when we have our fall order book in hand, we'll have everything from soup to nuts to aggregate and we'll give you as thoughtful advice as we can at that time.

Very good.

Thank you, everyone.

Your next question comes from Virginia Genereux.

Thank you.

Maybe first, Bryan, a little housekeeping.

Should we expect the tax rate to be -- to be sort of this 33, 33.5 or 33.6 going forward?

Well, there's a couple -- well, there's a couple things that obviously went in our favor that I think we commented on in Q4 that affected our entire rate for the year.

I guess, if you strip the---some of those positive things that happen to us in Q4 in terms of some clarification from the IRS on foreign tax credits, I would say we'd go back to what I'd call more of a normal rate on our taxes, which is probably closer to that 34% range.

And that's -- and by the way, our rate would have been approximately 34% this year without that benefit.

Okay. 34, even if guys like Nike, K-Swiss, they're taking their tax rates consistently lower here with the international exposure and your tax rate was 31.5, we should be looking for 34?

At least at this point.

I think -- I want to at least hold off, again until we've got that order book in hand.

That order book is certainly going to be by geographic region and where we're making that profitability is certainly going to impact our tax rate.

Okay.

Thank you.

And then on the D & A side, you previously said up 12 million in '07, and now maybe 10, I know it's minor but is that related to some of the CapEx slippage?

And then would D & A be up in '08 by any material amount?

Well, let me take the first part.

You're absolutely correct.

The change from our previous comments where we thought the additional depreciation of about $12 million for 2007, and again stemming from the two major projects that we had last year, part of that is the difference between the 12 and the 10 is certainly the delay and the testing of the Rivergate retrofit project.

So that, that is something that's impacted Q1.

And again, probably part of the reason you're seeing our SG&A guidance from 3 months ago to today being somewhat different and better.

In terms of 2008, you've heard that our best estimate at least at this point is for about a $35 million CapEx budget.

So I think your -- we're not going to have the, we don't anticipate at this time to have large projects other than the one that came over year-end in 2007.

So I would expect the incremental depreciation expense in '08 to be somewhat measured from obviously the high -- the high increases in 2007.

Okay.

And then lastly, I remember Pat on the last call saying that you were looking at a 5% FOB cost increase going into March of '07, sort of going into spring.

With the moderation in petroleum here.

What's the, what's pricing looking like for you guys for fall of '07, may I ask?

We're done with fall '07, obviously.

We did that back in fall of '06.

We didn't see any dramatic increases from what we did from the prior year, we saw increases probably in line with what we saw for spring, but we didn't really see anything incrementally over from spring to fall.

Probably in that same range fall over fall.

Okay.

Pat, so still up a little bit.

Do you anticipate that the input cost environment could get more favorable?

Will it with oil coming down here?

Does that help you at some point?

You know what?

We're seeing is we're seeing labor increasing virtually everywhere in the world, and factory overhead costs, obviously are going up and capacity issues.

I think, I'm not sure that the full oil prices were ever built into the cost.

And with commodity prices stabilizing, we're looking at more of a stable price environment.

I wouldn't really expect much in the way of deflation.

Thank you.

And congratulations, Tim.

Thanks, Virginia.

Your next question come from Sam Poser.

Good afternoon.

Hey, Sam.

Can you talk about the effect of the, what your expectation is of the effect of the--of foreign currency in Q1 of next year that worked into your guidance?

Yes, I guess, Sam, this is Bryan, in terms of what we've modeled in, I think you can see by some of the impacts of currency rates on our Q4 results that the rates, at least at this point look to be a little bit of a tail wind.

Those are built into our Q1 guidance.

Where that's going to end up for the full-year 2007, I guess I'll wait until we have our fall order book to really comment.

But I think measured or, I guess not as significant amount of currency upside baked into Q1, but it is included in the guidance that we give.

And could you also -- so is it apples to apples over last year?

No, I would say it's probably within a pretty tight range in terms of Q1 over Q1.

And how -- can you talk, we were having a discussion here -- can you discuss the EPS impact of that $6 million and how you viewed that in Q4?

I'm sorry, Sam, you're going to have to -- with the 6 million you're referring to.

The 6 million, right, EPS impact of that 6 million, is that, how are you viewing that as an impact of the --

I'm sorry, Sam, one more time.

I need to understand the 6 million you're referring to --

The $6 million from currency that was that benefited you in currency in Q4.

I'm not looking at the $6 million number.

My comments earlier were really just if you take the currency rates from Q4 of '05 to Q4 of '06, we had currency translation benefit on the top line.

That doesn't necessarily mean it goes all the way down to the EPS line or net income for that matter.

So obviously it depends on the gross margin line when we placed our hedges, how hedged we were the season in terms of our cost of sales so --

Okay.

Well, I can follow-up with you on that later.

But one last thing, can you talk about really what you see driving the 11% increase in Q1 as far as sales what it is and where you expect to see it based on your backlogs and so on?

Yes, Sam, it's primarily the spring products, backlog that we announced.

To a lesser extent there'll be some winter, fall '06 closeout, but it's primarily our spring merchandise.

I understand that, but is it going to be -- are you seeing it coming out of titanium, are you seeing mountain hardware taking a larger step are you seeing sports shirts being stronger?

Just sort of a little more color on---

I would say the primary growth is going to be our sportswear category and probably led by shorts, I'm guessing.

With tops being lesser impact and, of course, I think commensurate increase growth from mountain hardware and Montrail, but at the end of the day it's going to be primarily the Columbia sportswear category.

Great, thanks very much.

Thanks, Sam.

Your next question comes from John Shanley.

Hey, John.

Good afternoon, folks.

Tim, you had mentioned on the third quarter conference call that you felt that some outerwear sales would move from the third quarter into the fourth quarter.

I wonder if you can give us a sense of how much and particularly in the domestic market that 23% increase quarter-over-quarter that you registered so we can more effectively model our back half of '07.

How much of that would have been sales that would have normally been derived in the third quarter?

Yes, I'm scratching my head a little bit here, John.

I think at the end of the day, the delivery of the products is really driven by our customers' demand.

And I think to the extent we add slippage, it would have been minor from third to fourth quarter.

I think the bulk of our fourth quarter volumes, especially domestically were earlier in the quarter based on the very good weather, good selling that most of our retailers had in that early Q4 period.

And so --

So it's not material, we shouldn't put more--- less credence on the fourth quarter results and more on that back end numbers into the third quarter, rather?

No, I think in general we look at the business here obviously quarterly as a result of the requirements to report for the SEC, but we really run up two halves of businesses, a spring half and a fall half.

And at the end of the day, deliveries by the customer whether or not it's over a quarter really driven, often times by their particular receipt pattern or in Europe it's even driven by the day that the truck delivers the merchandise.

I would say the October period -- September/October period is a high delivery period for us and it's tough to--- with significant precision from a half and half basis running, to cleave it.

But we do that and for the --

Okay.

Looking at the same product category.

Outerwear, can you give us a sense of what you think the current inventory positions are with your big general merchandise retail counts like Penney's and Khol's and the big box sporting good guys like Dick's and Sports Authority?

Where are they in terms of Columbia inventory in your estimate?

Are they heavy, long?

Seems to be a lot of promotional activity going on in the marketplace currently.

I'm just trying to get a read in terms of what you're feeling is about those big accounts, current inventory position.

Yes, I think sort of in general, I would say they're slightly higher than they want them to be company wide for each one of those customers.

Obviously there are stores in Denver and the Pacific Northwest had phenomenal cold weather product sales, but those operations that are further east were challenged due to the warm weather.

We have good weather today, obviously the merchandise is at clearance.

But at least we have some weather to help us move and clean the inventories.

But I would say in general the customers probably have higher levels of inventory than they want today.

Okay.

Fair enough.

And lastly on the footwear side of the business, particularly domestic, sales were down, you mentioned due at least in part to the cold weather footwear.

Can you give us a sense of how big the Columbia brand's cold weather footwear is versus non-cold weather product?

Were the non-cold weather products down or up or did they perform about the same as the cold weather products?

Yes, actually the non-cold weather products performed fairly well and I would say better than on average than the cold weather products.

It's interesting because we, in the preparation for this call, we juxtapositioned our strong outerwear sales against the rather weaker footwear sales.

And at the end of the day it really comes down first of all to the Columbia and Sorel brands in combination; a very high percentage of those two brands, especially this time of the year is winter footwear.

And consumers just don't purchase winter footwear unless there's snow on the ground.

As opposed to outerwear where if it's even 10 degrees warmer than average in Minnesota, it's still probably 30 degrees and many times in the fourth quarter they're buying outerwear in any case.

So --

All right.

That's really why we had the, we believe the reduction in our sales volume for cold weather footwear.

But again, historically, how big is cold weather as a percentage of the Company's Columbia brand sales?

I would say it's a very high percentage.

I mean probably the 30% range in that, in that range of the Company sales.

Okay.

So the other 70% is casual and trail shoes and stuff like that?

Sandals and might even be further north of that, John.

And when you combine the Sorel business, which is almost exclusively cold weather it becomes a bigger number.

Thanks a lot, I appreciate it.

Thanks, John.

Your next question comes from Brian McGough.

Hi.

Yes, thank you very much.

I was hoping you could just talk for a minute about your footwear organization.

It's arguably the biggest growth lever in the Company.

Can you tell us where you stand as it relates to finding new leadership there?

Let me tell you what we've done internally while the search is ongoing.

And that's to really focus our teams on product categories and that the Company's been successful in and where the brand really belongs.

So we've focussed those teams and combined formally separate groups of the Company together to form product creation teams, which are going to be keenly focussed on identifying consumer and retail demand for products that the Columbia brand belongs on.

And we've made very significant strides there and we've actually even relocated a bunch of our internal folks to make--- to accomplish that amalgamation and collaboration structure better.

We've also made significant changes in what we sometimes call the back room or the sourcing end of the business where we've added very strong talent, both in Asia and here in the United States.

Persons with significant experience in bigger companies, bigger footwear companies to help us to get a leg up on growing the business and realizing what the potential is there.

Those two strategies, frankly have made an enormous difference in the quality of work here that we're seeing in advance seasons.

And we expect great things to happen just with the existing team.

But we know we need a leader for the footwear category, which can help us to create that very highly differentiated value oriented product that can segregate us and separate us from our competition and we're in the process of searching for that person.

But I want to make sure that investors understood that we've made proactive changes in the organization and the arrangement of our existing resources to really move us forward and we're very pleased with the progress we've made there so far.

Thanks.

And just one follow-up there.

So you're looking to hire a person, would you consider acquiring someone?

I think today we have the brand strength that we need to put ourselves -- to do the heavy lifting for the creative process.

So I think between the Columbia Sorel and the Montrail brands we've got all we need from brand strength.

We really need to find an individual who understands how to help us cultivate an environment of creativity where we can give ourselves so ammo under the existing brands to do well.

Great.

Sounds good, thanks, guys.

Thanks.

Your next question comes from [Julie Brian].

Hi.

Great quarter, guys.

Thank you.

Couple questions.

Firstly, the --- on outerwear.

The average price points for this year versus last year, could you talk about those a little bit?

And then as well on the outer wear, and again you may not be able to answer this question, but what I've heard you all saying that in Europe it's a difficult order taking environment.

And I think on a previous call you've talked about being able to leverage double digit sales.

And so I'm wondering as you look at 2007 in the outerwear, are you still anticipating kind of a -- looking at a double digit growth or are you looking at something less than that?

Well, again, we want to make sure that we tell all investors at the right time when we have complete visibility.

So we wouldn't be announcing any kind of backlog information until our April call.

But I can tell you that the price point that is the product is selling at this year is about the same as it was last year on average.

Okay.

And then for going into the next selling season, are you looking at similar pricing?

Or is pricing moving up a little bit?

No, I think our pricing -- we expect that our top selling items at retail will be in about the same price buckets that they were this year and were last year.

The goal is to have a more focussed efficient operating so we can get efficiencies in the manufacturing area to allow us to have an expanded gross profit margin, so that's the plan.

Okay.

Terrific.

And then stock option expense for 2007, I think in this quarter was a little bit less than you were expecting?

I think you had talked about on the last call about $0.04.

So in 2007, are you looking at something more in the range of maybe $0.03 per quarter at this point?

Or $0.04 or can you give any guidance on that?

Yes, I guess I'd rather, you know the guidance for stock option expenses is certainly built into Q1.

We finally have a comparative basis now against '06.

And I guess I'd rather wait until we have -- we give complete guidance in our April conference call to really specify exactly what that expense will be.

Okay.

Great.

Thanks so much.

Thank you.

Your next question comes from Robert Samuels.

Thanks.

All my questions have been answered.

Moving on to our next question, which appears to be our final question comes from Elizabeth Montgomery.

Hi, guys.

Congratulations on the good quarter.

Thank you.

I don't know if this has already been answered in some form, but I was hoping maybe you could give us some quantification of how much the broader skus in outerwear hurt the outerwear gross margins as a whole?

For example, if they were normally in the high 40s, did they go down 200 basis points, 300 basis points?

Do you think just from that factor alone?

It's hard to quantify exactly what the impact was.

We know that -- we pointed it out as one of the most significant.

So we know that it's -- it was very impactful.

So I don't know that we have the exact number, but it was certainly among the most impactful of the degradation in gross profit margin for the Company.

So the focus and again as I said is efficiency and allow ourselves the opportunity to have an expanded gross profit margin with a more focussed line.

Okay.

And I know you don't want to give specific commentary on '07 as a whole, but do you think with the fact that the outerwear sold through decently well this holiday maybe gives you a stronger backlog going into '07 and then with a more edited assortment?

Do you think those two factors are enough to maybe offset this other factor compressing gross margins, which would be the bigger mix of lower gross margins brands and products?

Well, again, we really want to try and avoid talking about the backlog.

But there are so many components that go into it that it really is very difficult to comment today without -- with any level of certainty to allow investors to make decisions.

So I guess I would have to say that the Company's focusing on and continues to focus on improving gross margin to allow leverage, due to very focussed effort on cost control and so we're hopeful that the business can sustain it based on our established strategy.

So, I guess our outlook is on that standpoint is quite good.

All right.

Thanks a lot.

Good luck.

Thanks.

We do have one more question, which comes from [Brad Craigen].

Yes, hello, thank you.

With respect to the expanded assortment and the margin impact, can you talk about your experience with the fall orders?

And do you think there's an opportunity to reduce the style count further still perhaps in'08 or drive other sourcing efficiencies with respect to sourcing?

Well, I think, yes, the Company is continuing to focus on reducing inefficient styles and so my expectation is that we won't--- we may not have the same sort of delta that we have '07 v. '06, but the expectation is we're going to continue to be more efficient in our offerings.

And we have -- we're well established along that line because as you know we're well in front of the business on development cycle and the focus is to continue to reduce the -- the inefficient skus and become more efficient.

Great.

And then with respect to the growth in other international, can you talk about where you may have opportunities for--- to establish other distribution licenses or perhaps what your appetite might be to bring some of those in-house possibly?

Yes.

I would say that at this time I don't see on the horizon any large opportunities like we have in Russia and in Hong Kong China.

So I think we'll have a more measured expansion in other markets around the world.

We might get surprised here or there, but in general, the weather conduciveness and match to our products is probably best where we have established businesses.

And today, based on the scale of those businesses and the expectation of volumes around the world, and the level of difficulty in some of our more successful geographic regions to for us to operate, I'm -- my expectation is we would not take, we would not have a lot of acquisitions of distributors in the future.

Okay.

Thank you.

Thank you.

And there are no further questions.

Are there any closing remarks?

Yes, I want to thank investors for listening in.

Again, we're very proud of the quarter we had, the year we had, especially based on the difficulties going into the year, but we feel we managed it quite well and we appreciate your continued support.

Look forward to talking to you next week here in Portland.

Thank you.

Ladies and gentlemen, that does conclude today's Columbia Sportswear fourth quarter and year-end financial results conference call.

You may now disconnect.