Columbia Sportswear Co (COLM) 2009 Q3 法說會逐字稿

Good afternoon.

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

At this time, I would like to welcome everyone to the third quarter 2009 earnings release conference call.

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

After the speaker's remarks, there will be a question-and-answer session.

(Operator Instructions).

Thank you.

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

Parham.

Sir, you may begin your conference.

Thanks, Cara.

Good afternoon and thanks for joining us on today's call.

Earlier this afternoon, we issued a press release announcing our third quarter results, our spring 2010 backlog, our increased outlook for the remainder of 2009, and the Board's authorization of a 12.5% increase in our quarterly dividend.

With me today to discuss those results and answer your questions are Columbia's Chairman, Gert Boyle; President and CEO, Tim Boyle; Vice President of Finance and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Bryan Timm; Executive Vice President of Sales and Marketing, Mick McCormick; and Vice President and General Counsel, Peter Bragdon.

Before we begin, our Chairman, Gert Boyle, has an important reminder.

I'd like to remind everyone that this conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation.

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

Many of the risks and uncertainties are described in Columbia's annual report on Form 10-K for the past year of December 31, 2008, and the most recently filed quarterly report on Form 10-Q, as well as subsequent filings with the SEC.

Forward-looking statements in this conference call are based on our current expectations and beliefs.

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 statement to actual results or to report changes in our expectations.

Thank you, Gert, and now I'll turn the call over to Tim.

Thanks Ron.

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

As Ron noted in his introduction, today's press release contains several important pieces of information that collectively provide insight into the current state of our business, and early signs of market acceptance of the strategic product and marketing initiatives that we've been working on for the past two years.

I want to touch quickly on a couple of highlights from the third quarter, and let Tom cover the financials and our improved fiscal year 2009 outlook in more detail.

Most of my comments will focus on spring 2010 backlog and what we think are the important takeaways, when you look beyond the raw comparison against spring 2009 backlog.

As most of you know, the third quarter is typically our largest sales and earnings quarter of the year.

Overall third quarter sales were shorter than we expected, and together with better-than-expected gross margins, controlled spending, and a slightly lower tax rate, we produced greater profitability than forecast.

Consolidating sales, while still down 4% from last year's Q3, were more than $30 million above the outlook we gave in July.

That increase was driven by the US region where we experienced greater-than-expected demand and better inventory availability to fulfill that demand.

We also benefited from stronger international currencies.

Q3 US sales declined only 1%, as our operations team did an outstanding job delivering fall orders, so that our retail partners could have their stores ready for the cooler weather that has already begun to settle across North America.

Nothing could have pleased me more than tuning into the New England Patriots game against Tennessee this past Sunday, and seeing a snow-covered field and a stadium full of fans bundled against the cold in mid-October, or the Yankees Angels playoff over the weekend, with rain and temperatures in the 40s.

We continue to believe that US retail channel inventories are lean, a credit to the discipline of retailers over the past year.

The weather helps, but we also believe our innovative products, enhanced design, and increased marketing investments are beginning to drive consumer demand.

Footwear was our strongest category during the quarter, registering at double-digit sales increase.

This increase was driven by the Sorel brand, partially offset by a small decline in Columbia footwear.

We will launch a new Sorel print advertising campaign in the November issue of Vogue magazine, targeting a more fashion-conscious female consumer.

We also launched the Sorel e-commerce site this week, where consumers can see the full breadth of our restyled Sorel line.

Turning to the EMEA region, sales in both our direct and distributor business declined low teens.

This was consistent with the fall backlog we announced in April, and reflects the significant macroeconomic challenges in Russia, together with the brand challenges we face in Western Europe.

However, footwear was a bright spot in this region with the Sorel brand driving a 10% sales increase in the quarter.

Q3 sales in Canada declined 3%, but were up 2% in local currency.

Once again, footwear was the star, with an increase in Sorel sales driving a low 20% increase in footwear sales for the region.

Third quarter sales in the LAAP region were down 4%, primarily reflecting challenges in Argentina and Chile.

I especially want to focus your attention on their spring 2010 backlog, which, while still down 5%, contains encouraging indications that our strategies are starting to bear fruit.

Looking at the spring 2010 backlog by region, reveals that the US LAAP and Canada backlogs are essentially flat, each either up or down less than 1% compared with spring 2009.

First, it's very important to recognize that our flat US backlog is comparing against a spring 2009 backlog that included orders placed by several significant customers, that ultimately liquidated or reorganized their operations during 2009.

Second, our US retail partners indicated to us during spring 2010 booking that their open to buy dollars were, in many cases, down double digits compared with their spring 2009 open to buy.

With that as a backdrop, our flat US backlogs have guessed that the Columbia brand gained market share.

We believe this is a reflection of our better -- a better reception of our innovative products by retailers, despite the overall weak economic conditions that we are operating against.

Third, the composition of our US backlog includes increased orders from specialty stores, those stores that attract the consumers that we are targeting with our best product innovations.

All of these aspects of our backlog are a direct result of the strategies that we have been implementing for the past two years.

While these are encouraging signs, I should also caution that the most important test remains -- namely efficient, profitable sellthrough to consumers during the spring 2010 season.

I'll be back with some closing thoughts after Tom covers our financial results and outlook.

Thank you, Tim, and good afternoon, everyone.

I'll begin with a brief overview of our Q3 operating results and financial position, and then provide an update on our full-year 2009 outlook.

Our third quarter came in significantly better than the outlook we provided in July, primarily due to the greater-than-expected demand for fall products in the US, as Tim commented on earlier.

Third quarter sales decreased 4% to $434.5 million, with changes in foreign currency exchange rates contributing 1 percentage point of that decrease.

Looking at Q3 2009 sales on a regional basis compared with Q3 2008, US sales decreased 1% to $267.4 million.

This decrease reflected a mid-single digit decline in our US wholesale business due in part to the liquidation or reorganization of several wholesale customers this year.

Offsetting that was a significant increase in our US retail business.

We exited Q3 2009 with 47 stores, 18 more than the same time last year.

On a product category basis, the 1% US sales decrease reflected a low single digit percentage decline in our Columbia brand apparel business, with the decline skewed more towards sportswear than outerwear, partially offset by a low teens percentage decrease in US footwear sales, driven by that Sorel brand.

EMEA sales declined 13% to $67.7 million, including a 3 percentage point drag from foreign currency exchange.

Our EMEA distributor business declined by low double-digit percent, reflecting difficult macroeconomic conditions in our largest distributor region, partially offset by a shift in fall shipments into the third quarter from the second quarter, as compared to the same periods last year.

Sales in our EMEA direct business showed a low teens percent decline, including a 6 percentage point negative effect from foreign currency exchange rates.

The remaining decrease reflects challenging macroeconomic conditions, the soft fall 2009 order book that was previously announced, and the product assortment and marketing position issues in the region that we've mentioned previously.

Sales in our LAAP region declined 4% to $44.3 million, including a 2 percentage point gain from foreign currency exchange rates.

High teens percent growth in our Japan business was aided by a mid-teen percentage point gain from the effect of currency.

Conversely, the effects of currency on our Korean business turned high teens percentage constant dollar growth into a 1% decline for the quarter.

Sales to our LAAP distributors showed a 30% decline due to the rescheduling of some orders for southern hemisphere distributors from midyear to the fourth quarter.

This rescheduling better aligns with the selling seasons for the southern hemisphere customers that lag our product seasons by six months.

Sales in Canada declined 3% to $55.1 million, including a 5 percentage point currency headwind that turned sales growth into a decrease in reported sales.

A higher proportion of fall 2009 product shipments occurred in the third quarter of this year, compared to the same period last year, in which a higher portion of fall shipments occurred (technical difficulty).

The soft fall 2009 order book for Canada includes planned reductions in some channels of distribution, which will impact our fourth quarter sales comparisons by a greater degree.

Looking at the third quarter sales by product category compared with Q3 2008, outerwear sales decreased $9.5 million or 5%, to $191.1 million in the third quarter.

The decrease was primarily driven by a sales decline in the Columbia brand in the US wholesale and European direct businesses, partially offset by a sales increase in US retail and Japanese businesses.

Sportswear sales declined $14.6 million or 9% to $142.9 million, mostly related to Columbia brand sales declines in our US wholesale, European direct and Canadian (technical difficulty).

We also experienced a decline in our LAAP distributor sportswear sales, due in part to the rescheduling of some orders for southern hemisphere distributors from midyear to the fourth quarter.

Footwear sales increased $6.7 million or 11% to $70.3 million, mostly attributable to increased Sorel brand footwear sales, our European direct, US, and Canadian businesses.

Accessories and equipment sales declined $0.5 million or 2% to $22.2 million.

From a brand perspective, the 4% decline in third quarter sales can be primarily isolated to the Columbia brand, which was down $24.9 million or 6%.

Mountain Hardwear sales were flat at $35.2 million.

Sorel sales increased $8 million or 42% to $27 million.

Gross margins contracted by 130 basis points in the third quarter, primarily due to lower outerwear gross margins in our North American wholesale and European direct and distributor businesses, and unfavorable effects of foreign currency hedge rates in Canada.

SG&A expense increased 3% to $124.2 million, representing 28.6% of third quarter sales compared to 26.7% in last year's third quarter.

The increase in absolute dollar terms was almost entirely related to our direct to consumer initiatives.

These cost increases were partially mitigated by cost reduction initiatives, which began in 2008 and included reductions in headcount, incentive compensation, benefits, and other discretionary costs.

As a percentage of sales, the SG&A expense deleverage is a result of the combined effect of the revenue contraction, and our wholesale and distributor businesses globally, coupled with an increased fixed cost base resulting from our larger US retail business.

Operating income for the third quarter of 2009 was $65.7 million or 15.1% of sales compared to operating income of $83.1 million or 18.4% of sales for the comparable quarter in 2008.

Income tax rate for the third quarter of 2009 was 29% compared to a 31% tax rate for the third quarter of 2008.

Net income for the third quarter of 2009 was $46.9 million or $1.38 per diluted share, compared to net income of $58.3 million or $1.69 per diluted share for the third quarter of 2008.

Turning to the balance sheet, comparing September 30, 2009 amounts to September 30 2008, the balance sheet remains very strong with cash and short-term investments totaling $210.5 million versus $145.3 million for the same time last year.

Consolidated accounts receivable at September 30, 2009 declined 13% to $319.5 million versus $366.2 million a year ago.

The decrease was primarily related to the decrease in sales and the fact that a greater proportion of our sales shift in the first half of the quarter this year, compared to last year's third quarter, coupled with tighter credit extension practices.

Consolidated DSO decreased [66] days from 73 days at September 30, 2008.

Write-offs for uncollectible accounts receivable were not significant for the third quarter of 2009.

We continue to actively manage our credit risk, cash collections and shipments in an effort to minimize credit losses.

Consolidated inventories remained essentially flat at $301.5 million compared to the same time last year, with changes in foreign currency rates contributing 2 percentage points of year-over-year growth.

Inventory levels in the United States declined approximately 11% year-over-year, despite the addition of 18 new retail stores since September 30, 2008, comprised of four branded stores and 14 outlets.

The US inventory reduction was essentially offset by higher inventories in our international businesses.

We are carrying higher than optimal levels of inventory in Japan, which we anticipate liquidating through the first quarter of next year.

Our increased inventories in Europe and Canada relate to our expanded retail businesses in those regions.

During the third quarter of 2009, we used $83 million in cash for operations.

We spent $15.4 million on capital expenditures, paid $5.4 million in dividends, and repurchased $4.8 million in stock.

Depreciation and amortization expense for the quarter was $9.1 million versus $7.8 million in last year's third quarter.

Today, we announced that the Columbia Board of Directors approved a fourth quarter dividend of $0.18 per share, an increase of $0.02 per share or 12.5%.

Now, let's turn our attention to the outlook for 2009.

Historically, our results in the fourth quarter have been more variable than in the third quarter, because they rely more heavily on fall weather patterns and the pace of retail sellthrough to stimulate customer reorders or conversely, result in cancellations.

In this challenging economic environment, we're also reliant on the overall health of our retail customers and their ability to continue to access credit markets to fund their inventory purchases and day-to-day operations.

In addition, sales from our own retail stores are expected to represent a larger part of our fourth quarter business than they have historically.

Therefore, actual results could differ perhaps materially from our current outlook.

With that as a backdrop, we currently expect full-year 2009 sales to decline approximately 8% to 9% compared to 2008.

We expect full-year operating margin to decline approximately 300 basis points from 2008, including the $24.7 million impairment charge recorded in the fourth quarter of 2008.

This decline in operating margin is primarily due to SG&A deleverage and, to a lesser degree, some contraction in gross margins.

The full-year gross margin contraction is primarily due to a higher volume of close-out product sales and the negative effects of foreign currency hedge rates on our second-half gross margin.

The SG&A deleverage is a result of the revenue contraction in our wholesale business in North America and Europe, our international distributor businesses, and an increased fixed cost base resulting from our expanding retail business.

We are planning our marketing and advertising spend for 2009 as a percentage of sales to be down slightly [from] 2008 levels.

We are currently estimating the full-year income tax rate to be approximately 29%.

Our 2009 capital spending is currently planned at approximately $45 million to $50 million, compared to $54 million for 2008, with approximately $30 million of that related to retail expansion, including e-commerce and modest investments in Japan and Korea, and approximately $20 million related to maintenance and infrastructure projects.

As it relates to our direct to consumer initiatives, [based to] adding a total of 16 stores in North America and Europe this year, and expect to end 2009 with 48 stores in the US, 10 in Europe, and three in Canada.

We also launched our US Columbia brand e-commerce site in July and the Sorel brand e-commerce site launched this week.

Looking specifically at Q4, we expect sales to contract in the high single-digit percent range, operating margin to expand by approximately 50 basis points from Q4 2008, which included a $24.7 million impairment charge.

We expect gross margins in Q4 to be essentially flat to Q4 2008, with anticipated gross margin improvements in the US business, offset by gross margin contraction in our international wholesale businesses, due to unfavorable currency hedge rates in Canada, and more promotional activity in Japan and Korea to liquidate inventories in those regions.

We expect Q4 SG&A as a percentage of sales to be essentially flat with Q4 2008, which included the impairment charge.

The SG&A deleverage, excluding the charge as a result of the anticipated revenue contraction in our wholesale businesses in North America and Europe, and our international distributor business, coupled with an increased fixed cost base, resulting from an expanded retail business.

We expect licensing income to increase by just over $1 million for Q4 2009.

Turning to the first quarter of 2010, although we are not providing an outlook for 2010 today, there are a few important factors that we want to make sure you consider when you think about the first half of next year.

The reported 5% decline in spring 2010 backlog is only one indicator of Q1 2010 wholesale net sales.

Other factors that may provide a headwind to the top line include currency exchange rates and a potentially lower volume of close-out product sales, which were substantial in Q1 2009.

Factors that could provide a tailwind to the top line include the possibility of lower order cancellations compared with the elevated level of spring 2009 order cancellations, and incremental sales through our retail and e-commerce operations, which are not included in backlog.

As you think about first quarter gross margins, consider the potential benefit from a higher mix of full price sales, but anticipate some drag from unfavorable currency hedge rates.

As for SG&A expense, allow for incremental SG&A resulting from the anniversary effect of our retail expansion, and increased spending in certain areas that benefited 2009 from our cost containment efforts.

The business climate continues to present us with a great deal of uncertainty and ambiguity, with a number of variables moving in opposing directions and making it difficult to project beyond the next quarter.

Our SG&A spending plans for 2010 will be further refined during the fourth quarter, as we gain more visibility into the marketplace and continue our planning and budgeting process for next year.

We will be in a better position to discuss these plans on a preliminary basis in January, when we report the results of the fourth quarter and full-year, and provide our first quarter outlook.

The spring season has historically accounted for a minority of the Company's full-year business, making it premature to provide our full-year revenue and profitability outlook until April, when we have a greater visibility from our fall backlog and more solidified marketing plans.

That concludes my remarks.

I will hand it back to Tim for some final comments.

Thanks, Tom.

We believe we are in a much better place today as a company than we have been for a long time.

The brand rebuilding strategies and the product initiatives that we have launched two years ago are beginning to bear fruit.

We have remained focused on the things that we can control, and on using the financial flexibility of our strong balance sheet to position ourselves for when the economy recovers.

Clearly, our improved outlook for 2009 and our spring 2010 backlog contain reasons for optimism, but significant challenges remain in each of the regions that we do business in, and we expect the macro environment to constrain growth for the foreseeable future.

In the US, consumer demand is unlikely to mount a sustained recovery until employment improves and debt delinquencies and mortgage foreclosures decline.

The upcoming holiday season will determine whether or not we have seen the last of significant retailer liquidations and reorganizations in the US, or if additional retailers will fall victim to lower consumer demand and heavy debt loads.

In the EMEA region, we face continuing severe macro economic challenges in Russia, along with our continued brand rebuilding efforts in Western Europe.

In the LAAP region, Argentina and Chile are suffering weak economies and we have begun to see some softening in Japan.

Despite these challenges, we intend to continue focusing on product innovation and on using our portfolio of outdoor brands to meet the needs of outdoor consumers.

Based on our Q3 results and our spring 2010 backlog, we believe more strongly than ever that these strategies are right.

They simply need more time in these treacherous economic conditions to play out, as we believe they eventually will.

Thank you very much for listening.

We'd like to open up the call to questions.

(Operator Instructions).

Kate McShane, Citi Investment Research.

Can you help us understand a little bit better the mechanics of how you're going to manage the fourth quarter?

I think you said last quarter that you didn't take on a lot of speculative inventory, so it would be hard to service the (inaudible) some business in the fourth quarter.

Is there -- if there is no additional inventory, is there any room for upside on the topline for Q4?

Well, I think we've diligently worked on the various components of the Q4 topline number, which include, as you might imagine, multiple geographies and currencies.

So, our best visibility on that is what we've given today.

Okay.

And then my other question is on the backlog.

You had said in your comments that you believe you're taking market share with your spring backlog, which is great to hear.

Can you remind us that the last time you saw this spring backlog take market share?

And also, you mentioned that there were some accounts that no longer exist, that you had orders from last year that don't exist this year; but are there any new accounts that you are selling to this spring, that help offset maybe some of the economic weakness in [the rest of] your backlog number?

Yes.

So, I want to make sure -- I got the last part of your question written down, so let me answer that first and you'll have to remind me again on the first part of the question.

So, as it relates to customers that weren't -- that aren't in business today or have restructured, there are a number of them.

Most of them, frankly, are significant.

We have not added any significant new customers to our 2010 book.

However, our existing customers, many which have responded to the product offerings that we've given and that we've offered, and increased their business, some significantly.

So, not any one particular customer was responsible for the offset.

And then as it relates to market share, I think that was the first part of your question.

It's been a number of years since we've been able to talk about gains in the business in the way we have today.

My guess is that the bulk of that gain is coming from maybe second tier vendors that have been having trouble with their financing, and so maybe that's where a portion of it came.

A portion of it came out of private label, and frankly, a portion of it probably came from other brands, larger brands that we compete with, when our products were compared against theirs.

Okay, well, congratulations.

Thank you.

Bob Drbul, Barclays Capital.

Good afternoon.

A couple of questions.

First, thus far in October, Tim, have you seen any reorders in the business with the good weather that we've seen around the US?

Yes, Bob, we get new orders every day and we get some cancels every day.

So -- but I think we're -- for us, we're quite pleased with the weather conditions as they're coming through now.

It bodes well for the inventory initiatives that the Company has undertaken, certainly in the USA, and we hope they continue.

October is a relatively small volume month by comparison to November and December.

So, we're hoping that this bodes well for the balance of the fall, for sure.

Okay.

And then just a couple of questions on the backlog, similar questions to Kate but a little bit different.

For the bankruptcies and liquidation, is there a dollar number that you could give us on the backlog, ex- your customers that are still out there?

If you could just took like-for-like on that, is there a number you can put on your spring backlog for that?

The other question is similar.

You talked about increased orders on specialty stores.

Can you put a number on that as well, in terms of when you broke it down by channel, what was the percentage increase on the specialty store orders?

Okay.

We don't specifically talk about customers either in backlogs or in prior backlog, so I won't be able to answer that portion of the question; but I can tell you that when we compare our business this year to prior years, excluding customers that aren't in business any longer or who have re-organized, we have a slight increase on our backlog in the US.

Again, as it relates to specialty stores, we don't capture that backlog information on that kind of channel -- on a channel basis, but I can tell you that the business has been -- the growth in that business has been gratifying and the expectations are that it will continue.

And then -- and just on the -- can you talk a little bit about the sporting goods retailers and how they've received the product, Tim?

Certainly.

Well, you know, these sporting goods customers have been by far and away the bulk of the customers that the Company has dealt with, whether they be specialty outdoor stores or full-on sporting good stores.

And our experience in virtually all of those kinds of sporting goods operations has been quite good.

We've had good selling in fall and that's really the heart of where our business has been historically; and the expectation is whether it's -- is an outdoor specialty store or a full-line sporting store, the future of the business is going to be in that kind of a specialty operation.

Thank you very much.

Reed Anderson, Davidson.

Good afternoon.

Nice quarter.

On the -- a couple of questions.

On the direct business, would it be possible for you to just kind of quantify where you are today as a percent of your business that's coming out of direct, whether it be mostly stores, obviously Internet -- can we go there yet or not?

You know, Reed, we're really focused on maintaining the Company's structure as a wholesale business and that's the, we believe, the future of the business.

Our forays into direct have been either on the outlet basis to help us to right-size our inventories, should there be a cancel or some other issue, and then on full-line and e-comm parts of the business, those are by far and away the major driver for those initiatives are for brand building.

So, we just want to make sure that people don't consider us a retailer and we continue our status as a wholesale business.

Okay, that makes sense.

Would you be willing to share just kind of the trends, though, that you've seen maybe at the more mature stores?

Would you be comping up?

Would you be down?

Just a sense of what that piece -- how that might have been performing year-over-year in the last quarter?

Well, again, we want to make sure we aren't considered to be a retailer, but I can tell you that in stores that we've had open for a period of time, and new stores, customers continuously comment that they didn't know the breadth of the product that the Company offered, and they're pleased to be able to find a better selection.

So both of those comments regularly come from consumers that are shopping in the retail stores.

And it really -- it bodes well for our initiatives as it relates to a broader collection of merchandise, and it allows us to really talk about the science of our products that perhaps a multibrand retailer can't do.

Good.

And then a couple of others.

Getting back to the notion of your comment on picking up share relative to kind of the industry had been and what kind of average it had been.

It is also your sense just anecdotally, as you look at your orders and your customers, that you may be even getting more floor space at some of your major retailers?

Or is it too early to tell?

No, I think that's definitely the case.

We've definitely picked up space in the store and -- you know, it's hard for us to say where that space is coming from, but retailers have a higher degree of confidence in the brand and the products that we're giving them.

So, that's terrific and they're taking the money.

They're giving us money that went elsewhere and we obviously don't know where else where that came from, but we're pleased to have it.

Then last one -- just thinking about the fourth quarter and the notion that it could be promotional, depending on what you're saying.

Are you thinking about doing anything differently, working with some of your major partners to make sure your pricing is sharp enough -- or just what's kind of your thought in that sort of area at this point, Tim?

Well, when we talk about the promotional activity, that's primarily a discussion of our inventory levels in both Korea and in Japan, but primarily in Japan.

So, we expect some promotional activity there to get our inventories closer in line.

We don't really expect any promotional activities here in the US.

We firmly believe that the channel is light on inventory and that it's a good opportunity for our retailers to continue to be profitable, especially in the outerwear category, as the weather improves.

Very good.

That's all from me.

Best of luck.

Michelle Tan, Goldman Sachs.

I had a couple of questions.

First, when you look at the business outside of the US and Europe, I know you've been working through product issues for awhile, but could you help us understand a little bit better there how much of the issue is macro related, versus some of the products' hiccoughs that you've had, and what kind of reception you're getting to the revamped product that you've got in that marketplace now for spring 2010?

Certainly.

Well, we always -- we wish that we could blame every problem on macroeconomic conditions, but in the case of Eastern Europe, we actually can.

That's been really very significant impact on our business, and much more than any other avenue or any other issue that's impacted the business in total.

On the Western European side, as you remember, we replaced almost the entire management team over there.

We're thrilled with the results so far, even though they're happening at a slower pace than we wanted.

I think we can tell you that we grew in something like six out of 12 markets in Europe.

We had sales growth for 2010 spring.

And in those areas where we didn't, we certainly had solid businesses and there may have been one or two issues.

So, we're very excited about the way the team is progressing, but more so what we're hearing from retailers as it relates to product improvements and the brand-enhancing science that we're adding to the products.

Okay, great.

And so as far as when we should start to see that pan out in terms of traction, do you expect a bigger inflection point outside of the US than in the second half of 2010, if that product sells through kind of ex- macro environment?

Well, you know, it's hard to be able to predict what will happen in some of these countries where the economies have been so devastated, i.e., Russia -- the large part of our business, historically.

It's also difficult to predict what the currencies will be doing there.

So, in the case of Korea where we have mid teens growth and a [1% dollar] decline when we translate that.

So, we've been trying to manage the business on a local currency basis when we look at how things are progressing.

From that standpoint, our expectations are that we've handled those issues that are our purview that we can handle, and those other ones are sort of outside our control.

Okay, great.

And then my last question is on the operating margin guidance for the full year.

It seems like third quarter came in well ahead of the plan, and I guess, how much of that fourth quarter guidance not being raised is cushioned, versus the true timing shift?

You know, how conservative do you think you're being with the fourth quarter number?

Hi, Michelle, this is Tom.

So, it's really -- most of that resides in the SG&A line.

So our outlook 90 days ago was for SG&A to be just south of 37% of sales.

We're still there.

And on the incremental revenue growth, that implies, I don't know, $12 million-ish of incremental SG&A in the back half.

And I guess, in the simplest terms, the way to bucket that would be about one-third of that is FX; one-third of that is the incremental sales; and then we've got some incremental costs that weren't necessarily planned a quarter ago, associated with internalizing elements of our sales organization in North America and Europe.

And then there's other project-based initiatives that will fund in the fourth quarter -- and a little bit of movement in some discretionary spend from Q3 to Q4.

Great.

Thank you very much and good luck.

Mitch Kummetz, Robert W.

Baird.

This is actually [Kevin Ken] calling for Mitch.

Tim, you mentioned that, excluding the bankruptcies, that your US spring backlog would have been up slightly.

Can you break that out between your other geographies?

Well, I don't think we can.

We didn't have the kind of massive bankruptcy impact in markets, other than the US really between the backlog period last year and this year.

We had one major bankruptcy in Germany; but other than that, we didn't have the kind of impact that we had here.

And then on the subject of speculative inventory for spring 2010, I know that at the end of Q2, when you guys had your conference call, you said that you're going in pretty tight; but given how things have maybe improved a little bit or maybe how the bleeding has stopped, are you bringing that up a little bit?

Well, spring for us is typically a net canceled season.

So we've never been a proponent of carrying speculative inventory in the spring.

So, I would say we're not going to take a speculative position in spring.

Okay.

I guess from the retailer standpoint, is it possible to increase their pre-book order, given the lead times at this point?

We've had some increases in our spring book since we cut off our -- we cut off the book for the purposes of backlog.

But we typically get orders and, frankly, cancels after the backlog cutoff date.

But in certain instances, it would be possible for a retailer to buy some of our merchandise and have us deliver it, yes, that's possible; but it would have to happen quickly.

Okay.

And then as far as input costs, what are you guys seeing for the forward one-year?

For the forward winter?

I guess -- I mean, I'm assuming that you guys have some prices starting to lock in for second half of 2010?

Yes, so, maybe I'll let Bryan speak to that specifically.

Okay.

Yes, I mean, I think if we go to spring '10, we've had, certainly, with some of the capacity in Asia, we've been able to do a good job as it relates to our costing.

But I think it's a bit premature, as Tim mentioned; certainly, we're trying to build better products, elevate the brand.

So a piece of that would potentially give rise to some ASP's, but also the standard cost of those goods.

So, maybe a bit premature to talk about the effects on margin for next year.

Can you quantify the benefit for spring '10 line?

No.

I mean, that's exactly what I was referring to, is really spring '10, fall '10.

So, I was talking more on the respective spring.

Okay.

All right.

Well, thank you so much.

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All right, thank you for listening in.

We look forward to talking to you in January with our fourth quarter release.

This concludes today's conference call.

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