Columbia Sportswear Co (COLM) 2010 Q1 法說會逐字稿

Good afternoon.

I will be your conference operator today.

At this time, I would like to welcome everyone to the Columbia Sportswear first quarter 2010 conference call.

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

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

(Operator Instructions).

Thank you, Mr.

Parham, you may begin your conference.

Okay, thank you, Tashika.

Good afternoon, thank you for joining us on today's call, everyone.

Earlier this afternoon, we issued our quarterly press release announcing our first quarter results, a 19% increase in our fall 2010 wholesale backlog and our financial outlook for the second quarter and full-year 2010.

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

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

Good afternoon.

I would 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 these risks and uncertainties are described in Columbia's annual report on Form 10-K for the year ending December 31, 2009.

And 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 statements to actual results or to changes in our expectations.

Thank you, Gert.

I will hand the call over to Tim.

Thanks, Ron.

Welcome, everyone.

Thank you for joining us this afternoon to discuss the results of our first quarter and our outlook for 2010, based on our fall backlog and our strategic initiatives.

I want to touch quickly on a couple of highlights from the first quarter and our fall backlog and then Tom will cover the Q1 financial results and our outlook for 2010 in more detail.

Our first quarter provided a solid start for 2010 with sales growing 10% and pushing above the $300 million mark for the first time.

Net income grew 33% to $0.27 per share, well above our expectations entering the quarter.

Our retail operations in the US, Korea and Japan provided the majority of the extra top-line reflecting a stronger consumer spending environment than last year's first quarter aided by favorable weather.

Our US wholesale business was essentially flat in the first quarter consistent with our previously-announced spring backlog.

We're obviously very encouraged by the 19% increase in our fall backlog, which includes double-digit growth across each of our major brands, product categories and regions.

Certainly a portion of this increase represents retailers restocking fall inventory, following the weather aided high liquidation rates of fall 2009.

But we also believe our strong backlog was driven by better styling, innovative technologies, particularly Omni-Heat, our suite of thermal, electric and most importantly visible reflective warmth technologies that spans all categories within the Columbia brand.

We're also excited about the momentum that's building behind the Sorel brand.

Omni has succeeded in creating renewed excitement around the Columbia brand among our retail partners in each region, driving our fall 2010 Columbia brand backlog up mid-teens on a global basis.

Retailers have embraced Omni-Heat's innovative, easy-to-understand visible warmth technologies and the integrated marketing plans that we have created to support their launch.

We're very pleased with the level of demand for Omni-Heat products included in our backlog and believe that they help spur incremental demand for non Omni-Heat Columbia styles.

Columbia brand footwear also contributed a high 20s backlog increase with innovation and better styling, leading the placement in brand enhancing customers such as Nordstrom's, Neiman Marcus and EMS, among others, including a large number of independent outdoor and running specialty stores in the US and Europe who have never before carried the Columbia brand.

We're working closely with our retail partners to execute a coordinated Omni-Heat launch this fall supported by the most creative and extensive integrated marking campaign in our history.

Experiential consumer events, bold in-store graphics and fixtures creative online and print advertising, our first new television ads in almost two years, and our retail partners own co-op advertising efforts in their local markets, all designed to create awareness and drive consumer demand for Omni-Heat this fall.

The Sorel brand is another highlight within the fall backlog, up over 60%, driven by fun, fashion-oriented, functional women's styles that we first introduced last fall and have expanded for fall '10.

Sorel continues to gain initial placements and greater penetration in some of the best shoe retailers in North America and Europe, including the Tannery, Bergdorf Goodman, Holt Renfew, Neiman Marcus Saks, Nordstrom's and Collette in Paris.

We're looking forward to reintroducing spring season Sorel product assortments for spring '11 as we seek to establish Sorel as a year round.

Meanwhile, classic Sorel styles like the Caribou winter boot continue to be top sellers and attest to the rich history and deep loyalty of Sorel's traditional winter consumer.

One final highlight in the fall backlog, is the return to growth in our EMEA region, indicated by a mid-teens percent increase in the fall backlog.

The region's first positive backlog since 2006.

Among our Europe direct markets, Germany, France and the UK reported the strongest backlogs.

From a channel perspective, our successful growth and specialty sporting goods channels across the region reflect their excitement around Omni-Heat.

We believe our innovative Omni-Heat products help to stem the declines in our Europe-direct apparel business while the Sorel brand provided the lion's share of the backlog increase.

Our EMEA distributor backlog also grew mid-teens, reflecting a steady improvement in the Russian and Eastern European economies and renewed consumer demand.

We still have a lot of work to do in this region before we can say we turned the corner.

But we have confidence in our EMEA team and believe we're starting to see the fruits of their hard work over the past two years.

Clearly the 19% global backlog increase reflects positive response from our retail partners to our fall 2010 lines and, yet, we know the ultimate test is yet to come in the form of consumers' response to our products at retail this fall.

Thanks to a strong balance sheet, we have been able to make significant investments over the last two years on our go-to-market processes to position us for future growth.

For example, as we've discussed previously, we have sharpened our focus on product innovation, built a multichannel direct-to-consumer platform, refocused our marketing behind new brand campaigns and media strategies for each of our major brands, and restructured our sales organizations to build relationships with new partners and strengthen those with existing accounts.

The brand elevation that we're striving to achieve is still in its very early stages.

We need to remain focused on driving top-line growth while investing to improve our operational processes to generate operating leverage over the long-term.

Now, I will hand the call over to Tom to review the financial results.

Thank you, Tim.

Good afternoon, everyone.

I will begin with a brief overview of our Q1 operating results and financial position and then provide an update on our Q2 and full-year 2010 outlook.

Our first quarter came in better than the outlook we provided in January, primarily due to stronger sales in our retail businesses in the US, Korea and Japan.

The first quarter sales increased 10% to $300.4 million, with changes in foreign currency exchange rates contributing 3 percentage points of that increase.

Looking at Q1, 2010, net sales on a regional basis compared with Q1, 2009, US sales increased 11%, driven by our US retail channel while our US wholesale business increased in the low single digits.

We exited Q1, 2010 with 46 retail stores, eight more than the same time last year.

On a product category basis, the 11% US sales increase reflected a low double digit percentage increase in our Columbia brand apparel increase and a low 20s percentage increase in footwear.

EMEA sales declined 6%, including a 4 percentage point benefit from foreign currency exchange rates.

Our EMEA direct business recorded a mid-single digit percentage decrease including a 6 percentage point benefit from foreign currency exchange rates in line with the spring 2010 order book.

Our Q1 results in our EMEA direct business indicate continued weakness.

We're beginning to see positive signs of our multi-year brand realignment efforts in this region for fall 2010.

Our EMEA distributor business declined by a low single digit percent.

Difficult economic conditions in this region resulted in poor sell-through in spring 2009, leading to lower sell-in for spring 2010.

As conditions in this region have improved during the past year, we expect sales to be much healthier in fall 2010.

Sales in our lap LAAP region increased to 22%, including an 8 percentage point benefit from foreign currency exchange rates.

Low 20% growth in our Japan business was aided by a 3 percentage point benefit from currency.

Currency also favorably affected our Korea business, turning mid-30s percentage constant dollar growth into high 50s percentage growth for the quarter.

Sales to our LAA distributors showed a high single digit decline due to the rescheduling of some spring orders for southern hemisphere distributors to mid year.

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

Ignoring the shift in timing of shipments, sales were essentially flat for the spring season for LAAP distributors, consistent with our spring order book.

Sales in Canada increased 22%, including an 18 percentage point currency benefit, also consistent with our spring order book.

Looking at first quarter sales by product category compared to Q1, 2009, outerwear sales increased 14%, primarily driven by the Columbia brand in the US, LAAP and Canada regions.

Sportswear sales increased 6%, mostly related to Columbia brand sales in our US and LAAP regions, partially offset by a decline in our EMEA region.

Footwear sales increased 15%, mostly attributable to increased Columbia brand sales in the US, EMEA, and Canada businesses.

Accessories and equipment sales increased 19%.

From a brand perspective, a 10% increase in first quarter sales was concentrated in the Columbia brand, which increased 11%.

Mountain Hardwear sales increased 10% and Sorel sales increased 33% on a small seasonable basis.

Gross margins expanded by 180 basis points in the first quarter, primarily due to lower volumes of closeout product sales at higher gross margins, a higher volume of retail sales at higher gross margins, partially offset by unfavorable effects of foreign currency hedge rates in Canada and Europe.

SG&A expense increased 13% to $115.5 million, representing 38.4% of first quarter sales compared to 37.5% in last year's first quarter.

The increase in absolute dollar terms primarily due to the effect of our direct-to-consumer initiatives, increased personnel costs, including costs associated with internalizing our sales organizations in America and Europe, and the reinstatement of personnel and benefit programs that were curtailed or postponed in 2009 and changes in currency exchange rates.

Operating income for the first quarter of 2010 was $12.5 million or 4.2% of sales.

Compared to operating income of $10.4 million or 3.8% of sales for the comparable quarter in 2009.

The income tax rate for the first quarter of 2010 was 29%.

Compared to 39% for the first quarter of 2009.

Net income for the first quarter of 2010 was $9.2 million or $0.27 per diluted share, compared to net income of $6.9 million or $0.20 per diluted share for the first quarter of 2009.

Turning to the balance sheet and comparing March 31, 2010, to March 31, 2009, the balance sheet remains very strong with cash and short-term investments totaling $415.8 million versus $299.8 million the same time last year.

Consolidated accounts receivable at March 31 decline 7% to $198.2 million versus $213.5 million a year ago.

This decline in accounts receivable on 10% revenue growth in the quarter resulted from our retail businesses contributing the majority of our revenue growth in the quarter.

Coupled with reduced payment terms and some international regions.

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

Consolidated DSO decreased to 51 days from 71 days at March 31, 2009.

Write-offs of uncollectible accounts receivable were not significant for the first quarter of 2010.

Consolidated inventories decreased to $222.7 million compared to $223.7 million at the same time last year.

With changes in foreign currency rates contributing 4 percentage points of year-over-year growth.

During the first quarter of 2010, we generated $19.9 million in cash from operations, spent $9.1 million on capital expenditures, paid $6.1 million in dividends and repurchased $3.8 million in stock.

Depreciation and amortization expense for the quarter was $9.1 million versus $8.2 million in last year's first quarter.

Today we announced the Columbia board of directors approved a second quarter dividend of $0.18 per share.

Now let's turn our attention to the outlook for 2010.

The dynamic nature of both retailer and consumer demand in the current economic environment limits our visibility and our ability to estimate future results.

Our business is highly seasonal with the second half accounting for approximately two-thirds of our annual sales and all of our operating income.

All projections related to anticipated future results are forward-looking in nature and are based on our backlog and forecast, which may change, perhaps significantly.

We expect total 2010 net sales to increase 12% to 14% compared to 2009 based on a combination of factors including the 19% increase in our fall 2010 order backlog announced today, expected incremental sales from our direct to consumer channel, our first quarter actual results and the estimated effect of changes in currency exchange rates.

We expect both full-year 2010 gross margin and SG&A to expand approximately 100 basis points resulting in comparable operating margin versus 2009.

The expected gross margin expansion for 2010 is largely the result of the anticipated higher relative volume of full-priced product sales and our wholesale business, a higher relative volume of direct-to-consumer sales and higher gross margin, favorable currency hedge rates for fall 2010, partially offset by increased costs to expedite production and delivery, resulting from the greater-than-planned demand for fall 2010 products.

Turning to the SG&A section, there are several moving parts here that I want to take a few extra minutes to cover.

The expected SG&A increase for 2010 is due to a combination of several factors, most of which we alluded to in our January conference call plus a couple of new items I'd like to call out.

The items we discussed in January, and which account for a majority of the anticipated SG&A increase for 2010, include the effect of the Company's retail expansion initiatives as we absorb the full operating cost run rate of the 19 stores that we opened in 2009, the two branded stores that we have opened in the past month, and the two additional outlet stores we plan to open in 2010.

These incremental costs will peak in the second quarter, continue at reduced incremental levels in the second half and moderate to correlate with our reduced store expansion plans for 2011.

Reinstatement of personnel and benefit programs that were curtailed or postponed in 2009, this factor will continue through the second half, then moderate to correlate with head count increases and the wage and bonus elements of our compensation plans.

Transitional costs associated with internalizing our sales organizations in North America and Europe, duplicate costs here will peak in the second quarter, continue at reduced incremental levels in the second half and should sunset at the end of the first quarter of 2011.

And to a lesser degree, changes in currency exchange rates.

The two new items we currently see increasing are our 2010 SG&A and that combined account for approximately one-third of the anticipated full-year increment, our first increased marketing investment to support the global launch of our fall 2010 product line.

Our strong fall backlog provides the anticipated top-line growth to justify additional marking investments to drive consumer demand and sell through for our fall line, particularly our Omni-Heat products.

This is an investment we're making in support of and in concert with our retail partners to drive their sales, terms and margins.

And to make sure consumers are directed to the channels that we have committed to supporting our Omni-Heat launch.

With this increased marketing, we're currently targeting our full-year marketing span at approximately 5.5% of anticipated full-year sales, compared with 5.25% of sales in 2009.

And secondly, we're in the early stages of various initiatives to improve our IT infrastructure and our enterprise data and information management across the organization which will ultimately provide the foundation for a multi year ERP implementation.

Substantial time and resources will be required to ensure these initiatives are properly planned and executed.

Our primary goal with these initiatives are to enhance the efficiency and integration of our supply chain operations and to drive improved working capital efficiency and profitability.

Our 2010 spending forecast towards these initiatives is included in our capital and SG&A outlook.

We expect to provide more specifics on the anticipated future costs associated with these initiatives in early 2011, after we have completed the planning process.

We currently expect the majority of these investments to occur in 2011, 2012.

Taken together, we expect all of these investments to absorb our anticipated gross margin in 2010, resulting in full-year operating margin at approximately 2009 operating margin.

We are currently estimating the full-year 2010 income tax rate to be approximately 28%.

However, it could be higher or lower than that in each of the remaining quarters of 2010, based on the geographic mix of taxable income and specific events that may occur in each quarter.

We're currently planning on approximately $40 million in capital spending for 2010 and with approximately $12 million of that related to retail expansion and approximately $28 million related to maintenance and infrastructure projects.

As it relates to our direct to consumer initiatives, we have opened branded stores in Chicago and Minneapolis in the past month and we are currently planning two additional outlets in the US later this year.

We expect to end 2010 with 49 stores in the US, 10 in Europe and two in Canada.

In addition, we expect to launch the Mountain Hardwear ecommerce site this summer.

Our longstanding direct to consumer businesses in Japan and Korea continue to be major components of our businesses in the LAAP region.

Looking specifically at Q2, which is our lowest volume and most volatile quarter of the year, as we wind down spring shipments and begin fall deliveries, we expect net sales to increase in the high teens percent range due to increase in order backlog reported today, incremental sales from our direct to consumer channel, and a higher volume of international distributor shipments in the quarter.

We expect Q2 gross margins to expand approximately 100 basis points and SG&A to expand approximately 200 basis points as compared to the second quarter of 2009.

Please note that the interplay of our three different distribution models, including our wholesale, retail and distributor businesses can cause significant variability in quarterly sales, gross margin and SG&A expense, both sequentially and on a year-over-year comparative basis as can be seen in our outlook for Q2.

In addition, the majority of our fall international distributor shipments occur in the months of June and July and are predominantly direct shipments from the factory for which we have little control over timing.

We believe that we're beginning to see the benefits of the investments we've made over the past several years in our product development and design functions.

As a result, we're increasing our investments in consumer marketing as well as infrastructure and business process efficiencies that will support substantial long-term growth opportunities we see and leverage our business model over the long-term.

That concludes my remarks.

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

Thanks, Tom.

I've spoken about our Columbia and Sorel brands but would be remiss if I didn't also mention the momentum and great opportunities we see in Mountain Hardwear and Montrail under the new leadership of Topher Gaylord who officially joined our team in early April.

Together, Mountain Hardwear and Montrail logged double-digit growth in their fall 2010 backlog and hold great potential as we drive further product innovations and evolve their go to market processes.

We believe these brands are poised to play a very important role in our next growth phase and look forward to working with Topher and his team to make that a reality.

Clearly 2010 has started on a much better note than 2009.

The investments we made over the past two years and the investments we plan to make in 2010 and beyond are all aimed at realizing the potential of our unique portfolio of brands and generating long-term financial leverage.

The economy remains tenuous and we can never be certain about those things that we cannot control but we feel very comfortable and confident about those things that we do control and greatly appreciate your continued support as we pursue the opportunities of the greater outdoors.

Thank you for listening.

Operator, could you please begin the Q&A session.

(Operator Instructions).

Your first question comes from Kate McShane with Sidney Investment Research.

Hi, thank you.

I have two questions.

The first is on your gross margin guidance, which you gave a lot of detail on and I appreciate that.

I was wondering in terms of Omni-Heat.

I imagine this is a slightly higher margin product and so how much of that gross margin improvement that we could see during the year could be from the Omni-Heat sales?

On the other side of that, with the increased costs on delivery expedition, are retailers asking for products earlier and that is the reason why?

This is Tim.

As it relates to Omni-Heat margins, yes, they're slightly higher for us and for the retailer.

So it looks like a very solid business beginning here for us.

And as it relates to the costs we discussed, the beginning costs of the product and the impact on the SG&A, we're talking about, frankly, a product line which surprised us a bit in its size.

Even though it's a relatively small percentage of our total fall backlog, we were surprised at the uptake by our retailers.

We had to scramble a bit and are still scrambling to get the merchandise here in a timely basis for our customers.

And, yes, we have had some improvement.

We have had some retailers, in fact, quite a few, move the delivery dates of their products forward.

So, all of those things taken in concert give us a lot of confidence that we have an exciting potential product here for us.

Great, thank you.

And do you have any sense, if there were any retailers who didn't sign on for the Omni-Heat product this upcoming fall, do you think it's more of waiting to see how the product performs before making a commitment as a result of a still somewhat cautious environment?

No, I think, frankly, we didn't have any major retailers.

In fact, we're sitting here scratching our heads about trying to find someone who didn't buy Omni-Heat.

Obviously, they want to make sure that the bets they're making are solid and so do we.

That is why we talked about the confirmation will come when consumers really buy this stuff starting this fall.

But, no, we're pretty excited.

Retailers typically would analyze the sell-through rates for all of the brands they carry and assign the open to buys based on the best-selling products.

We're thrilled we have had a greater penetration against some other brands that sold better than we did last fall.

Great, thank you.

Your next question comes from Bob Drbul with Barclays Capital.

Hey, good evening, Tim.

Congratulations.

Two questions.

The first one, when you look at the top line that you're expecting this year, have you seen any internal top-line products or new potential revenue targets for the company given the record revenues you're expected to report?

And the second question, on the operating margin guidance and/or the targets, can you give us an update on your thinking around the operating margin targets or timing, when you could really start to see that materialize?

Sure, we've had some improvements from our earliest projections as it relates to 2010, obviously, based on the solid results we have seen in our backlog.

So again, part of the gross margin constraint that we're talking about is making sure we get the merchandise on time for fall.

That is a bit of our challenge but we're very excited that we can get all that done.

Our goal here, as we've always said, is to leverage the business, and even though we're not leveraging this year as much as we wanted, we have got to hold ourselves to a standard that says we're going to be equal to the average of our industry and we're clearly well below that, even with the great numbers we're producing today.

We don't really want to go beyond 2010 in terms of any kind of predictions but I can tell you the goals of the Company are to be superior to the average of our peers and we're clearly not there but we believe we're strongly on the way to getting there.

Great.

Just one final question.

When you look at the expected channel mix --

I think we dropped you and if you want to call back, we can catch you next time or you can call back.

Operator, can you take the next call?

The next question comes from Claire Gallacher with CapStone Investments.

Hi, congratulations.

I have two questions for you.

The first, will you have any speculative inventory on hand within the Omni-Heat line this fall for any at-once business?

And the second question is if you could talk about the opportunities for the Sorel brand.

Are you gaining traction with new retail partnerships, are you attracting new customers?

What is going on with Sorel?

Sure.

Let me address Omni-Heat first.

I would suggest that much like the rest of our product line, once we have reviewed our order book, we're not making additional speculative buys to try and catch every last order.

We have a find -- of Omni-Heat and hope that we're going to run out.

We have a finite amount of Omni-Heat and we hope we're going to run out.

That is our goal.

That is the plan for 2010 as it relates to Omni-Heat.

As it relates to Sorel, obviously, very significant uptake and I would say the bulk of the order increase was a combination of existing customers who had very good selling on the products last fall and new customers which would include some of those that we mentioned in the conference call script, as well as a high number of customers who had never carried the Sorel product before, who may also have been Columbia customers but just never carried Sorel.

It's a combination.

Probably the single biggest in terms of number of accounts would be retail customers who sell footwear exclusively and are more focused on selling a more fashionable product.

That is where we have seen the biggest change in the number of accounts.

Great, thank you.

Your next question comes from Robbie Ohmes with Bank of America.

Tim, my congratulations as well, and I see the backlog is positive again.

I am going to guess at the question I think Bob Drbul was going to ask.

I think he was going to ask about your outlook by channel strength, maybe sporting goods versus department stores and sportswear versus Omni-Heat, as you're thinking through not just the backlog you reported today but as you look out into spring of next year.

Maybe comment on that.

And I was hoping you could also throw into that, I believe this is the beginning of you guys going to market with much more segregation of the line, who can get what, which I think was something you didn't do as much in the past.

Is that helping to build the backlogs?

Can you speak to what the response has been from the customers to that.

Thanks.

Certainly.

Thanks.

As it relates to channels, I would say our channel mix is probably not going to change significantly.

The only possibility might be a slight reduction, and I'd say slight in the department store channel, as our specialty store channels are growing, our sporting goods channels are growing.

Probably the biggest single change in channel would be the specially independent footwear stores, as we discussed, with the uptake in Sorel and the higher penetration of Columbia's trail-running products.

I would say the channel mix is probably going to be about the same and with just those caveats there.

Omni-Heat, frankly, has been accepted across the line.

And as it relates to our segregated focus on Omni-Heat, we're not selling the Omni-Heat product in some of our department store channels, which would considered to be the values area, including Kohls and Penney's, and we're focusing segregating the Omni-Heat into those markets where we can have a much more significant presence in store with our sales efforts and point-of-purchase efforts, and also where there is more clerk/employee activity on the floor to help consumers understand what Omni-Heat is.

Even though the bulk of our sales in Omni-Heat are the reflective dot pattern visible technology, which is really one of the few times we have had that kind of visible technology in any of our products, we still feel it's going to be important for consumers to understand the importance and that is going to mean more explanation and a better presentation at retail.

When you look at Omni-Heat and try to measure the responsiveness to that technology, Europe versus the US, what is the feeling you're getting out there?

I would say our business is stronger in the US on Omni-Heat, although it's really been a big part of our resurgence in Europe because customers there, our most coveted customers in Europe, are sporting goods, ski operations that want us to become more technical and drive more value for their businesses.

So, the Omni-Heat has been a singular success there, probably one of the things we can point to really helping our business in Europe on the Columbia brand.

The Sorel brand has been enormously successful there, and we're very excited about that potential as well.

The last question, and sorry if I missed this earlier.

Any noticeable difference in the momentum of men's versus women's across your brands and categories?

In the Sorel brand, absolutely women's has been the gender that has really driven that business by far against the men's there.

We still have a strong traditional classic business in our men's Sorel business but by far the biggest interest level and the most momentum there is in women's Sorel.

In men, our gender breakdown for fall '10 will be about the same, although I have to tell you if there is an area of the business I'm most excited about from Columbia, it's going to be the improvement in our women's business.

That is going to take a little while to prove to our retailers.

But from those that are buying it, we're certainly excited about the potential there as well.

That's great.

Thanks a lot, Tim.

The next question is from Reed Anderson with DA Davidson.

Good afternoon, let me also add my congratulations.

I want to clarify first one thing.

Tom, I think it was in your remarks.

You were talking about SG&A and I think what you said was the incremental spend in SG&A versus last year, so if we add that 100 basis points and apply it to your sales forecast, that number, roughly a third of that ends up being related to new marketing initiatives.

Is that what you said and if not, how should we think about that?

I had said that roughly a third of the last two components that I talked to would have been the incremental marketing piece and the IT infrastructure investment.

Those two combined represent roughly a third of the increment.

So when we think of the additional marketing you're doing now, that is either the result of new programs or the surge in orders, where is that going?

Is that going to the areas that you targeted for marketing initiatives and new types of things you're doing, whether it's through ad campaigns or online e-commerce, whatever?

Or is there something additional to that we haven't talked about in the past?

Lee, this is Tim.

The focus for our marketing is going to be to continue to reinforce our greater outdoors message, which is, as we've said before, our focus on being the all-inclusive greater outdoors vendor for warmth.

But, it's really going to be about focusing in a very pointed way on Omni-Heat.

We really believe that with this technology and this visibility, we have the opportunity to do something very special for the Company and the industry.

We are going to focus almost all of our efforts on specifically the Omni-Heat technology and the methods we will use will include traditional TV and print media but also a fairly heavy reliance on all different kinds of special ecom and e-marketing online message telling in order to get consumers who really want to learn about the product.

They'll get the opportunity to spend as much time as they want to learn about the product online.

And we'll also have a very focused in-store presentation system around POP on Omni-Heat.

And the product will be available for sale online as well?

Or are you going to still limit that to the distribution you have targeted?

It will be available online from several of our customers as well as our own website.

But the focus for us on our online marketing will be as much to help our retailers sell the product as it is to help it be sold online.

Okay.

Piggybacking on the last question, you were talking about a segmentation of that and again focusing on the non-department stores, for example, with Omni-Heat.

Are you going to actually segment even Omni-Heat within the sporting goods or specialty channel, maybe you might have select colors that only available in certain places.

Is there going to be any of that with this initial wave or is that not part of the first wave?

It's available in our sporting goods and specialty stores and we're not going to segment it further beyond that.

Okay.

Lastly, when you were talking about retail sales, again this goes back to Tom's comments, and highlighting that as the reason why, particularly in the US, sales were better than expected, was that mostly a comment on what you saw in the outlet stores versus the in-line stores, or am I reading that wrong?

It would have been a combination of both, Reed, both outlet and branded stores.

All right, that's it for me.

Good luck.

Thank you.

Your next question comes from Michelle Tan with Goldman Sachs.

Hey, guys.

I had a couple questions.

First on the Europe business, I know you touched on this a little bit, but it's been such a multi year effort to turn around that business.

What gives you the comfort from product and merchandising perspective you've really turned the corner there?

I'm sorry, could you repeat the question?

What products are we seeing selling there?

You worked so hard to turn around Europe and this is really the first quarter where we have seen an inflection point there.

What do think is really driving the big difference in that business and how do you think about sustainably turning around the brand in Europe?

As we said, and Tom mentioned it as well in his comments, that we have made changes in our sales force there to internalize it after we made the large senior management change there several years ago.

I believe we were seeing the efforts of a more focused sales team rewarding the Company, just better blocking and tackling efforts as it relates to making sales calls and connecting with customers.

I also think we have improved the look of our garments as we go forward and we're better connecting there.

We can't under-emphasize the impact of Omni-Heat.

It's unique, it's visible, and again, it's technical which is something that our European customers have been asking for.

It's only available through Columbia.

And lastly, as we said, the interest in Sorel, has been really gratifying.

We have had some pockets of very high penetration of Sorel in Europe, including Norway and other markets where we have had a runaway success and now we just have the sales team and the merchandising team in place that can really carry it out throughout Europe.

There are a number of factors but at the end of the day, it's probably more than ever focused on the products that we're offering.

Clearly that's been the message for the last several quarter.

Why did it suddenly -- beyond Omni-Heat, are there other reasons this quarter was the big turn for Europe specifically?

It's hard to know with specificity beyond what I've said.

But I think at the end of the day, it's about our products being right.

We're just now turning the corner so we're not there yet.

There is lots more to do there, even just to get us back to where our revenues were at the peek.

There is lots of work still to be done.

We're not patting ourselves on the back yet.

Clearly, it's a big turnaround.

My second question was on the broader improvement and how you continue it beyond 2010.

What are the big tease to 2011 and as you look at the sell-through for fall?

Clearly, the retailers are optimistic.

What metrics can we think about as we move through the second half of the year to think about that momentum building as we move through 2011 and 2012?

Over the last several years, we really spent a lot of time talking internally and working internally about what it is that separates us from everybody that sells apparel.

That goes beyond just those brands we compete with, or just private label that we compete with At the end of the day, we've talked about this before in our presentations, it's really about the science of our products, about making them significantly different from the lazaros of the world or the Gaps.

What is it that really would compel somebody to buy a Columbia product.

We're thrilled with Omni-Heat reflective because, frankly, it's visible where most of our technologies are invisible.

That is the real key for us today.

Frankly, we have other enhancements and science, I hesitate to call them breakthroughs, but we have ways to make our garments reflect the science that goes into them in ways that haven't been done before.

We're just going to continue to roll out this innovation and focus on solutions for as long as we can.

There are a number of them in the pipeline that we'll be releasing over time in future seasons.

Sounds great.

Thanks, guys, good luck.

The next question comes from Eric Tracy with FBR Capital Markets.

Thanks, good afternoon.

I'll add my congrats, as well.

Turning back to the question, and I know you don't want to get too specific as we look to F Y11, but in terms of just leveraging the reaccelerating top line, is it fair to say that the bulk of the investments, be it behind the marketing campaign here around Omni-Heat and/or just this incremental infrastructure and IT build largely get done this year and so you're set up for a point of leverage next year?

Again, we're really hesitant to talk about '11 because it's so far away.

The goal for the company, and I just reiterate, that we have to hold ourselves to being at least average with all the things we're doing great.

Today we have nice growth but we're nowhere near average on our operating margin and we need to be above.

Frankly, we need to be among the best, and so our focus as a management team here is to stars levering the business and making use of these infrastructure enhancements and marketing efforts so that we can, in fact, provide leverage for our investors.

And Eric, this is Tom, I will jump in and add a couple of additional points.

When we look at the investments we have made over the last couple of years in our own retail and in internalizing the sales organizations in North American and Europe, those are two additional areas that, as we look to 2011 and beyond, that we would expect to get leverage out of.

Okay, that is fair.

And then in terms of the overall backlog, I know you highlighted there is a level of restocking relative to taking share.

Is it possible to somewhat quantify that or at least directionally break that down?

Is that possible?

Yes, I am just sitting here scratching my head, Eric.

We'll probably know more in the future when we talk about how the merchandise is selling through and maybe as our competitors start reporting their backlogs and performance.

We will know how much was share and how much was really just great selling across all the categories.

But I know that our retailers were very enthused going into 2009.

The weather was very conducive to good winter product selling.

We want to pat ourselves on the back but we have to have a modicum of looking at the real world.

We're thrilled, we think we are in a great position, we think that our retailers are giving us a better share but we're not ready to shout about that yet.

I know a lot of questions around the marketing of the Omni-Heat.

From a timing perspective in terms of when we can expect some of these to come to market via the new TV campaigns or online?

We're talking a little bit about Omni-Heat today on our website.

There has actually been quite a bit of press about Omni-Heat and we want to make sure consumers can go to our website and get the real deal, not that there is anything out there that is not accurate.

We'll be getting there with just a discussion about the technology.

And then as we begin to deliver, which will probably be in July and August, you will see in-store presentations, and then as we get closer to the middle part of October that's when we really plan to start real focused launch efforts.

Okay.

And lastly, I will do the obligatory uses of cash.

As the environment is somewhat stabilizing, any thought to, again, putting that to work?

I know you have a lot on your plate already that is very much working in your favor but be it assessing the M&A markets, is it buybacks or dividend?

Just how should we think about that use of cash longer term?

As you can imagine, with the amount of cash we have on the balance sheet today, it gets more discussion than ever at our board level and as a management team.

We just keep reiterating that the Company's best and least risky and highest return use of cash is to grow our own business.

And we keep reminding ourselves that when we do focus on our own business and our own brands, we can see the kinds of phenomenal results we have talked about today.

That being said, we realize our cash is building and we just want to deploy it the best way and get the highest return.

Much like the rest of the business, we're not there yet with cash either but we continue to look with lots of opportunities and ways we can better utilize the cash.

Fair enough.

A great problem to have.

Thanks, guys.

Your next question comes from Howard Tubin, with RBC Capital Markets.

This is Jason Schmidt for Howard and we offer our congratulations as well.

Last fall, you introduced an Omni-Heat battery-powered boot and we understand this launch was quite successful.

We were wondering if you could talk more about how this product is unique in the marketplace and if you can quantify how you're planning its distribution this fall.

Is that a substantial portion of the mid-40s increase in the fall footwear back orders?

Okay, Jason.

We did launch our Omni-Heat heated boot last year and it was a phenomenal success, although it was a small quantity of product we had.

But it sold extremely well and we've queried those people who bought it and we've gotten great response from those who own it.

The boots sold very well.

Multiple times the quantity we sold in 2009 was not significant against the backlog in terms of its revenues generated but it does tell us that consumers want to stay warm and so we think, as we continue to perfect and enhance our abilities as suppliers of heated products using electronics, there's lots more opportunities for the Company in that category of merchandise.

We're continuing to develop companion products to go with the Omni-Heat but it's not yet anywhere near, I don't want to say meaningful, but it's not a significant portion of our backlog in footwear today.

Okay, great.

Thanks.

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

Hi, everyone.

Thanks for taking my question.

A great response to your efforts in the backlog and nice to see.

Could I ask you to speak to the mix of price versus units in the backlog.

Is there a meaningful change in the average unit price?

I'm going to look to Tom.

I don't think so.

Tom?

When we've looked at that, I think we would be safe to say that it's a low to mid-single digit increase in average wholesale price.

Okay, helpful, thank you.

Can you speak to the feedback you're getting from the channel in the fall order sales process with regards to the departure from MAP pricing?

I would say it's mixed.

As we've evolved as a supplier in the channel, some people have come to rely on our high-low pricing and are reluctant to change.

However, they want to sell merchandise at higher prices points with higher average unit pricing.

At the end of the day, that doesn't work unless the product sells well.

All of our Omni-Heat is going to be a single price and sold at manufacturer's suggested prices.

And as I said earlier, with higher margin for the retailers.

It's gratifying to see the uptick on Omni-Heat when retailers realize they're going have to modify their previous Columbia methods of selling as it relates to pricing.

But at the end of the day, it's all about the stuff selling through at retail at those prices.

We're confident that it will work and our retailers are confident so this is going to be the beginning of a big change, we think, in how our products are sold at retail.

Okay.

And then a question maybe for Tom.

The revenue guidance is more modest than one might think given the backlog.

Can you speak to the cancellation rates you're presuming in the guidance?

And related to that, I'm wondering if factory capacity is a challenge or a potential impediment to delivering to the strong order book.

As it relates to the backlog, when we look at the spring backlog and the fall backlog combined, and then we layer in our retail plans for the North America, Europe and Asia, we're right in the middle of our range on the top line.

With that being said, the backlog came in a bit higher than we planned and we are pressured from a capacity standpoint.

We're working closely with our factory partners and our retailers to make the product and deliver it on time.

Great.

Good luck to you all.

Your next question comes from Mitch Kummetz with Robert W.

Baird.

This is actually Kevin Kim calling in for Mitch.

A lot of my questions have been answered but one last question about backlog.

Omni-Heat is obviously doing very very well in terms of the pre-booked number but excluding that product, can you give us a backlog number?

I don't have that number excluding Omni-Heat.

I can tell you based on the analysis that we have done, as good as Omni-Heat is and has been for us, it's not the most significant component of backlog.

All right and that is my only question.

Your next question comes from Bill Dezellem with Tieton Capital Management.

Thank you, we have three questions.

First of all, the spring 2010 backlog that you reported six months ago was down roughly 5% and yet sales this quarter are up 10% and the guidance is for the team's next quarter.

So it seems as if your sales are significantly outperforming your backlog that was announced.

First of all, I want to make sure we're comparing the correct numbers.

And, second of all, assuming that is correct, what is your understanding as to why you're out performing those numbers?

This is Tom.

It's really a combination of a couple of different factors.

One would be the retail, the Company-owned retail business is not a part of backlog, for one.

And then secondarily the timing of our distributor shipments for spring and fall hover around the end of the year and middle of the year.

For example, spring backlog for the distributor business would ship in December and January.

Much of that business shipped later this spring, I.E.

in 2010.

And then a component of that fallback log will ship in the second quarter related to the distributor business.

In addition, cancellations for spring '10 versus spring '09, spring '10's cancel rate is expected to be significantly less than it was a year ago.

Right, thank you.

And maybe one additional point.

Currency also plays a role there and it contributed roughly three percentage points of our growth in the first quarter.

And will contribute a similar amount in the second quarter.

That is helpful, thank you.

Let me shift to the second question and that is in Europe, one of the things you mentioned in the past is you just did not have good product selection there.

I'm curious, when do you believe that you will have the correct product profile for the European market?

I know Omni-Heat is certainly a step in the right direction but it's probably not the whole pie.

This is Tim.

Our business in Europe has been in place for some time and with various success levels.

We think we're just going to continue to improve our offerings in Europe and our retailers over there are telling us we're improving.

Omni-Heat was a big success but we really can't discount the impact of Sorel as well on the backlog and that is a very strong part of our backlog for Europe as well.

Thank you.

And the last question is a semi philosophical question that's come up relative to your cash position and cash generation.

And since it appears as though tax rates at the federal level are going to be going up, at some point in the reasonably near-future, meaning 2010, have you considered and do you think there is some logic behind a very significant dividend?

And I'm just thinking one-time, get it out before taxes go up?

I suppose this is most critical to the Boyle family.

As I said, this is a subject of significant discussion at our board and internally as well.

We see the tax hikes coming as well.

As it might be obvious, we think the best use of the Company's cash is to grow and use it for working capital with a high growth rate.

We have put some of it to work this year.

We've discussed special dividends and have come to no conclusion as it comes to use of cash from that avenue, but that is one Avenue that has in fact been discussed.

Thank you for the time.

Your next question comes from Sam Poser with Sterne, Agee.

Good afternoon, everyone.

This is [Kent Sanpazeran] for Sam Poser.

A couple of questions for you.

One, it's related to the preceding questioner.

Regarding your fall backlog in 2009, if you look at the relationship between resulting sales and what the reported backlog was, there is about a 24% gap and historically that's been anywhere from 10% to 12%.

I was wondering if you felt like last year, we had an unusually high amount of at-once business and maybe that's what is playing into the lower revenue guide relative to the reported backlog number you put out today?

You have to remember retail is not in the backlog.

We had a significant increase in the amount of retail the Company owns in the last, really, 18 months.

And then certainly as we guided in 2009, our expectations for cancel rates were, as you might imagine, cautious.

We had, fortunately, good weather coupled with low initial orders from retailers and, therefore, some better-than-expected results as it relates to in-season ordering.

I will ask Tom to correct me if i'm wrong, but I think the biggest single component of the delta you are talking about is our own retail which is not included in backlog.

That is correct.

If I were to make the supposition that this year, at the end of the day you're expecting a much higher percent this year than last year, is that correct?

What your backlog represents right now.

We have done a lot of analysis, as you might imagine, on advising investors as to what our outlook is for the balance of the area and all of those factors have been taken in and we believe that our outlook today is the best as we can see it.

And the only other point I would add is as it relates to fall versus fall cancel rate and our expectations are that those will be fairly comparable at a fairly normalized rate for fall '10, as was the case in fall '09.

And a couple of other questions.

How do you ensure that the consumer gets the technology message that you're trying to deliver with the Omni-Heat when you're selling it into a little more low-touch channels like the big box sporting goods, guys?

As I said, a component of our marketing efforts will be in-store presentation to tell consumers about the technology and to shout it out at a point of sale where, frankly, the bulk of the decisions about purchase are made.

But the real advantage we have with Omni-Heat reflective is it's visible so the consumer merely has to look at the garment and they can tell immediately there is something going on inside.

That, coupled with the message we're going to be telling them at point of sale.

And frankly the improvement appearance of our garments we believe will lead us to great selling.

And finally, one last question, and I know it's a little preliminary.

But as it pertains to SG&A spending going forward, the spending specifically around the sales force internalization as well as the step up in the marketing as a percent of sales, if that's something you anticipate will persist.

Or will any of those costs fall off in 2011 once you anniversary the step-ups?

We think the additional sales costs as it relates to internalizing the sales force will begin to fall, I think we said, in 2011.

Yes, in the first quarter, we should see those costs begin to sunset, the duplicate nature.

Do you mean they will just anniversary so the year-over-year change will be zero or that they'll fall?

Beginning in Q2, '11, the duplicate costs will go away so there should net-net be a reduction in absolute dollar cost.

Okay.

Thank you so much for your time and good luck.

Your final question comes from Chris Svezia with Susquehanna.

Good afternoon, everyone.

Congratulations on the nice backlog numbers.

Just one last question, most of my questions have been asked already.

I just want to understand your gross margin outlook for the year and what you see so far in the first quarter.

If you think about the backlog trends, the product mix, the inventory, I am assuming the Omni portfolio of products in inherently a higher margin category, and you think about currency, I'm just curious why only up 100 basis points.

If you can talk a little more in clarity in terms of what is going on there in the margin so I can understand that.

For full-year, there are a couple of different things going on.

In the first half of the year, we have some currency head wind related to the Canadian dollar and the euro.

In the back half of the year, we have a currency tailwind, not quite the tail wind we thought we were going to have a quarter ago because we were not fully hedged for the euro, and with the incremental demand, or the increased demand, we're not getting the upside there that we projected.

So there is some decreased expansion in the back half related to currency.

And also we're anticipating incremental cost to expedite both production and transportation of some of the fall product line, given the increased demand.

Okay.

Is there any way, Tom, you can put those into buckets in terms of what is the most impactful to the gross margin on the change?

If we just step back and look at the full year and what's happening, to get the 100 basis point expansion, a little less than half of that is the retail growth.

That's one component.

The second component would be just the relative volume of full price versus closeout.

And then the final piece would be currency.

And that would be a smaller component.

Just one last thing here.

I might have missed it and I apologize if I did.

On the sportswear side of your business, a lot of questions on Omni-Heat as it pertains to outerwear.

But I was wondering if you could just touch on what's happening in your sportswear business as you look to the backlog trends and what is going on there.

The primary focus for us has been on the science part of our outerwear business which is the easiest to put some of these technologies in.

The sportswear business has been improving as well and I think for us, certainly on the long-term view, our biggest opportunity in sportswear is going to be in women's.

We have a new team there and we've spent a lot of time and effort on improving the women's business both in sportswear and in outerwear.

But I think at the end of the day, where we're going to see the biggest uplift is going to be in improvement of our women's sportswear business.

Are the backlog trends positive there as well, as you talk in the context of the backlogs here right now?

Yes.

All right, best of luck.

Thank you.

There are no further questions at this time.

All right, thank you all for listening in.

We're very excited, obviously, about the results and the backlog that we have talked about today and we look forward to talking to you soon again.

Thank you for participating in today's conference call.

You may now disconnect.