Columbia Sportswear Co (COLM) 2012 Q2 法說會逐字稿

Greetings ladies and gentlemen.

And welcome to the Columbia Sportswear second quarter 2012 financial results conference call.

At this time all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduction your host Ron Parham, Senior Director of Investor Relations and Corporate Communications for Columbia Sportswear.

Thank you.

Mr. Parham, you may begin.

Thanks Bob, and thanks to everyone for joining us on today's call.

Earlier this afternoon we issued second quarter financial results and reaffirmed our full year 2012 outlook.

In addition to the press release we posted a detailed CFO commentary to our Investor Relations website, which we hope you have had a chance to review.

With me today on the call are President and CEO, Timothy Boyle, Senior Vice President and Chief Financial Officer, Thomas Cusick, Executive Vice President and Chief Operating Officer, Bryan Timm, and Senior Vice President and General Counsel, Peter Bragdon.

I am going to ask our Chairman, Gert Boyle, to cover the Safe Harbor language.

Good afternoon.

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, 2011, and subsequent filings with the SEC.

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

Thanks Gert.

Now I will turn the call over to Tim for a brief strategic overview, and then we will devote the majority of the call to your questions.

Thanks Ron.

Welcome everyone, and thanks for joining us this afternoon.

As our press release and CFO commentary explained in greater detail second quarter sales grew 8%, benefiting from earlier shipments of international distributors fall 2012 advance orders, strong US direct to consumer results, and 10% growth in Japan helping to offset lower wholesale revenues in the US, Europe, and Canada.

Our disciplined focus on managing expenses produced 430 basis points of SG&A leverage, more than off setting a135 basis point contraction in gross margin, caused by the higher than prior year mix of sales to distributors, liquidation of excess inventory, and higher input costs.

Our second quarter net loss improved more than 40% from last year's comparable quarter, and was ahead of our April outlook.

However continued macro economic uncertainty in many of our major markets leads us to maintain previous expectations for full year 2012 sales to increase up to 1%, and for operating margin to be comparable to 2011 including a $4 million restructuring charge recorded in the first quarter of 2012 . As you are all aware Columbia's business is very second half weighted and our profitability relies heavily on our ability to execute and deliver against customers advance orders during the third and fourth quarters.

In that regard we are entering the second half in a better position than in recent years thanks to improved operational execution and supply chain capabilities at our manufacturing partners, that enabled us to receive a higher percentage of our fall 2012 production prior to June 30.

In addition, we expect to liquidate the majority of our remaining excess fall 2011 inventory during the second half of the year, primarily through our own outlet stores.

As a result as we mentioned in our April conference call, we expect year end inventory to be comparable to December 31, 2011, excluding any material variation in the timing of spring 2013 inventory receipts late in the year.

We continue to carry our innovation message to outdoor consumers in ways that educate and inspire.

Our successful Omni-Heat platform will be the focal point of our 2012 fall marketing strategy.

For those winter enthusiasts who didn't feel the need to buy a new coat during last year's balmy winter, our suite of Omni-Heat products will be ready to welcome them to a new level of warmth and comfort.

Last year's warm winter weather had an even greater impact on Sorel, which we consider to be our most weather sensitive brand.

That impact was most pronounced in Europe, where our sales team had succeeded in opening over 1,000 new accounts for fall 2011 . We believe the Sorel brand remains very strong among its target consumers and with any cooperation from the weather this year, we would expect channel inventories to improve, and setup the prospects for renewed growth for Sorel in 2013.

We are very excited about the spring 2013 launch of Columbia's Omni-Freeze ZERO, and mountain hardware Cool Q Zero.

This revolutionary active cooling technology is unlike anything consumers have seen or felt before, Omni-Freeze ZERO's visible little blue rings use a person's sweat to lower the temperature of the fabric.

Omni-Freeze ZERO moves consumers beyond sole reliance on old-school wicking fabrics and evaporative processes to help them stay comfortable during any strenuous outdoor activity, athletic or work.

At the recent ICAST, International Fishing Show in Orlando, our booth was abuzz with retailers and consumers asking to see and feel the cooling affect of Omni-Freeze ZERO.

To cap the show Columbia's Airgill Chill ZERO, featuring Omni-Freeze ZERO was recognized as Best-in-Show in the Apparel category.

Omni-Freeze ZERO apparel and footwear and accessories will be the main focus of Columbia's booth at next week's Outdoor Retailers Summer Market Trade Show in Salt Lake City, where our goal will be to help our retail partners grow their spring business.

We are already working to establish grassroots consumer awareness and initial demand for Omni-Freeze ZERO at outdoor concerts, sporting events, parks and other outdoor venues around the country, letting consumers feel the cooling affects of Omni-Freeze ZERO during this summer's heat.

In early June we gathered 50 journalists and bloggers from around the globe in Sedona, Arizona to introduce them to Omni-Freeze ZERO.

As

a result that Omni-Freeze ZERO has already received a higher volume of prelaunch coverage than any of our previous technological announcements, and we expect additional coverage from other leading publications as next spring's launch approaches.

For the Omni-Freeze ZERO launch we are putting together a significant comprehensive multichannel spring marketing campaign including print, online, point of sale experiential, and online broadcast elements.

Over the long run, we believe Omni-Freeze ZERO, together with our portfolio of differentiated innovations, have long-term potential to attract a much wider base of active consumers to the Columbia and Mountain Hardware brands.

Clearly there are macroeconomic headwinds in many of our major markets.

While we are very cognizant of those challenges, we know it is up to us to execute on our operational and marketing initiatives and to closely monitor and manage our expenses to drive profitability.

We are continuously evaluating our operations globally to ensure that we are positioned to deliver on our goals.

In closing, we are pleased with our second quarter results, and despite the challenges we are focused on managing the business to position ourselves for renewed sales growth and improved profitability as we look beyond 2012.

That concludes my remarks, now we will be open for questions.

Operator, can you help us?

Thank you.

We will be conducting a question-and-answer question.

(Operator Instructions).

One moment while we poll for questions.

Thank you.

Our first question from the line of Bob Drbul.

Hi.

It is [Joan Payson] on for Bob today.

Hi, everyone.

In terms of just starting out, if you could talk about how the open to buys are looking in the back half, both in the US and in Europe and how your order book looks compared to those?

Certainly.

Our retailers were cauterized by the warm winter in both of those markets, and I would include North America really in the discussion around the USA.

I believe that our retailers while they may have carried over some inventory, for the most part they liquidated their inventories during last year's first quarter, so there is probably some opportunity for open to buy in the back half if weather cooperates, but we are certainly not having that expectation.

We are going to be managing the business with the assumption we will have a winter which may be, frankly, slightly closer to what last year was than a good winter weather.

Thanks.

And then in terms of your carry over inventory, maybe you could give an update on the composition there, in terms of how current it is, in footwear versus apparel, and how it compares to what it looked like last quarter?

Sure, this is Tom.

With regard to the composition of inventory, roughly 94% of our inventory is fall 2011 or more recent through fall 2012, and we expect to liquidate between two-thirds and three-quarters of that through our own outlet channel, consistent with a quarter ago.

Really inventory has played out as we thought it would over the course of the last 90 days, and categorically it is about four-to-one apparel versus footwear.

Great, thanks.

Thank you, our next question comes from the line of Eric Tracy with Janney Capital Markets.

Please proceed with your question.

Thanks, guys.

Good afternoon.

Maybe focusing on Europe in particular, it looks like the EMEA region held up pretty nicely, but it sounds like there is a little bit of shift from 3Q into 2Q, maybe talk a little bit about that?

And then, Tim, just in terms of the macro perspective what you are seeing relative to last call in terms of macro deterioration if that is having any sort of impact beyond the weather issue in terms of orders?

Certainly.

I spent most of the last week, or the week before last in Europe and Russia, and so I am fairly current.

I would say that macro conditions are certainly impactful.

I would say it is difficult to find an ebullient European retailer in western Europe, that is for sure.

Most are confident that business will be there, but as we have talked about in the past the bulk of the impact of our business is weather, rather than macro conditions, so when we have both the combination of poor winter weather as we had in 2011/2012, plus the macro conditions, it makes it more difficult.

I think retailers will be more cautious in their future buying, and the expectation is they will wait for either some catalyst from the weather, or an improvement in the economic conditions, which I think we are going to see some weather before we see the macro conditions improve.

As it relates to our other markets, in Europe most notably Russia, I can tell you that our distributor there is very strong, continues to be a very strong performer, both financially and in terms of how they operate their business, and we are very pleased with the results there.

Hopefully that gets to most of your questions.

Absolutely.

Thanks.

And then maybe, Tom, just for you in terms of the guidance, obviously a little bit of a shift, or more of a back end loaded to 4Q expectation, both top line and margin.

Again maybe walk us through that dynamic particularly on the margin, it would appear to get to that year end guidance reaffirmed.

It think it isprobably is coming from G&A, relative to some of the incremental investments coming through on leverage to get that, how that comes through?

Yes, speaking specifically to the large in Q3 versus Q4, really the down margin in Q3 versus the out margin in Q4 is really a function of closeouts and promotional activities being a bit of a drag in Q3, and being basically a tailwind in Q4 plus we have got the channel mix benefit from retail in the fourth quarter, so that is really the margin story, and then with regard to SG&A, essentially flat in absolute dollar terms in the third quarter, down in the fourth.

We have got a little bit of an easy comp in Q4 relative to obviously getting some help with currently.

We had an impairment charge in the fourth quarter of last year that is not there this year, so that helps.

In terms of the buckets of that SG&A, I think by my math it probably is looking to me to improve close to 350 to 400 basis points in 4Q.

Remind us how much of that was year-over-over, and then because I think if you have the higher retail it should also be higher SG&A in that quarter as well.

Trying to get the puts and takes on that?

On the Q4 really just stepping back and looking at SG&A for the year, and then specifically to the fourth quarter basically we have got our cost reduction initiatives plus currency basically helping on the SG&A, i.e., reducing SG&A.

And then we have got the IT spend and the incremental retail stores coming online that are increasing SG&A.

So those all basically nullify each other for the year, and then we have got the easy comp in Q4.

That is probablythe easiest way to look at it.

Okay.

That helps.

Thanks, guys.

Best of luck.

Thanks.

Thank you.

Our next question comes from the line of Liz Dunn, Macquarie.

Hi.

Thanks for taking the call.

My first question is can you just discuss where you see yourselves from a market share standpoint versus a competition for both Columbia and Sorel, and how you think that's changing and evolving, because it looks like in this tough year, you may have lost some shares so could you just address that is my first question?

Certainly as it relates to Columbia, we are in a number of businesses and a number of geographies.

If we look at North America in the sportswear business, we are actually quite strong with the products in our PFG fishing gear line really leading the market, especially in the southern part of the United States where we have terrific positioning.

We may have lost some share in rainwear this year primarily to private label with a few customers, and that is always a concern.

We want to make sure we've got significant market share with the major customers, but oftentimes private label concerns and focus are difficult challenges for us.

In Europe we actually have a different competitor in every market and I would say there are puts and takes in both of those areas, but in general based on the economic conditions in Europe, we have probably been more challenged there from a share perspective.

In Russia we have an extremely dominant market share and continuing to grow there and expand, based on the strength of our distribution agreement with Sport Master stores.

As it relates to Asia we have been growing nicely in Korea.

We believe that market even though it's slowing a bit, will continue to be an area where we maybe not gain share, but certainly maintain our position.

In Japan we have a very strong position.

We have been operating in that market since the early 70s, and continue to be strong there, and had a great quarter there where we have a strong management team.

In China where the Company has got a great distribution agreement with Squires Group, we have had just terrific business there, and continue to take market share and grow even a bit faster than the market.

Sorel, probably we have really two competitors at the macro level in the men's footwear business, where we have a very functional product.

Many competitors mostly private label.

But I think that the brand is so premium in the men's area that the entire business has been smaller, as it relates to winter footwear based on the weather, and I think we have probably got market share equality there.

I don't think we have gained anything, I don't think we have lost anything.

In terms of women's though, we have historically over the last several years been focusing on that part of the business for Sorel, and there absent last year we gained nicely against the competition.

Do you think that fashion trends in place that are supporting growth in women's remain for 2012, and to what extent if weather is a little bit colder than you anticipate, can you exceed expectations in the fourth quarter?

Well, we've given you our best anticipation for Q4, but certainly the women's Sorel product, and for that matter the men's is very responsive to weather.

Our anticipation, our plans are not for an extremely cold winter weather.

But do you have the ability to chase if it comes, if it happens, if it is cold?

We will probably sell more merchandise but the big delta would be in the gross margin not the top line.

If we run out of merchandise we'll have a lot of champagne flowing around here.

Thank you.

Good luck.

Thanks.

Thank you, our next question comes from the line of Andrew Byrnes with DA Davidson.

Please proceed with your question.

Thanks.

First question on the footwear down 1% by category but Sorel was down 22%.

Could you talk about the growth outside of Sorel, and is that just the timing of shipments similar to the overall business or is there a product story to be told about Columbia's footwear?

Thanks.

We always have to remind our investors that Q2 is one of the smallest quarters of the Company, so any particular change gets magnified.

I would say that our Columbia footwear business in spring has certainly been led by the Drain series, the Drainmaker and other parts of the business there, which we have recently launched, and Sorel being just strictly a winter weather business.

We are attempting to become important in spring there, but we haven't been successful there yet.

So I would guess that the down 22% is a result of our winter business.

A hangover from the lack of weather and maybe Tom has additional comments.

Andrew, our Sorel business in Q2 was roughly $3 million, and less than $4 million a year ago in Q2.

The 22% is on a very, very small base of business roughly 1% of the quarter's sales.

Thanks.

And I have a question in terms of existing the year in your SG&A, the cost rationalization that you did, should trends reaccelerate in 2013 as we all hope for?

Is there going to be a required reinvestment in terms of head count reduction?

Just wondering if that reinvestment period might be required to get where you need to be to facilitate growth?

I think hopefully we have improved our efficiency levels, at the same time we made reductions in headcount and other costs, so that we will be able to operate the business more efficiently so I would not expect a significant reinvestment based on top line growth.

Thanks.

Thank you.

Our next question comes from the line of Reed Anderson with Northland Securities.

Please proceed with your question.

Good afternoon.

Thank you.

A couple of questions.

I want to focus first on the direct business.

When you think about 24% growth year-over-over.

How does that, what are the contributors there?

Is it more just unit growth?

Is it productivity of your stores?

Is it online?

Can you give us a sense of kind of the buckets that contributed to get you to that kind of number?

Yes, Reed.

This is Tom.

I would say that comp store growth rates drive the majority of that growth rate, coupled with the additional stores that have come on line year-over-year, and then thirdly, increase in price, so all three of those are the major drivers for that growth.

And where are we from a store unit growth perspective, whether it's 2Q over 2Q last year and what would that look like at the end of the year?

In terms of store count or in terms of unit volume?

My question was on store count, but we can do it either way.

As it relates to store count we are, we will increase our outlet stores in the US by 12 this year.

Of which eight of those are in the back half, four in Q3 and four in Q4, and then if we look at Japan and Korea we will add 17 and 15 store fronts, and those are a combination of outlets and shop-in-shop, both company owned and franchised.

And so where does the outlet store count end the year, what's the total number you would be at?

At 55.

In the US.

US, yes, you are talking US.

Seven in Europe and one in Canada.

And so if we get through this year then, that has really been a kind of core part of what's been helping to offset softness in other areas, I am assuming we are not, there is no sense to slow the progress there.

Any sense to think you wouldn't continue to add outlets next year, or is that something that needs to be evaluated after this, in the next couple of quarters?

Yes, Reed.

We are constantly evaluating how the stores are performing and want to make sure they don't impact our wholesale business.

We want to have the right amount for how we predict the business.

They seem to be running quite well, so that is encouraging.

We'll probably be making more decisions as it relates to outlet stores, and certainly where they are over the next year or so.

Is the majority of what's going through there pure closeout or a lot of it, or of a more, a bigger portion than I would think for sort of cut for the channel ?

We've been using them for the last several years to focus on liquidating excess inventories.

But there is a component that is built for the stores.

Very good.

And Tom you've given us in the past, where are we in terms of the total mix of revenue that is now really concentrated in your direct business or own retail however you want to look at it?

We are planning that number to be roughly 29% of the total business for 2012.

And what was it last year, can you remind me?

That compares to about 25% in 2011 .

Very helpful.

Thank you.

And Tim, I was very curious.

I liked your comments on the Omni Freeze line for spring, and the good feedback that you are getting there, I am just curious kind of the scope of that launch.

Sometimes in the past maybe you've come with your newer technology in your stores or online and then worked it out to your key distribution.

Just some thoughts on the breadth or scope of what that might look like, versus what you've done in the past?

Yes, Reed.

In the process of really analyzing it now to see how big it should be.

We want to have it be appropriate for the size of the launch.

However, this technology is so different and so differentiating from our competitors, that we think we may have an opportunity here to really make a significant impact on our spring business.

Just in the process of analyzing it.

The bulk of those results will be 2013.

We haven't really talked about 2013, and we'll have more information I think on our next call about the specific launch strategies around the marketing of the product.

It looks very appealing for us in terms of a significant investment here.

We just have to wait until it plays out.

Understood.

Good.

Best of luck.

Thank you.

Thank you.

Thank you.

Our Next question comes from the line of Christian Buss of Credit Suisse.

Hi, thank you for taking my call.

This is actually [Darla Shea] in for Christian.

I wonder if you can quantify the impact of the earlier shipments from 3Q into 2Q?

Roughly the same number that it was in spring 2012.

That was shipped in December.

In the double digit millions of dollars.

Okay, great.

And if you would be able to comment on the core underlying demand for wholesale for the quarter, if you exclude timing shipments?

Talking about North America or Europe?

If you could maybe speak to the different geographies?

Again, the bulk of Q2 sales are just finishing up our spring business in North America and Europe, and beginning our shipments of fall.

The bulk of the fall shipments really start in the third quarter so it is whatever demand happens to be prepared and ready for Q2 shipments.

But I would say that they are basically on par in terms of last year in terms of our winter fulfillment.

Fulfillment of fall product in Q2 for their wholesale channel . Our expectations are when we've concluded our wholesale shipment for the year, looking back on the early part of Q3, the demand is going to be reflective of the poor winter weather we had last year and the reduced demand.

And if you would be able to provide a status update on some of the IT systems that you are implementing?

When should you see a benefit and then also if you would be able to quantify?

Yes, this is Bryan.

In terms of what I mentioned the last time we talked is we went live on the pilot on the SAP implementation back in the second quarter.

In one of our smaller geographies from a direct business perspective in Canada, so that implementation went well for us.

We continue to optimize a lot of our business processes in that region, and take and carry those into our blueprint for our US roll-out, which is currently underway.

So I think it is a little bit early.

We expect to implement in the US sometime in 2013, but I think it is a little bit early in terms of timing and everything to talk about and quantify some of the returns to the business.

Thank you.

Thank you.

Our next question from the lines of Kate McShane with Citi Research.

Thanks.

Good afternoon.

It is encouraging to hear that your outlook on the top line is staying the same, especially in light of what seems to be a more difficult US economic environment as we start to embark on the back half of the year, and I just wondered if you had seen any change in the competition of orders as a result have some retailers canceled orders and have other retailers ordered more?

Have you heard an overall more cautious tone in your conversations with retailers in the back half?

No.

So we've been taking orders for fall merchandise and really concluded that for all intents and purposes in March and April, where it finally winds down.

There has been no change of any significance either way, frankly.

Retailers are just beginning to accept shipments for fall to start loading their shelves.

We hope spring is eternal in terms of the weather, but we haven't seen any major change at all.

Okay.

Great.

And can you remind us there's any change in the mix of orders for your order book for winter, in terms of is the skewing more toward sportswear fleece, or is it still a comparable amount of outerwear and sportswear that you are shipping to your core customers, and how much is the Omni-heat product going to be as a percentage of this SKUs this upcoming winter?

Okay.

The biggest category merchandise impacted by the cooler weather last year was really obviously outerwear, but more importantly, footwear both the Sorel brand and the Columbia brand were fairly significantly implemented, involved in terms of reducing the demand there.

I think the rest of our business would probably be on par with sportswear and apparel fleece businesses were fine.

And In terms of the Omni-heat percentage penetration, I know there was an impact on our accessory business based on the weather, but I think the rest of the merchandise was really unimpacted.

I don't know I have it right at my fingertips the percentage of Omni-heat in the mix for fall 2012 .

Okay, great.

And then if I could ask one final question on inventories and the filling of inventory through your outlets.

Can you just remind us on with this elevated amount of inventory in your own outlets, how that impacts margins in the second half?

Yes.

So I would say when you look at the full price closeout margin mix, it is not a whole lot of impact to the second half taken as a whole, but it is a drag in the third quarter and it is actually helpful to margin in Q4.

Okay, great.

Thank you.

Thanks.

Thank you.

(Operator Instructions).

Our next question from Robby Ohmes from Bank of America.

Good afternoon guys.

One of the questions I had, I just wanted you to clarify on Sorel, do you expect Sorel to be down year-over-over in the third and fourth quarter, and then we should see a return to growth in 2013?

Did I get that right?

Yes, I think that is accurate.

And so, Tim, Sorel was having a big ramp-up then you got the warm winter, but is when you say return to growth in 2013, do you think is the work under way to get the momentum going in that business again, so 2013 could be a big growth year, or walk us through how to think about Sorel over about the next three years here?

Certainly.

We haven't really stopped the progress on the line's development as a women's winter protective brand.

So we continue to enhance those items that worked well last year, and so when buyers will begin looking at the Sorel line for fall 2013, which would start in November some time, they are going to be seeing in addition to this tried and true performers from a historical perspective, they are going to see a number of new initiatives, many of which in sneak previews that we have done with footwear buyers have been very pleased.

Even though we had this hiccup as it relates to the weather both in the US and more importantly in Europe, we really have continued to focus on the investment there from a design perspective.

The expectation is that we are going to see continued growth with that brand especially in the women's area.

Thanks.

The other question I had so Omni Freeze ZERO, I know it's early and you don't have the whole plan set up yet, but what channels of distribution do you foresee being the most excited in doing the most with this launch?

Is it a specialty running product?

Going to show up in the department stores?

Is it more of a Dick's Sporting Goods sort of presentation?

Any thoughts on that would be great.

Sure.

The focus for us in this launch will be on those customers that have great acceptance in our summer product, spring and summer product which is sporting goods, specialty outdoor channel, and then frankly heavy investment in our southern tier fishing accounts.

Those are the areas where we would be more successful initially.

The product is so dramatically different and so frankly interesting to more active customers that we've shown, that would include running specialty, athletic specialty, and even some golf people, but there is certainly an opportunity for us there, but initially the successes will be in those, in our first channel, sporting goods and specialty outdoor and fishing.

We are not going to be focusing on department stores with this product,much as we focused our business in Omni-heat at those higher level more brand enhancing points of distribution that is where we will be concentrating our time and effort.

Sounds great.

Thanks so much.

Thank you.

Our next question comes from the line of Bill Dezellem with Tieton Capital Markets.

Please proceed with your question.

Thank you.

If we take a 15,000' level view of the business, you have made improvements to your product line in a number of different areas, both apparel, footwear and across the brands over the last few years, and with that in mind where would you say that you were weakest today and that you need to expend further efforts and dollars to improve your offering?

I think frankly our, thank you for the compliments on improving our business as it relates to product, because that has been an area where we have had enormous focus and we talk a lot about this pipeline of innovation going out through 2015 with lots of interesting stuff happening.

Certainly in Europe our business there could be improved through a combination of perhaps tweaking of the product to be more Europe sensitive, but also and this would apply across the board.

The Company could benefit from additional marketing dollars, and we talk a lot about it internally where those dollars will come from.

We have to be able to grow the Company's gross profit margin to give us more money for marketing, and more money for operating margin.

When I look at the business from that level from the high level, I think we just need to tell people about the Company's products in a louder voice.

And given, I guess, the greedy shareholder perspective I would come from, how do you balance the dollars spent versus the reward so it ends up a net positive to the bottom line?

Well, in terms of marketing efforts when we work marketing through electronic media there is a lot greater science involved in terms of efficient use of marketing dollars in those environments.

It becomes more difficult when we are talking about traditional print media or traditional television media to do the kind of measurement that makes all shareholders comfortable with the spend.

And we have been focusing more of our investment in that electronic market, where we can actually measure the results.

And then circling back to product if we could for a moment.

What areas within your product do you feel like you still have more work to do to get to the level that you would like to be with whatever area it is that you're going to direct your answer?

Okay.

Footwear is probably the area where the Company has an enormous opportunity, and one that we continue to focus on in terms of our designs and merchandising efforts.

And we have seen great results especially in the Sorel brand as it relates to growth.

We are seeing great results in Columbia's Drain products as an example as well.

That is an area where we could improve, and the folks that are managing that part of the business are doing a great job and continue to improve.

So that is an area we are focusing.

And our women's apparel products can also improve as well.

Those are two areas where I think continued investment in people would be highly rewarded.

Thank you.

Thank you.

Our next question comes from the line of Camilo Lyon with Canaccord Genuity.

Please proceed with your question.

Thank you and good afternoon.

Hoping you could discuss how the progress is with respect to reducing some of your distribution that you talked earlier about focusing more on the specialty channel and sporting goods channel, and clearly your product is becoming more technical.

Curious to see what you have to say as to the updates around constricting some of that distribution, particularly in the department store channel?

The department store channel is a terrific vehicle for the Company to have its products exposed to a lot of consumers and we have terrific partners in department stores, but some of the more technical areas as we talked about the Omni-Freeze ZERO that is going to require some salesmanship and some explanation, I guess would be better to consumers, so that they have an understanding of how the product works and why they should buy it.

That really demands that product be sold in a specialty store where there is a higher percentage of sales help that can be impactful.

As we mentioned earlier on the call we will be concentrating our efforts on the launch of Omni-Freeze ZERO with those specialty customers, and unfortunately that is where the product will have to be placed for spring to be successful, so it won't be in department stores.

Got it.

Is there an effort at all to reduce some of the SKU representation in the department store channel ? Are you content with where it is right now?

I think we have the right mix today in department store sales.

I think we are comfortable with it there.

We would like to increase the volume we do obviously in specialty and sporting goods operations.

and frankly it will be in order to do that we will have to have the kinds of impactful products like Omni-free zero to get us noticed and get us additional business there.

Great.

And on Sorel, obviously it was a tough winter for everybody but the brand before that definitely had strong momentum, what were the conversations you're having now with domestic wholesalers, with your domestic retail accounts rather.

How are they responding to the brand, and how are they thinking about the evolution of what that brand can be for them, particularly as probably one of the chief competitors to one of the main stays in that fashion winter weather boot category?

Right.

As I said in the process of developing our fall 2013 line, we've had sneak previews with our best winter footwear customers, and those that really lead the charge in terms of how fashion is developed.

And, in addition to the improvements and enhancements we have made to our more signature products, the newer products in Sorel that they have seen, make us very encouraged in terms of the folks that we have running that part of the business and the products that we have got planned for fall 2013.

So with any weather at all we're going to be lucky to help us get us back on track, but at the end of the day it will be the uptake on these new products and the enhancements to the older products that will really prove our success.

Do the customers, those retail customers include independents, or predominantly the department store channel ?

No, it includes a mix of independent fashion stores and department stores and others.

We are prettyexcited about what we have got coming up for fall for Sorel.

Great.

Best of luck to you guys.

Thanks.

Thank you, ladies and gentlemen.

(Operator Instructions).

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I would like to turn the conference back over to management for closing comments.

Thank you all for listening in.

We look forwardto talking to you at the end of third quarter to discuss the performance of the Company at that time.

Thank you.

This does conclude today's teleconference.

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