Columbia Sportswear Co (COLM) 2014 Q4 法說會逐字稿

Greetings and welcome to the Columbia Sportswear fourth-quarter 2014 financial results conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Ron Parham, Senior Director of Investor Relations and Corporate Communications.

Thank you, Mr. Parham, you may begin.

All right.

Thanks, Benny.

Good afternoon.

Thanks for joining us today to discuss Columbia Sportswear Company's fourth-quarter and full-year financial results, as well as our initial 2015 financial outlook, which we announced earlier this afternoon.

In keeping with our standard practice, shortly after earnings press release crossed the wire, we furnished an 8-K containing a detailed CFO commentary, covering the quarterly results and the assumptions behind our 2015 outlook.

The CFO commentary is also available on our Investor Relations website, and we encourage investors to review it if you have not already done so.

With me on the call today are President and CEO, Tim Boyle; Chairman of the Board, Gert Boyle; Senior Vice President and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Bryan Timm; and Senior Vice President and General Counsel, Peter Bragdon.

I'll ask Gert to cover the Safe Harbor.

Good afternoon.

This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operations.

Please bear in mind that the 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, 2013, 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 change in our expectation.

All right.

Thank you, Gert.

I'll turn the call over to Tim.

Thanks, Ron.

Welcome, everyone, and thanks for joining us this afternoon.

2014 was an outstanding, exceptional year for Columbia Sportswear Company.

The excellent fourth-quarter and full-year results we announced earlier today, and our reaffirmed expectations for 2015, reflects solid progress against the strategic initiatives that we set at the beginning of the year.

These initiatives included reigniting the Columbia brand's growth in North America and European wholesale direct markets; deepening the Sorel brand's relationship with female consumers and broadening the brand's relevance beyond winter; increasing our investment in demand creation to bring our brand stories to life online, in store, and in print; continuing to expand our US direct-to-consumer platform; launching our new China joint venture to position ourselves for the long term in that important market; and driving operational excellence across our global supply chain through enhanced processes supported by our new ERP platform.

In addition, early in 2014 we used our strong balance sheet to acquire the prAna brand, diversifying our brand portfolio and giving us access to an entirely new segment of active, socially conscious consumers.

During 2014, net sales increased $415 million, or 25%, surpassing $2.1 billion, and net income increased 45% in 2014 to $137.2 million, or $1.94 per share.

Nearly one-half of our sales growth, $200 million, was organic, fueled by the Columbia and Sorel brands in North America, where each brand generated strong momentum across both wholesale and direct-to-consumer channels.

The remainder of our sales growth was the contributed by our China joint venture that commenced at the beginning of 2014 and by the newly acquired prAna brand.

I'm excited to share with you how each of our brands performed in 2014 and how we're positioned for each in 2015 and beyond.

Starting with our biggest brand, Columbia, globally, Columbia sales grew $337 million, or 24%, to $1.75 billion, with just over one-half organic and the remainder incremental from our China JV.

The core strategies under the Columbia brand are driven by our Corporate mission to help active people pursue their passions.

These core brand strategies include: lead with innovations that help people stay outdoors longer, design products that deliver trend-right styling and value across the entire price range, create differentiated product offerings to address our broad consumer base and the diverse challenge where they shop; increase investments in demand creation to clearly communicate the Columbia brand promise at every touch point.

I don't have time today to cover each of these strategies, but I will touch briefly on the first one, lead with innovations that help people stay outdoors longer, because it's the cornerstone that anchors each of the others.

Over the 77-year history of Columbia, we've established many market-leading innovation platforms within apparel and footwear to keep people warmer, drier, cooler, or more protected so they can enjoy the outdoors longer.

Our latest outerwear innovation platform is TurboDown, which we launched successfully last fall.

TurboDown offers consumers the best qualities of natural down insulation in dry conditions, combined with synthetic insulation that continues to deliver superior warmth and insulation in wet conditions.

For 2015, we enhanced the TurboDown platform with TurboDown Wave, which uses a patent-pending construction process that reduces heat loss, creating a very warm, lightweight, breathable jacket.

SKI Magazine, Outside Magazine, and Gear Institute each named TurboDown Wave best-of-show in the insulated jacket category at last month's Outdoor Retailer Winter Market in Salt Lake City.

Of course, all TurboDown jackets come fully equipped with our patented Omni-Heat reflective technology, a proven innovation platform that continues to attract new consumers to the Columbia brand around the world.

Innovation also drives Columbia footwear.

For fall 2015, we've married the superior waterproof breathable benefits of OutDry with Columbia's ventilated midsole platform to deliver 360-degreebreathability in a high-performance waterproof trail shoe.

The Peakfreak OutDry was honored with its own best-of-show award at last week's ISPO trade show in Munich.

TurboDown, Omni-Heat reflective, OutDry, and Vent are just a few examples of our commitment to innovations that enable us to create differentiated products to address our broad consumer base and the diverse channels where they shop.

We believe the current momentum behind the Columbia brand is a direct result of our focus on these core brand principles.

Global sales of Columbia apparel and accessories grew more than 20% in 2014, driven by solid growth across the outerwear, rain wear, fleece, and sportswear, including PFG, across both wholesale and direct-to-consumer channels.

As we've said for many years, we believe footwear has the potential to be our largest product category, as we become less dependent on cold-weather products and expand our presence in the much larger year-round trail category.

We made meaningful progress in that direction in 2014, with our Columbia footwear business growing 45% globally, led by trail and multi-purpose styles in Europe and North America.

At the same time, we continue to expand Columbia's heritage cold-weather franchise.

Regionally, the Columbia brand's full-year US growth was evenly split between wholesale and direct-to-consumer channels.

Columbia generated double-digit growth in full-priced sales to each of its US wholesale channels, led by growth in sales to the sporting goods channel.

Strong Columbia sell-throughs across American wholesale and direct-to-consumer channels tells us that consumers are responding favorably to the brand promise of compelling innovation, trend-right styling, and value across the entire price range.

Perhaps this is a good place to caution listeners about the dangers of relying too heavily on reports from third-party market research firms as proxies for how our brands are performing in US wholesale channels.

We have found that the data from some of those services is not representative of our broad, diverse US customer base and should be read with caution.

Turning now to our Europe direct markets, the Columbia brand grew 10% in 2014, led by Columbia trail footwear and outerwear, despite a warm winter and macroeconomic softness in that region.

Four of Columbia's top five footwear styles in Europe are trail multi-sport styles, which have sold through very well in all distribution channels across the continent.

Columbia's European outerwear business also grew in 2014, led by TurboDown.

We expect trail footwear and outerwear to continue to drive the Columbia brand's European growth in 2015.

I'll turn now to the Sorel brand, which grew nearly 30% for the year, capped by a growth of nearly 40% in the fourth quarter.

As with the Columbia brand, the core strategies under the Sorel brand tie directly back to our Corporate mission to help active people pursue their passions.

For Sorel, these core strategies include focus on young fashion-forward female consumers, elevate product design without compromising performance and protection, evolve purposely and thoughtfully into a year-round brand, earn retailers' real estate at the world's best footwear stores and boutiques.

Momentum behind Sorel has been growing for the past several years, as young, fashion-forward females discovered Sorel's cold-weather styles, and more recently, our new fall styles.

Sorel consumers found more of these versatile styles at upscale retailers like Nordstrom, Lord & Taylor, Dillard's, and a variety of high-quality specialty footwear boutiques across North America.

Sorel posted double-digit growth in full-price sales to each of its US distribution channels in 2014, led by growth in sales to the specialty channel.

Many of the brand-enhancing wholesale partners I mentioned a moment ago, are considering expanding their store space devoted to Sorel for fall 2015.

In addition to Sorel's strong performance in wholesale channels, US direct-to-consumer sales of Sorel increased 60% in 2014.

Sorel's e-commerce sales increased substantially this fall and sales at our first ever Sorel-branded retail store in New York's Meatpacking District, have outperformed our expectation since it opened last October.

We're very pleased with the progress Sorel is making in reducing dependent on cold-weather styles, diversifying its distribution, and deepening the brand's connection with fashion-forward female consumers, all the while continuing to grow its heritage cold-weather franchise.

We're confident that Sorel is on its way to posting another record year in 2015.

Turning now to the prAna brand, as the newest member of our brand family, prAna's strategies has many parallels to other brands in our portfolio, while addressing the needs of a different consumer segment: innovate and design stylish active apparel, emphasizing sustainable materials, become a lifestyle brand of choice aimed at socially conscious consumers of both genders, grow purposely through brand-enhancing global distribution, and invest in an expanded direct-to-consumer platform to increase brand awareness and loyalty.

prAna contributed $53.7 million to our consolidated 2014 net sales and finished the year at nearly $100 million.

We are making good progress integrating prAna and continue to identify additional opportunities for leverage.

We believe that prAna has the potential to be one of the next great lifestyle brands and are committed to providing the resources and operational support to pursue the brand's global potential.

The fourth major brand in our portfolio, Mountain Hardware, is deeply rooted in the high-performance alpine and mountaineering segment.

During 2014, we refined Mountain Hardware's line architecture and technology platform, creating more styles at gateway price points within the premium insulated and waterproof [rain wear] categories.

We believe Mountain Hardware is poised to resume growth in the US in 2015, largely offset by the continuing effects of difficult market conditions in Korea, Mountain Hardware's largest international market.

Next I want to highlight the outstanding growth of our US direct-to-consumer platform in 2014, which accounted for slightly more than one-half of the $172 million of US sales growth across all brands, excluding prAna.

The majority of direct-to-consumer sales growth came from our outlet stores and e-commerce platforms.

We also opened six new branded stores during the fourth quarter, each of which is in the early stages of establishing itself in the local retail landscape.

Despite challenging traffic trends, our existing brick-and-mortar stores achieved healthy improvements in productivity during the fourth quarter and over the full year.

Our US e-commerce business across all brands grew more than 40% in 2014, surpassing the $100 million milestone.

Last summer, we upgraded our e-comm technology platforms for our branded e-commerce sites in the US, Canada, and Europe.

Consumers experienced immediate improvement in their online shopping experience, enabling increase productivity, especially in the US.

The upgrade also significantly streamlined our internal e-commerce operations.

We intend to remain primarily a wholesale-focused Company across our entire brand portfolio, however, in an increasingly omni-channel world, maintaining a robust direct-to-consumer platform to complement our wholesale business is critical.

We expect our direct-to-consumer platform to continue to be an important source of sales and earnings growth.

In addition, our stores and e-commerce sites serve as powerful marketing platforms through which each of our brands can fully express itself and build strong emotional connections with targeted consumers.

Tom's CFO commentary contains a detailed analysis of sales by region, but I want to emphasize that all four regions contributed to our 55% full-year sales growth.

Sales grew $227 million, or 23% in the US, consisting of equal dollar contributions from wholesale and direct-to-consumer channels, supplemented by the addition of prAna.

Sales in Canada grew 28%, with strong contributions from wholesale and direct-to-consumer channels.

In our EMEA region, 8% growth was driven by renewed growth in the Columbia brand in our Europe direct markets.

In addition, our Russian distributor expanded its Columbia business during 2014, despite the increasing economic challenges prior to the extreme currency devaluation that accelerated during the second half.

The LAAP region benefited from the addition of the China JV, which contributed $161 million in incremental sales and added $0.11 per share to our full-year EPS.

The incremental growth from the China JV was partially offset by the effects of very difficult market conditions in Korea, to which we've spoken in past quarters.

After more than a decade of rapid growth and increasing profitability, the Korean market has become extremely competitive and highly promotional, resulting in significant drag on net sales and profitability in our LAAP region; particularly in the second half of 2014 when we recorded significant provisions for slow-moving inventory.

We are taking additional steps to address the challenging environment in Korea, which we expect to persist at least through 2015.

Shifting now from brand and regional sales performance and looking at factors that drove improved profitability.

Full-year gross margins of 45.5% were our highest since 2004, reflecting strong consumer demand and lean US inventory, as well as favorable effects of our China JV.

Gross margins benefited from improved inventory management, enabled by greater visibility across our supply chain, following our successful North American ERP implementation.

These new systems and related processes are enabling us to better plan inventory, to match demand, and to utilize inventory more efficiently across wholesale and direct-to-consumer channels.

Our international distributor business will migrate to the ERP platform in the first half of 2015 as the next phase of this global multi-year project.

While we invested to support the strategic initiatives I mentioned at the beginning of my comments, we also managed our discretionary expenses very carefully producing a 51% increase in operating profit to nearly $200 million and increasing operating margins to 9.5% of sales from 7.8% in 2013.

We achieved this 170 basis point operating margin expansion while simultaneously increasing demand creation investments to 5.2% of sales from 4.6% in 2013.

We ended the year with $441 million in cash, even after the $188.5 million cash purchase of prAna, and returning nearly $55 million to shareholders in the form of dividend and share repurchase.

In summarizing our performance in 2014, what I'm also proud of is that the Columbia and Sorel brands drove double-digit top-line growth and accounted for virtually all of our operating income growth in 2014.

Turning to our 2015 outlook, since we issued our preliminary double-digit top-line growth outlook last October, momentum behind the Columbia and Sorel brands has continued to increase across North America and Europe direct markets, mitigating the effects we currently anticipated from unfavorable macroeconomic and geopolitical factors in other key markets.

We are reaffirming the 2015 net sales outlook that we provided last October and projecting record net income of between $150 million and $157 million or $2.10 to $2.20 per share.

This outlook includes the anticipated effects of a stronger US dollar.

One additional variable that is difficult to predict or to factor into our 2015 outlook is the ongoing situation at west coast ports.

Some of these ports have been experiencing disruptions for well over a year.

We have been proactive in taking steps to mitigate the disruptions and continue to work closely with our transportation partners and with our customers to expedite, reroute, and prioritize as necessary to maintain an adequate flow of goods.

Our outlook assumes that macro and market conditions in key markets and the US west coast port issues do not worsen.

We remain confident in our strategies to drive continued growth by focusing on those things that we can control.

2014 was a spectacular year and our momentum is continuing into 2015.

Our expanded portfolio of brands has never been stronger.

We expect 2015 to be another year of record revenues, as well as a year of record net income.

You can find a lot more detail in our Q4 and full-year results, as well as our 2015 outlook in Tom's CFO summary, which is available on our website.

That concludes my remarks.

We welcome your questions for the remainder of the hour.

Operator?

(Operator Instructions)

Bob Drbul, Nomura.

Congratulations, Tim, and everybody there.

Great finish to the year.

Tim, the first question I have is on the 2015 outlook, it was at 9.7% operating margin.

Any way you can get that to double-digit this year?

(Laughter) I'm sure that there are a number of factors that could come into play to bring it higher.

Obviously, our goal, and we've talked about it at length, is to increase our operating margin through a number of focused areas, obviously top line, increasing our gross margin.

We also want to, at the same time, increase our marketing spend.

We think we need to spend more to make sure people understand our story, and then obviously to increase our operating margin percentage.

So we're focused on those things and we're going to do our best to get as high as we possibly can.

Got it.

Then in the 2015 numbers, the demand creation goes up to 5.3% as a percent of sales.

What was it in the 2014 numbers and where is your mindset in terms of where you really want the number to go longer-term, Tim?

We spent -- in 2014 it was 5.2%, and obviously these things require time to unfold.

We probably need to be on par with our peers, so call it -- maybe the high single-digit number, but it's more important that we have a very focused and efficient method of spending that money.

I know, as all of you noticed, we added a new Chief Marketing Officer to the team, Stu Redsun, who is going to help us to really prioritize our spends and make sure that regardless of amount of money we are spending, we are getting the best use of that.

Got it.

Okay.

Tim, my last question is with the weather in the fourth quarter where we are today, can you just talk about inventory levels of outerwear and your products at retail, and at the year-end piece, excess inventory levels in your inventory on hand, year-over-year, how you are positioned as we look to the next year?

As you remember, we're about 40% outside the US, so our weather in North America couldn't have been better, really.

It was spectacular.

However, we did not have the same sorts of great weather in Europe in the direct bases.

Russia was actually pretty good and China was late, as well, is in terms of the weather arrivals.

I would say, in North America and in our Europe direct business, we're probably close about maybe cleaner in North America.

We still have some issues in Asia as we have talked about.

We believe the reserves we have their are quite adequate, and going into 2015, by now we have a significant amount of our order book and this gives us a lot of confidence to give you the guidance that we gave today.

Great.

Thank you very much.

Kate McShane, Citigroup.

Congratulations.

This is Nancy Hilliker on for Kate McShane.

Great quarter.

I'm wondering if you could talk a little bit more about the future distribution strategy in the US and just update us on prAna and plans for the brand in 2015?

Certainly.

We are not really adding any distribution in 2015 in North America.

We have all of the points of distribution that we want.

We're obviously growing with virtually every customer, so that's -- we're quite encourage by that.

We are adding customers in Europe, in our Europe direct business, and as well as other markets around the world.

So we're pleased with our current distribution and we're not adding a significant new customers.

As it relates to prAna, we're going to continue to grow the business with the existing customer base.

There will be additions in the US, but we're not ready to talk about any particulars today that will move the needle, but we feel over time, the biggest change for prAna will be international expansion, and that would include many of the customers and distributors that we have around the world that believe strongly in the promise of prAna's business future.

So over time, we expect that the biggest change will be in our international business.

Even for Sorel, any distribution changes in the US?

Not really.

We probably have added some boutiques and small specialty stores, but no major customers.

Obviously, there's quite significant growth from our existing customer base, based on the performance of the product, but we're not adding any specific distribution.

Okay, thanks so much.

Camilo Lyon, Canaccord Genuity.

This is Falo Seni on for Camilo.

Again, great quarter.

Congratulations.

I was wondering if you could talk a little bit about initial orders for Sorel, and how the retailers are embracing your plan category, both domestically and internationally?

Certainly.

You're talking with initial order book we have for 2015?

As I said, the existing distribution in North America has continued to embrace Sorel, and really our promise of making it much more important to fashion-forward females, and also much more important in those seasons when there's no snow on the ground.

That's been a real improvement in the business health, so we don't have just a short window of time now to sell our Sorel product, but we have a longer period of time.

That's been quite good.

Outside the US and our Europe direct markets, the brand has not been as successfully received.

There's more opportunity for us internationally as the business continues to expand its presence outside of pure winter.

That will be a focus of our merchandising teams, to continue to grow the business outside of winter, and we expect as that as we're successful in doing that, the business outside the US, North America, and our European EU markets will begin to expand at a faster rate.

Great Thank you.

Just one last question, if you can give some color on how outerwear perform during the quarter, that would be great?

Certainly.

Again, in North America where we had spectacular weather and timing of weather, we had great outerwear performance, and we're just thrilled with the way the year turned out there.

Europe was less dramatic in terms of the weather impact on the business, however, we had great sell-through in our products there in outerwear, and the weather was quite good in Russia for our outerwear sales; however, as we all know, there other issues in that market.

In China and in Korea and in Japan, the weather was less conducive, but we still had good sales.

Great.

Thank you.

Susan Anderson, FBR Capital.

Congratulations on the good quarter.

I was wondering, I know you're not talking about any additional wholesale customers in the US for prAna, but I don't know if you can give a color or if you have any reaction from wholesale customers yet on the brand.

It just seems like there is a lot of demand out there for a yoga brand at wholesale?

Then also if you could maybe just give your updated thoughts around adding more brands to the portfolio or any thoughts around diversifying more away from the winter seasonal aspect of the business and any new products for the spring?

Certainly.

Again, we're thrilled with prAna's acquisition and the results while we've owned the business and the future look of the existing prAna business, which as we all have talked about, is almost exclusively a US to a lesser extent North American business.

We haven't changed the customer base there at all.

We like to add more businesses where we think that's appropriate, but we haven't expanded the distribution at wholesale in North America really to any significant impact this year.

As I said, the real opportunity we feel with prAna is going to be how we expand it internationally to those distributors around the world that currently carry other Columbia brands that have a real feel for this product category and where it can go.

So that will be the primary focus rather than opening additional distribution here in the US.

Got it.

And then just any thoughts around adding more brands to your portfolio or any update on new products for the spring, in order to diversify away from the winter?

Certainly.

As we have said, the Company has never said that acquisitions is a strategy to grow the business.

We have lots and lots of opportunity with the brands that we own, however, we have a balance sheet that will allow us to take advantage of opportunities like prAna, and so we're going to focus on those areas that we already own.

That's the highest return, lowest risk for the Company.

You saw with the results of Sorel and Columbia where we really focused on the improvements there, we can be very, very successful, so that's been the primary focus of the business.

As it relates to non-weather-sensitive or non-winter-weather-sensitive products, remember our PFG product, which is a growing business, now over $100 million, it's very successful in the southern part of the United States, especially in spring and summer and throughout Central and South America, it's been well-received.

Great.

Thanks.

Good luck next quarter.

Lindsay Druker Mann, Goldman Sachs.

In the US as I think about your guidance for next year, it seems to be low double-digits excluding the prAna acquisition benefits, on top of a year where you had underlying healthy teens growth.

I understand you're coming off maybe a bit of a depressed base, but how do you guys think about the long-term revenue run rate in this market?

You're talking about the North American market?

Yes.

In the US?

In the US, we think there is enormous opportunity for the brand.

Obviously, as we continue to expand and improve our outerwear business, we're going get traction there.

Our PFG business is growing in a very strong way.

And honestly, even though we have grown our footwear business spectacularly over the year, we're really nowhere as it relates to the real footwear business where the real opportunity for our brand lies.

We've said, unfortunately, for too many years, that footwear should be the largest product category for the Company.

We're just now beginning to hit our stride on that.

How do we think about the bread-and-butter outerwear business?

What is the long-term run rate for that?

We think that there is significant opportunity to grow that business, even though that is one of our largest product categories.

But obviously sportswear business is an enormous product category where we play well in PFG, but outside of that, we don't have the kinds of large businesses that we like, but that's certainly an opportunity for us to continue to grow that business.

I wanted to follow-up on the benefits you're seeing from ERP implementation and your gross margin guidance, how much of that is embedded in next year's outlook?

Did you see any of it in the fourth quarter?

I know you flipped the switch earlier this year, but maybe it's a little bit early for the full benefits to flow through.

Maybe just help us understand what you're seeing already and if you can quantify the outlook for benefits going forward?

Lindsay, this is Tom.

I would say throughout the course of 2014, we've begun to get some traction with improved gross margin in our North American business, and improved turns.

We've done a much better job of sharing inventory across both the wholesale and direct-to-consumer channels, so don't really want to get into specific numbers, but they've been meaningful to 2014's results.

Is there incremental benefit then, to expect for 2015?

Yes, for sure.

We think both in both turns and margins.

From a global perspective, we improved our turns from 2.5 times to 2.8 times and our goal is to get north of 3, and that's going to be with better inventory utilization.

Great.

Then just last one for me.

Thank you for the detailed currency guidance for next year.

It seems like the EPS impact that you're talking to from a percentage basis is in line with the revenue impact, which to me implies mostly translation and very little transaction.

Maybe just give us some details on those specifics of the currency outlook?

Are you looking for any transactional pressure and are you offsetting with price or with maybe cost savings?

Maybe starting at the top line, we've planned about 3 percentage points of negative effect on the top line.

About one-third of our business is transacted in currencies outside the US, predominantly the Canadian dollar, the Chinese RMB, the Japanese yen, and the euro.

Like 2014, we expect about 40 basis points of gross margin headwind from currency, and that equates to about $0.13 of negative effect in 2015, and that's on top of about $0.11 of negative effect in 2014.

Fantastic.

Thanks so much.

Christian Buss, Credit Suisse.

Let's move on to the next questioner.

Eric Tracy, Janney Capital.

I will add my congratulations to the team.

Great year.

If I can just follow up on this business outlook, the high-teens percentage growth in US wholesale and DTC.

Am I to read that, that both are expected to be up mid-teens or is that a combination of that gets you that high teens?

That would be a combination of both channels.

Okay.

So as we think about the US wholesale business, again, no incremental distribution implies taking share.

Could you maybe allude to where you are picking up share or are you arguing again, just that the market [at your] category expansion continues?

I'm really focused on the outerwear piece of the business.

I understand footwear is certainly the big contributor to that, but as we think about that core outerwear piece of the business?

At the end of the day, we're going to be gaining some share from other brands, but probably the single largest is going to be coming from private label.

So retailers realize that they have an opportunity to have a brand with the varied price opportunity that Columbia offers them, and that they can get, again, from our other brands and the segmented portions, Mountain Hardware, prAna, and obviously the Sorel brand, as well.

Okay, perfect.

Then as you think about the DTC piece, understanding e-comm translating very well, outlet channel, it seems to be you're pretty methodical around the full-price stores.

How do you think about that longer-term in terms of balancing your wholesale relationships, while also perhaps having an opportunity to take more control in terms of distribution?

We look at the direct-to-consumer investments that we've made being as much a marketing effort as they are an opportunity for us to liquidate excess inventory and to generate profits for the Business.

As an example, our very successful e-comm business, we have about industry average conversion rates, which means that way over 95% of the people that visit the site are getting a terrific marketing message and leaving and hopefully buying our products somewhere else, maybe in a brick-and-mortar store.

The same thing with our stores, our brand stores that we've opened around the United States, where consumers can really see the product laid out the way we think they are most likely to understand what we're trying to do.

So that's how we're looking at those kinds of opportunities, from both a revenue improvement and a brand improvement.

Okay.

If I could, last one, just in terms of the Europe outlook, looking for mid-teens constant dollar growth, maybe speak to again where that growth is coming from, whether it's shared in your distribution?

And then as we think about some of the distributor relationship, let's use Russia as an example, maybe Tom, walk us through the impacts of top line?

Because I would assume, cost of goods is going up pretty significantly, what the opportunities there are to offset with price and just how you're thinking about that dynamic?

Let me talk first about our Europe direct business because we've been pretty clear that it's been under duress for some time, and frankly, we've underperformed there historically, so this has been an area where the Company has been significantly focused.

We've made a leadership change there about 18 months ago with a very senior effective leader who has gotten ourselves quite focused on the largest retail operations in Europe, places where the Company has been very successful historically and not very successful in more recent times.

But we're really focusing on making sure that we have a singular approach to the Business much like what we have in North America, where it's led with product.

We want to increase our marketing spend there, as well, because we believe we need that there even greater.

It's paying dividends.

Again, it's all about getting ourselves back in the right position there with the right dealer.

So that's going quite well.

Our independent distributor business in many ways is -- let me put it this way -- our independent distributors, most of them have a fairly significant mono-brand store focus, meaning the Columbia brand is how they distribute products in a mono-brand store environment.

Our distributors in Russia, has their multi-brand sporting goods operation, very strong financially, and these are tough times for them, but they've been through tougher times in the past and we're excited about the opportunities there.

But I know you had some questions about the metrics and I'll let Tom speak to that.

Eric, as it relates to gross margin and pricing, the euro has depreciated against the dollar by a high-teens percentage over the last 12 months, so we are selectively increasing price where we can, but that's a bit of a high-wire act.

We're shifting production where we can to reduce and/or avoid duty.

And we are taking somewhat of a margin hit in our European direct business, greater than what I quoted as our -- the Corporate average of 40 basis points, but we think we're managing the business prudently in that region.

Okay, thanks so much for all the detail.

Best of luck.

Mitch Kummetz, Robert W Baird.

Let me add my congratulations.

Couple of questions.

I want to follow up on Lindsay's question about ERP.

Tom, could just you remind us where are we in the process of the implementation?

And maybe you could speak to it.

What percentage of the business has now been touched by ERP?

Is it one-half, is it more or less than that, and where do you think that ends up by the end of 2015?

Then I've got a follow-up.

Our Canadian and US businesses are on the SAP platform today.

We are on schedule to bring our international business online in early Q2 of this year, so that brings well over one-half of our business and most of our supply chain onto the platform.

We've got basically the Asian direct businesses and Europe to go.

Okay.

That's helpful.

Then Tim, I was hoping you could just maybe provide a little more color on the sales over delivery on the fourth quarter.

I know historically you downplayed your ability to chase demand in the quarter, and I don't know -- we're -- orders that were the books, do they get pulled forward?

Is that what happened?

Or has anything changed structurally to allow you to better chase demand in the business?

Then I also wanted to ask you about your comment on spectacular weather in North America.

I'm just curious as to what made it spectacular.

I know had favorable weather last year.

This year it seemed like we had a cold spike early and then things warmed up again, so I'm just curious about that?

Certainly.

Just as a reminder, the Company now has a larger component of direct-to-consumer sales, which there's something about that holiday at the end of the year that makes people excited.

If the weather is appropriate, at the time, it even makes it better.

So we've added new Management to our direct-to-consumer business, maybe as much is two years ago, maybe 18 months ago.

But our metrics have improved significantly over time, so we can take advantage of the spike of shopping in the quarter.

Then we always have an element of cancellations that we apply to our order book to make sure that we plan properly and when we have weather like we had this year, we just don't have the kinds of impact in terms of cancellation.

And then frankly, our products have gotten better, so the demand is more solid.

So we don't really have the opportunity to chase, but those things I've mentioned made for a better Q4.

As it relates to whether, remember we had that real spike of cold weather early in November?

Frankly, that's when most of our retailers were able to take advantage of selling product at full price and really do well.

So when our products outperform others, we're going to get another reorder or certainly better performance out of the products at the retail stores.

We didn't have that same great weather, though in Europe.

So it was late coming, but basically in North America it was very good.

And maybe just add some color to that, Mitch, we would've seen significantly better expansion in the gross margin in Q4 had it not been for the Korean inventory provision, which impacted the quarter's gross margin by about 100 basis points.

Okay.

Great.

All right.

Thanks.

Good luck.

Laurent Vasilescu, Macquarie.

Congratulations on a strong finish.

I wanted to follow-up on the gross margins guide.

I understand you don't provide quarterly guidance, but could you possibly talk to us about how we should model out the gross margin over the course of the year?

Yes.

We're planning 20 basis points of expansion for the full year.

We expect 40 to 50 basis points of gross margin compression from currency to net plus 20 basis points.

That 40 or 50 basis points of compression is going to be pretty evenly spread.

Then we took a pretty big hit, as I just alluded to in gross margin in Q4 this year that will provide a benefit in Q4 of 2015 as we see the business today.

Then should we see the gross margin improve over the course of the year?

Yes.

I would expect gross margin to be net up for most of the year.

Looking at the business from a first half/back half perspective, we expect the top line to grow at a faster pace in the first half, given we've got five months of non-comp for the prAna business, and that's roughly $50 million.

Then really from an operating margin perspective, given the seasonality of our Business, the relatively fixed-cost structure of the business, the interplay of the wholesale business, the direct-to-consumer business, and our distributor business, as well as currency, those are all going to have an impact on the profitability of our Business, where I would expect most of the profitability growth be in the second half of the year.

Okay, great.

On FX, maybe we could talk about the impact to SG&A.

I believe you have about 4,000 employees currently, and a few years ago you parsed out with one-half of the employees in the US and then the other balance mostly in Asia and Europe.

Could you provide an update on the breakdown of employee by region or maybe a breakdown of SG&A, so we can model out the impact to FX?

I don't have the headcount breakdown in front of me, but I would say, stepping back, looking at our business today, I would say the headcount maps relatively closely with the revenue geographically, with perhaps a little bit higher weighting to the US, given we have a much higher percentage of direct-to-consumer business, so that would be one way to look at it.

And then maybe just stepping back and taking a little bit higher look at the business, about one-third of the business is transacted in foreign currency, as I alluded to earlier, and about one-third of the business and slightly lower in 2015 of the business's operating profit will be generated offshore, so that's probably an easier way to look at it.

If you come back to the $0.13 negative effect of currency on the business, and 40 to 50 basis points of that being gross margin, you can get to the other side of the equation.

Very helpful.

And then lastly, in the prepared remarks, it was outlined that the China JV contributed to the 130 bps of improvement in the gross margin for 2014.

Can you parse that out?

How much of it--?

It is probably plus or minus one-half of that expansion for the full year.

That varies quarter-to-quarter, but for the full year of 2014 it's roughly one-half.

Okay.

Very helpful.

And then can you provide some color on what's happening in China?

We're hearing from other competitors that China continues to accelerate, so any color on that front, that would be great?

This is our first year with our JV.

We have a very experienced partner in the Swire Group and it's been doing business in China since the 1700s, so we have a high degree of confidence in their group that's there.

We've seen a little bit of compression in the business, as the overall Chinese economy has slowed.

It's still growing much faster than other economies around the world, but we see some slowing there.

The weather was not terrific, and it's increasingly competitive there, so it's an area where we know over the long-term, it will be a significant component of our Business: already is, but we're going to have to keep watching it to make sure we stay on top of that.

Okay, great.

Best of luck.

Andrew Burns, D.A. Davidson.

One of the more exciting aspects about the outlook, at least in my view is the mid-teens growth in the Europe direct business.

Given the history there, that momentum is very important to talk about as you did.

I'm just wondering, with this momentum, when can we see -- how long until we see a nice lift in the margin profile of that business?

Is it just a function of revenue growth over or do other items need to fall in place to really get that back to a healthy margin?

Again, it's all about the folks that we've got managing a business and their focus on growing the business from a top-line perspective, as well as managing the SG&A with a very serious focus on profitability.

Our expectation is that as soon as we can possibly make that flip over into black ink, we are going to be on that, but it's -- the opportunity for the Company, frankly, is very significant, and it's great to see that once-troubled area start to grow again.

Thanks.

And just in terms of your store growth for 2015, can you talk about what is built into your model there in terms of outlet, store growth, full price?

In the North American business, we're planning 11 outlets and a couple, one to two branded stores, and then a few outlet stores in Western Europe.

And then I would say, between Japan and China, we're talking a high single-digit, much smaller footprint combination of franchised and Company-owned shop-in-shop and standalone stores, in each of those two regions.

Okay, thanks.

Then lastly, just some color on South Korea would be helpful, just in terms of what's required, and ultimately, can that return to the really attractive outdoor brand market that it once was?

Yes.

It's a real opportunity, frankly.

The business -- the industry there expanded exponentially, so we had lots and lots of competitors enter that business.

We see competitors leaving.

We're not going anywhere.

We're one of the key brands there.

We will continue to stay, and we have the capacity to continue to invest there to make the business better.

We're making changes in the leadership structure around that market to make sure that we have the right approach strategically, and so we expect the difficulties to continue through 2015, but it's still going to be a strong market globally for our kinds of products.

Great.

Thank you.

Rafe Jadrosich, Bank of America Merrill Lynch.

Just on SG&A guidance for next year, given the high single-digit growth outlook for 2015, how should we think about leverage going forward?

Should we expect you to continue to reinvest top-line momentum into SG&A?

Then when do you start to leverage the expenses related to the ERP implementation?

I would expect to see some leverage from the ERP implementation this year and that's baked into the guidance.

SG&A is planned flat as a percentage of sales this year.

We're going to be plus or minus this side a flat.

There is some chance to leverage.

But with that being said, we're continuing to invest in our global direct-to-consumer business, as well as the demand creation side of our business, and our IT investment is going up slightly, low single-digit millions of dollars this year.

Some of this is discretionary spend that we've chosen to support the long-term growth of the business.

And then can you just talk about the decision to convert the Sorel pop-up store into a permanent store?

Certainly.

We've been just thrilled with the results there at that store, and the exposure that we've gotten for the Sorel brand.

We had originally thought that was going to strictly be a pop-up store for several months, but with the results we've seen there and with the investment that the Company plans to make in more year-round product, we think it is an opportunity to keep that space, keep it branded Sorel, and continue to help market the brand in what is one of the most important markets in the world.

And then finally, I might have missed this earlier, are you changing your pricing at all in Europe or Asia to offset the FX headwinds?

Well, as we said, we've focused on making sure that the Company's products are right, first of all, and then we have to raise some prices selectively.

We're in the process of really managing how we will accomplish that.

This is a really 2015, and to a certain 2016 issue, and we're going to have to selectively raise prices if the currency headwinds persist.

Great, thank you.

Christopher Svezia, Susquehanna.

Great job.

Just real quick question, Tom, for you.

Any change, as you think about FX as you go throughout the year, you assume they pretty much stay where they are at this point.

Is that planned in your forecast?

That's a pretty fair assessment.

We're pretty close to current spot rates in the outlook.

And then obviously hedge rates, from a hedging perspective, we like to be 50% hedged for a season at the time we price, so we're generally 12 months out when we began hedging, and then we want to be 80%-plus hedged as begin to procure the inventory, so that risk is effectively baked into the outlook here for calendar year 2015.

Okay.

Understood.

Thank you.

Mountain Hardware, just maybe just touch on real quickly the changes you're making there?

Obviously, you expect to turn to growth; what you're doing there to make that happen?

We really focused on the product offering to make sure that we had products that we call gateway products, but fans of the brand could acquire without having to spend $300 on a jacket.

So we've lowered some of the prices on products -- I should say, we've built products which have lower entry price points to allow consumers that love the brand to get into them without taking out a mortgage.

(Laughter) okay.

And then last, just on the inventory side, up 17%, I'm just curious: is some of that inventory related to what's going on in Korea and just some of those areas where we need to move some inventory?

What's the outlook on that as we move forward?

Maybe just to clarify and that, we're plus 9% excluding prAna, because prAna is not in the prior-year base, so that's one element.

And then, as Tim alluded to earlier, and in my transcript, obviously, we have got higher-than-optimal inventory levels in Korea, and probably too a much lesser degree in China.

Okay.

And that pares down as a year goes on?

Does that get down pretty quickly?

Yes, I would expect inventory to grow generally in line with sales, as we make our way through the year.

That may vary from quarter-to-quarter just on the timing of receipt.

Okay.

Got it.

Okay.

Thank you very much.

All the best.

(Operator Instructions)

Lindsay Drucker Mann, Goldman Sachs.

I just wanted to clarify one thing.

First on the tax rate, you're guiding to 29% for the next year.

There have been times when you're tax rate has been lower than that.

Can you talk about whether over a multi-year horizon you expect your tax rate to continue to move lower, or is this a run rate?

It's ticked up a bit in the last couple of years, just given a much higher percentage of our pre-tax incomes in the US.

So to the extent that we drive profitability into the international side of the business, particularly Europe, it would drive that tax rate down.

The run rate is tough to project in that regard, but given where we're at and given where foreign currency valuations lie, this is probably a pretty good barometer for the foreseeable future.

With that being said, I would say that, in the first half of the year, we would expect the tax rate to be higher than the 29%.

It's probably going to be in the low 30%s, call it 33% just given the mix of income and discrete items that are planned for the year.

Got it.

That's helpful.

Then maybe just a longer-minded question about your margin goals.

Do you guys think that over the long-term you can get towards mid-teens type of operating margins and how long do you think it takes to get you there?

Well, if you remember the Company, in not that distant past, we were really approaching 20% operating margins, so we know we can -- we have the capacity to get higher than we are today.

It's been an embarrassment for me personally that we haven't gotten there quicker, but, yes, we talk about this all the time internally, that we want to at least get to average and then who wants to boast about being average?

The goal for us is to get back in those industry-leading metrics, including profitability and marketing spend, and others, so I don't know how long it will take us, probably too long.

Okay.

Thanks again.

Thank you.

We have no further questions in queue at this time.

I like to turn the conference back over to Management for any additional remarks.

We really appreciate you spending time with us.

Obviously, we're thrilled with our results for 2014.

2015 we expect to be better, and our goals for a continued improvement maintained.

We look forward talking to you further about our success.

Thank you.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time and thank you for your participation.