Columbia Sportswear Co (COLM) 2015 Q1 法說會逐字稿

Greetings and welcome to the Columbia Sportswear Company first quarter 2015 financial results conference call.

(Operator Instructions).

As reminder, this conference is being recorded.

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

Thank you, Mr. Parham, you may now begin.

All right.

Thanks, Benny, and good afternoon.

And thanks everyone for joining us to discuss Columbia Sportswear Company's record first quarter financial results and upward revised 2015 financial outlook that we announced earlier this afternoon.

Shortly after our 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 web site and we encourage investors to review it if you have not already done so.

With me today on the call are Chief Executive Officer, Tim Boyle; Chairman of the Board, Gert Boyle; President and Chief Operating Officer, Bryan Timm; Executive Vice President and Chief Financial Officer, Tom Cusick; and Executive 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 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, 2014, and subsequent filings with the SEC.

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

And we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.

Thank you, Gert.

And we'll turn the call over to Tim.

Thanks, Ron.

Welcome, everyone.

And thanks for joining us this afternoon.

2015 is off to a strong start.

Gaining the momentum we created in 2014 behind the Columbia, Sorel and prAna brands in North America, showing encouraging progress in Europe, and returning to growth in Latin American distributor markets.

Our strong brand portfolio drove several first quarter records.

Record net sales of $479 million, up 13% over last year's first quarter, including the four percentage point negative effect of the stronger US dollar.

First quarter net sales increased in all four regions, on a constant dollar basis.

Record gross margins of 47.8%, up 130 basis points over Q1 2014.

Record operating profit of $44.1 million, up 24% over Q1 2014.

Record net income of $26.5 million, up 19% over Q1 2004.

And record earnings per share of $0.37, compared to $0.32 in Q1 2014.

Favorable weather across the eastern half of North America helped extend the sell-through momentum that began in the fourth quarter.

However, I'm even more encouraged by the strong sell-through of the large volume in spring season, Columbia brand products we delivered to the market during the first quarter, despite the lingering cold weather.

The vast majority of our North American and wholesale customers are reporting double digit sell-through increases in our sports wear, performance fishing gear, outerwear, footwear and accessories.

The strength is evident across all North American wholesale channels, including specialty, sporting goods, hunt, fish, camp and department stores.

We believe this reflects our progress in gradually reducing the Company's dependence on winter weather.

Another area of first quarter strength was our North American direct-to-consumer business.

Our direct-to-consumer platform represents much more than just a profitable segment of our business.

It also represents a very effective marketing medium, through which consumers can connect with and learn about the broad assortment of products our brands offer to help them enjoy the outdoors longer, in any season and any climate.

Our retail teams have leveraged our improved product assortment and their increased retailing experience to deliver sales growth, enhanced productivity and improved profitability across our North American store base.

In addition, our North American E-commerce business extended the rapid growth pace it achieved during 2014 and continued to exceed our expectations of sales growth and profitability.

Similar to the US wholesale sell-through I described earlier, while outerwear and cold weather footwear benefited from cold weather, we also saw strong sales of our spring sports wear, P.F.G.

and trail footwear.

Last year we opened 16 new stores and added five existing prAna stores to our North American fleet.

We also upgraded our global E-commerce platform.

In 2015, we plan to open a several number of new stores in North America, and anticipate continued growth from our existing store base, combined with global E-commerce growth.

We're very encouraged by the momentum of our business in North America, and the further strengthening of fall advanced wholesale orders since we last spoke in February.

The increased inventory levels you'll see on the balance sheet at March 31, and that you can expect to see again at the end of June, are commensurate with the higher demand and earlier deliveries requested by our wholesale customers, as well as the needs of our expanded direct-to-consumer business.

In Europe the new leadership team we've assembled over the last 18 months has been focused on improving our product offerings and rebuilding our relationships with the largest retailers in each of Europe's key markets.

We believe our first quarter results reflect early progress on that strategy.

Our European wholesale and direct-to-consumer business grew low 20% as reported, including $2 million of incremental prAna sales and 40% in constant dollar terms.

European sales of Columbia brand apparel grew 10% in US dollars and nearly 30% in constant dollars, while sales of Columbia footwear in Europe grew nearly 60% in US dollars and more than 80% in constant dollars.

A portion of these increases reflect progress on our initiative to accelerate delivery of our seasonal offerings to better meet the needs of our wholesale customers and ensure that our new products reach retail floors in a timely manner to meet consumer demand.

Columbia footwear accounted for more than half of our European sales growth, during the quarter, reflecting our increasing strength in the sale category, which is the largest segment of the global outdoor footwear business.

We are encouraged by this momentum and committed to competing for a significantly greater share of this important global category over the coming years.

Our Latin American distributor business grew by more than 60% during the first quarter, driven primarily by our distribution partners in Argentina, Chile and Panama.

We are planning significant growth for our LAP distributor business in 2015, concentrated in the Columbia brand, which is very encouraging, after encountering geopolitical challenges in this region over the last two years.

Before I open the call to your questions, I want to comment on Sorel and prAna, two brands in our portfolio that we expect to contribute significant sales and organic growth in the second half of 2015, and for many years to come.

When we bought the Sorel trademark for $8 million in 2000, Sorel was a heavily male-oriented brand that offered rugged, utilitarian work boots for extreme cold weather.

And in 2009, when the brand generated approximately $60 million in annual sales, Mark Nenow and his team saw the potential of repositioning the brand and re-envisioning the products to appeal to fashion-forward women.

Since then the Sorel consumer base has transformed to be more than 70% female, while sales have nearly tripled, growing 29% in 2014 to $166 million.

To continue driving this momentum, we recently appointed Mark Nenow as president of the Sorel brand, to create a focused product and marketing team to aggressively capitalize on Sorel's global potential.

Based on rapidly expanding consumer demand, and a very strong advanced wholesale orders for 2015 fall, we expect Sorel to surpass $200 million in sales this year, which would make it the first of our acquired brands to surpass that milestone.

We believe we are only at the beginning to tap Sorel's global potential.

By gradually expanding Sorel's product assortment and categories to increase it's year-round relevance, we intend to create new growth opportunities in North America and in Europe, and to make Sorel a viable brand for international distributors.

Finally, we continue to be extremely excited about prAna.

The newest addition to our brand portfolio.

PrAna contributed more than $37 million of incremental net sales in the first quarter, on pace to grow in excess of 20% on an annualized basis, and to surpass $120 million for the full year.

With a long runway of opportunity in North America, and virtually untapped potential internationally, we believe prAna will continue to be a significant growth driver.

Looking ahead to the balance of the year, we believe we're in a position to capitalize on the momentum we've established behind the Columbia, Sorel and prAna brands.

Despite challenges in Russia and Korea, a slowing growth environment in China, and brand-specific challenges in our Mountain Hardwear brand, our revised outlook reflects our expectations that 2015 will be a year of record revenues, record net income, and a return to double-digit operating margins.

In Russia we continue to have confidence in our long-time distributor and are confident that our business there will return to growth as the Russian economy recovers from the dual shocks of lower oil prices and a weakened currency.

For Mountain Hardwear the 23% first quarter decline in net sales was a result of significantly lower closeout sales in North America, coupled with the effects of the very challenging Korean market.

Despite that slow start, we continue to expect Mountain Hardwear's full-year 2015 net sales to be comparable to 2004, as its North American business returns to growth in the second half.

We are also actively addressing the challenges in Korea, in part by hiring a new general manager, who will be joining us in mid-May.

In the meantime, we're working aggressively to bring Korea's inventory levels back into balance as quickly as possible.

Our confidence in raising our financial outlook for 2015 is based on the record first quarter results we posted today, exceptional retail sell-through of our spring lines in North America, advanced wholesale demand for Columbia and Sorel across North America, that has strengthened since our February outlook.

And continued growth in improved productivity in our direct-to-consumer platforms.

We now expect a return to double digit operating margins in 2015 and to achieve record net income.

As we've indicated previously, we're committed to increasing our demand creation investments.

Since 2012, those investments have grown at a compounded rate of 18%, outpacing compounded net sales growth of 11% over the same time period.

While operating income has grown at a compounded rate of 21%.

This year we're planning demand creation spend to expand 14%, increasing to 5.4% of net sales from 5.2% last year.

Our international distributor businesses are scheduled to go live on our ERP system next week, which will bring our North American wholesale business, our international distributor business, and the majority of our global supply chain operations on to the new platform.

The implementation is scheduled to occur after the heaviest shipping periods of our spring season and prior to the start of our larger fall, wholesale and direct-to-consumer seasons.

To reiterate, 2015 is off to a great start.

Columbia, Sorel and prAna each have strong momentum behind them.

Our business in North America is demonstrating year-round momentum with lean inventories exiting winter, very strong sell-throughs midway through the spring selling season and strengthened fall demand.

Our European business is improving, led by Columbia footwear.

Sorel exited 2014 with strong momentum that's propelling it towards a high growth second half and projected annual sales of more than $200 million.

PrAna is continuing to execute its plan to become the next great lifestyle brand.

And our strong balance sheet continues to enable us to invest with confidence in our brands and in our global operations that support their growth and profitability.

You can find more details on our Q1 results and our 2015 outlook in Tom's CFO commentary available on our website.

So that concludes my prepared remarks.

Operator, could you help us get questions from the audience.

Thank you.

(Operator Instructions).

Our first question is from Camilo Lyon of Canaccord Genuity.

Please go ahead.

Hi, guys.

Great quarter.

Thanks.

I was hoping you could talk a little bit about the North American business by brand.

How you're thinking about distribution growth opportunities, and prAna category extensions, and new technologies that you're introducing as the year unfolds.

Certainly.

Well, we're currently really in every point of distribution that we want to be in North America.

and that would include, certainly -- that would be true for the Columbia brand.

For the Sorel brand we'd love to have a larger penetration in what we call here sit and fit boutique footwear stores, where we think there's an opportunity and also we think that's where female consumers are shopping for the latest in fashion footwear.

With prAna obviously we want to be expanding our distribution in certain product categories, as an example, Swim which is a product category that prAna is focused on.

And I think we could do well with some additional department store and specialty store distribution in the prAna line.

As it relates to product innovations, we will launch in fall 2015 a type of reflective insulation -- not insulation, reflective lining that will be similar to Omni-Heat but really focused on the mid-range department stores such as Kohl's and Penny's.

We're calling this Thermal Coil.

And it's a technology that will allow us to be differentiated from other brands in those -- in that distribution.

We think it will also offer the opportunity for our strong customers in the department store channel to differentiate themselves from other purveyors of outerwear.

And so just we're very excited about the progress we've made and it looks -- the future looks quite bright actually.

That sounds great.

Just a question on the guidance.

How to think about what you said about the first half and the EBIT margins looking like last year's EBIT margins.

Could you just give a little bit more granular of your color on the components.

Is it more on the sales side or more on the gross margin side in Q2 that should be the driving force behind that?

I think there were some comparisons from earlier shipments last year in that, that fell into the first quarter sale.

If you provide some color on that.

That would be helpful.

Yes.

So really it's a sales margin hit to the top line.

We're actually expecting gross margins to expand between 50 and 100 basis points in Q2.

Really that's a function of a much lower mix of distributer business.

We're seeing a push-out in distributor business from Q2 to Q3.

And some of that's the result of the softness in the Russian business.

Got it.

And then just finally on that gross margin discussion point.

Q1 was very strong gross margins.

A lot of full-price selling, DPC helping, E-commerce is growing nicely.

How much of this do you think is sustainable going forward?

How do you think about the long-term opportunities in gross margin?

Because I think it was pretty much of a perfect storm from, no pun intended, from weather being favorable but also helping drive the lower markdown rates.

How do you view that opportunity on gross margin?

Well, as I said in the comments, our focus from a very high level has been to increase our demand creation spend, increase our operating margins, which means we have to have a higher top line and a bigger gross profit margin.

That's how that equation works.

We think there's more room to expand our gross margin by -- through a number of different avenues, all of which we're working on simultaneously.

But the number one area is to have better products that have -- that can carry a higher gross margin, that are more differentiated.

So I don't feel like 2015 Q1 was an aberration in terms of our gross margin expectations for the future.

And Camilo, just one other point.

We have been negatively impacted by hedge rates and currency, 40 basis points last year and we're planning for 40 to 50 basis points this year.

So that has been a head wind both in 2014 and 2015.

Got it.

Thanks guys.

All the best for next quarter.

Thanks, Camilo.

Thank you.

The next question is from Susan Anderson of FBR Capital.

Please go ahead.

Good evening.

Thanks for taking my question.

I was wondering, I wanted to kind of drill down on the US business, too, and just the raised guidance there.

Is it mainly space gains in new doors and new products that you just mentioned for fall or is it existing doors or like what's the primary products, too, that's kind of driving that increase?

Certainly.

Well, again there's really for the Columbia brand there's no new doors and no really new customers.

It's really about additional penetration, taking some market share.

I would say in our sporting goods operations, specialty stores, E-commerce businesses, those people are definitely enjoying the fruits of our Turbo Down launch from last year, as well as new products that we launched, including Turbo Down Wave in 2015 fall.

And then we have focused a significant amount of time and effort on segmentation of the product line.

So we can offer some innovations to mid-tier and high-tier department stores to allow them to share in some of the benefits that these innovations have shown us.

Got it.

That's helpful.

Yes, the product looks really great lately.

And then on the margins, so I wanted to maybe try to get a better understanding.

Obviously a good surprise getting back to double-digit operating margins so soon.

I guess what's driving that faster than you guys originally expected?

Is it the new ERP system, just the better product execution, more innovation in the product or how should we think about that?

And also maybe if you could just touch on where can this go longer term now, too.

Certainly.

Well, again we talked a little bit about in the prepared comments about Sorel and how important the transformation of that business has been from a top-line perspective as well as from a gross margin perspective to bring our margins up.

Fashionable footwear for women is a business that can provide higher gross margins.

And again just to reiterate, we've been focused on improving our gross margins significantly.

We can also look to direct-to-consumer business, that's been helpful.

Which carries higher gross margins.

And the ability for us to really in many ways have a marketing effort that's sort of self-funding.

As an example, we have very high unique visitors, quantities of unique visitors coming to our E-com site, they get a terrific marketing message.

You get industry average conversion, which means a lot of consumer goes away with a really good understanding of all the brands.

And then lastly, prAna has been providing us great gross margins as well.

And Tom may have some other comments.

No.

I think you got, it Tim.

It's really been a combination of the performance of the North American wholesale business.

Our direct-to-consumer business and then really outlook for Sorel in the back half is really what has driven that upside to our outlook for the year.

Yes.

And I also might just point to the continued improvement of our European business, which has been one of the most challenging geographies for the Company over the last several years.

Got it.

Okay.

That's helpful.

Well, congrats again.

Great quarter and good luck next quarter.

Thank you.

Thank you.

Our next question is from Bob Drbul of Nomura.

Hi, good afternoon.

Hi, Bob.

Keep pushing, Tim, so we get that operating margin up to 15%.

(Laughter).

Don't be satisfied with that double digit, Gert.

Keep pushing them, okay.

I'm a pushing.

Tim, I guess in the press release, one of the comments that you made was essentially that the strengthening of the order book, both in North America and in Europe, so is the order book now complete?

And what did you see over the last several months in terms of where you were at the beginning of the year in terms of like the response by retailers for the fall product line?

Well, thanks, Bob.

The order book is never complete until all of the inventory has been sold.

But for all intents and purposes, we've gotten our advanced order for fall.

We were pleasantly surprised, obviously, with the strong winter weather that happened in North America.

Retailers that thought they had fully bought based on their expected carry-overs were obviously short and so we got additional orders late in the season on Columbia apparel and footwear.

We also really found that the Sorel product really resonated.

I think we had much higher selling there than we thought we would and that retailers thought they would.

So we got larger orders later for fall product from Sorel.

And then in just in general, the bullishness of the product line, the ability I think that we had to take some share from other competitors, I think all that stuff bundled together helped us.

And then in Europe the order book there builds later than it does here in the US.

And our team in Europe was confident in their expectations for growth and not that we were in any way doubting it, but it's good see the order book fill to the way they really expected.

And that's a later build.

I guess as you think about the last several months and I guess the winter season, when you think about the direct-to-consumer business, how are you planning the inventories and in your sales expectations and the revenue guidance that you gave us today, on the direct-to-consumer business, given, I think it's going to be two very solid years of direct-to-consumer, the last two winter seasons.

How should we think about how you're approaching that, Tim, from like an inventory and planning perspective?

Yes.

Certainly.

Well, as you know, the direct-to-consumer business is for Columbia relatively new.

And we basically home grew this business for many, many years.

I want to say Shawn Cox, who is running the North American business has really only been on board for two years.

And the continuing impact that a seasoned retailer has on the business in terms of its productivity, just continues to bring significant earnings to the business.

So in terms of how we look at our opportunity for fall 2015 and how much we should fund that with inventory, we have expected growth in the stores.

And again we don't release these retail metrics, because we're not a retail operation.

But I can tell you that we're approaching average industry performance as it relates to conversion and other metrics that we would hold ourselves to.

And then we're going to be opening some additional stores and we'll have better penetration in E-com.

And the expectation is that that will continue.

We believe that we've prudently purchased inventory for the direct-to-consumer business.

And, again, lastly the Company's balance sheet allows us to make investments in this business where we have a high degree of confidence that we're able to do it.

All right.

And then I just had one more question.

On the West Coast port situation and, you took some inventory earlier.

Do you feel like we're getting back to more normalized progression there.

And how much more in anticipation have you done in terms of like making sure you get all the product early, especially if you now had some later orders than you've typically experienced.

Yes.

I think we're in good shape.

The port situation was well known.

And we've been focused on it for many, many months in advance and then during the strike itself or the slowdown, whatever you want to call it.

So I think we can pat ourselves on the back in terms of how we approached it from a utilization and the balance sheet basis to improve the deliveries, even when we didn't really need to have the inventory sitting here.

But I think that the port situation is improving.

And we found that our -- the way we handled it was really appropriate as it relates to getting stuff here on time or possibly early.

All right.

Thanks very much.

Thanks.

Thank you.

The next question is from Eric Tracy of Janney Capital Markets.

Please go ahead.

Good afternoon, everyone.

Congrats as well.

Thanks, Eric.

Just a quick follow-up as it relates to Q2 guide.

Tom, so got the gross margin guidance.

Just a little bit maybe more color.

Are we looking kind of flattish, upwards single digits and then just greater fixed cost de-leverage in that quarter.

I know it's the lowest volume.

Just a little bit more.

Yes.

So really the shift in the distributor shipments from Q2 to Q3, that's our highest operating margin channel of distribution.

So that is causing some fixed cost de-leverage.

And just given the channel mix of revenue, we'll have an additional, call it 100 basis points of marketing investment year-over-year in Q2.

So that's really the big driver.

And then I think the gross margin will see some expansion there, as a function of purely channel mix.

With a higher percentage of wholesale and direct-to-consumer relative to the lower gross margin distributor business.

Okay.

Perfect.

And then in terms of the ERP coming online, should we start to see some manifestation of those benefits in the back half of this year?

Obviously should be more of a 2016 event.

Maybe just talk to the cadence of how you expect that to play out and maybe a little bit of kind of quantitification to the gross margin benefits we should be thinking about.

Yes.

So if, we implemented our Canadian business on the new platform back in first half of 2012.

The US came on board last April.

So if you look back at the North American gross margin and inventory prove, inventory turn improvement over the last nine quarters, it's been pretty meaningful.

And I think you're seeing that in the consolidated results.

Okay.

And then lastly, Tim, for you.

Maybe Bryan if he's on.

In terms of the TPP emerging legislation, it's kind of gearing up here more topical in terms of a potential for this getting passed.

A piece of that you all have really decent exposure from a production standpoint there.

I know it's not a 2015 event.

We don't have absolute certainty that it's going to get passed.

But seems like an opportunity if those tariffs go away for some pretty decent margin opportunity.

How should we think about that?

Well, yes, this is Tim.

So you know for a company that's -- we're like, I want to say approximately number 58 duty payer in the United States.

And for a company our size to be in that range, it just shows you the impact of duties in the US.

Additionally, our business is over 40% outside the US.

So trade is an important part of our business.

But really the best person in the Company to speak to this is Peter Bragdon, so maybe I'll ask peat tore comment on it.

Yes.

Just to add a little bit to that.

So we're actively engaged in supporting that and discussions around it.

I think in terms of investors, there's not too much you can think about it yet, because there's so many variables involved with the tariff codes and there's a lot that depends on exactly how, even if it passes, how those tariff codes are affected and the timeline for implementation and some of those could be pretty long.

So we're eager to see those tariff reductions.

But If they're phased in over a long period of time, it would be a while before anybody sees a benefit.

But we're actively engaged in supporting that and very tuned in to it.

Fair enough.

I appreciate guys.

Thanks and best of luck.

Thanks.

Thank you.

Thank you.

The next question is from Jay Sole of Morgan Stanley.

Please go ahead.

Hi, good afternoon.

Hi, Jay.

Just, Tim, an interesting comment about the slowing growth environment in China.

Can you talk a little bit more about what you meant there.

Is that like a category-specific thing?

Is it a macro trend that you're seeing?

If you could add some more color, that would be really helpful.

Sure.

There's been numerous articles over the last year about the conservatism of the current Chinese ruler and his approach to what might be considered extravagant behavior such as playing golf, et cetera.

So just retail sales of higher-end products, Columbia is a very high-end product in China, have slowed.

And it's not endemic just to Columbia or just to the outdoor business.

It's sort of across the retail landscape in China.

Now we have, as you know, a long-time partner in China in the Swire group.

They've been in business in China since the 1700s.

We have a high degree of confidence in our team in China.

And the relationship with our partner there is very strong.

And frankly will be positively impactful in terms of how we go forward.

But there's a, sort of a malaise in the marketplace there, which we describe as slowing.

Now for Columbia we have really not been in the E-commerce business in China prior to last year.

So we had on a percentage rate, explosive growth in our E-commerce business in China last year and expect it to continue this year.

We expect the combination of the slower brick and mortar mall/department store sales growth in China against the improvement in our E-com business is going to allow us to be relatively flat.

Again that market will be very large -- will continue to be very large for the Company and will return to growth I think in another short period of time.

Okay.

Got it.

And then maybe if we can switch to a different part of the world.

In the Europe region it seems like sales are accelerating.

I know there is a lot of FX there and some timing shipments and all that.

But it seems like you've made some changes and things are getting better.

Can you talk in a little bit more detail about what changes are working and exactly what you are doing different that is helping you see that accelerating sales growth rate?

Certainly.

Well, it's all about having the right people in place in these businesses.

And we made a change about 18 months ago, installed a new General Manager in Europe.

His name is Franco Fogliato.

He's a very focused guy.

He's been in our business, the apparel business for probably 20 years in Europe and he's taken a very pragmatic approach to the investments that the Company is continuing to make, focusing on narrow range of markets, and a narrow range of high-volume retail customers.

So those investments in time and people in those various markets have started to the yield results.

And and our expectation is that we'll start reaping the rewards of all the work that we've put into Europe over the last, call it 20 years, quite soon.

So, it's just another example of having a balance sheet where you can really approach a problem of geography with confidence that we could invest, put the right people in place and make it work.

So our European footwear business is growing much faster than our apparel business.

We think there's bigger opportunity in apparel.

We just have to, again, reap the rewards of the good people we've added there.

Got it.

Maybe if I can get one last in.

Talking about using the balance sheet and being able to invest.

DTC in the US has been a great driver.

Can you kind of break down the growth by what new stores contributed versus kind of same stores, versus E-commerce and then talk about like where you see the store count going by the end of this year?

Yes.

Again we're really focused on being a wholesale company.

So we don't release any of those metrics as it relates to how a typical retailer would be measure.

I think we have talked a bit about our store growth plans.

Yes.

So what we'll add 14 new stores in North America this year, including a couple in Canada, one branded store and one outlet.

Okay.

Got it.

Thanks so much.

Thank you.

Thank you.

The next question is from Andrew Burns of D.A. Davidson.

Please go ahead.

Thanks.

Good afternoon.

In terms of just following question on the Europe strength, is it possible to quantify the benefit in first quarter from that timing of shipments?

Was it half the growth or more or less?

You're talking about accelerating the shipments out of Q2 into Q1?

So Andrew, just to make sure I understand your question.

The timing of shipments, we've got a few of those scenarios happening here.

So there was the $14 million of shipments that went in Q1 of last year, to get in front of the ERP.

And the timing of shipments issue this year is really talking about the distributor business from Q2, shifting into Q3.

So I want to be clear on the question you're asking.

I think you -- I was referring to the distributor shipment Q2.

I thought there was a Q1 benefit.

So I think I just misheard there.

The follow-up question --

So maybe -- just let me jump in here real quick.

So there was -- we did ship a higher percentage of, between December and January, we did have a Q1 benefit to some degree as well, as it relates to spring this year.

And that was really -- and we pulled a very small amount from Q2 into Q1 of the distributor business, to get in front of the ERP implementation.

But that was very minor.

Very small.

Okay.

Thanks.

And then in terms of the strength in footwear in Europe, are there any takeaways that are quickly applicable to the US market, where I know the trends is improving there.

But to accelerate footwear growth in the US.

Well, obviously Sorel at this point is virtually 100% footwear.

So the big improvement in North America is a function of just Sorel business.

We've also had a very important winter footwear women's product into the Columbia brand, called the Mix, which was very successful in North America this last year.

And then lastly the footwear product that's selling so well in Europe, called the Redman, we've also had good placement in the US as well.

So these high-volume footwear products tend to be much more global than maybe the apparel products.

Great.

Thanks.

And then the strength in spring product sell-through in the US set up double digit.

It sounded like it was very broad strength across a channel and product category.

But any additional color in terms of standout product categories or innovation platforms that really are driving that sell-through would be helpful.

Thanks.

It was very broad in terms of its impact across channels.

But we can point to the PFG product, the performance fishing gear, which is for us strong spring performance and it's highly differentiating.

So our competitors who typically are known for outerwear, don't have spring businesses of any scale.

And this allows us to have a real point of differentiation.

In fact, many places in the south, people think we're a Florida company.

So that's a good thing.

Great.

Thanks.

Thank you.

Thank you.

Thank you.

The next question is from Lindsay Drucker Mann with Goldman Sachs.

Please go ahead.

Thanks.

Good afternoon, guys.

Good afternoon.

Hello.

Just following up on the warm weather product, whether it's PFG or sort of spring product for Columbia.

Can you help us understand how meaningful that is in terms of contribution to either revenue or profit for the US in the quarter.

Boy, we don't really break down the business that granularly.

I guess what I would say is spring is roughly a third of the business.

And fall is two-thirds.

And maybe we've seen a little bit of acceleration in shipment and sell-through between the first quarter and the second quarter.

Yes.

I think really at the end of the day, I mean, it's -- we love having a strong spring business.

But at the end of the day, it makes us a year-round brand.

So the retail can bring our products in and feel comfortable that they have performance from that square footage.

And our space throughout the year.

It may not be as large from a revenue standpoint in June as it would be in January or November.

But it's a very strong part of our customers' businesses.

And just keeping the square footage is a big return for us as well.

Got it.

On to the -- maybe a little bit more detail on ERP benefits for this year.

First of all, I'm just curious.

Just given the comments on Canada and how that's a smaller market for you relative to the US and my understanding is that ERP implementation, with the US, also was deeper in your sort of vender network.

So there's potentially more savings to be harvested from it being deeper in the supply chain.

I'm just curious, if you can help us quantify how much of that ERP benefit is maybe already reflected in your guidance, if there's opportunity to do a little bit better, based on the strong reads you got from what happened in Canada.

Yes.

So as I mentioned earlier, if you look at our Canadian business, our inventory turns have improved since going live on the new ERP back in 2012 by almost a full point.

Our gross margins up a single digit, low single digit number of points.

And some of that's a function of a growing direct-to-consumer business as well.

We've been hit pretty hard by currency, which we can't control.

Is there further upside in our Canadian gross margin as a result of our ERP implementation?

I think so.

Are we able to quantify that at this point?

Probably not.

But clearly there's upside in the margin there.

Especially as we look at the regional gross margin in Canada, versus say the US.

I guess what I'm trying to get at, and that's very helpful, what I'm also trying to get at, is there upside in your US gross margin relative to the guidance you've laid out, just considering there's no currency head winds, your revenue, revenue expectations are very strong.

And you've got this very robust ERP implementation that we haven't yet seen the benefit of yet.

Yes.

So I would say our bet outlook for the US this it year is baked into our guidance.

As we look forward, can we improve our gross margin with our ERP?

Certainly.

We can better utilize inventory across channels, across customers.

Not only within the US, but geographically.

So there's clearly upside to our US gross margin, looking forward.

Beyond 2015.

But I wouldn't commit to that for 2015.

Got it.

Okay.

One last one, Tim.

Now that we have crossed the double digit mark in terms of up margins, how should we be thinking about the long-term target for your business operating margins?

Well, we talk a lot about this internally.

So the average for our peer group is called 13%, 14% operating margin.

Right.

We're still -- even though we're -- so we're improving.

We're well below that.

And who wants to be average.

So we want to be exceptional.

And frankly historically we've been in the very high teens to 20% operating margins.

So I personally won't feel like we're doing everything we should be doing until we can get back up to those lofty levels.

Now how long will that take us?

I don't know.

But we are looking to improve the business metrics and spend more money on marketing.

So there's lots of stuff that we've got to get done and we've been focused on it and we talked earlier in the prepared remarks about how over the last several years, we've really made strides towards that.

Yeah we don't want to be average.

So we want to be above average.

Great.

Thanks so much, everyone.

Thanks.

Thank you.

Thank you.

The next question is from Christopher Svezia of Susquehanna Financial Group.

Please go ahead.

Good afternoon, everyone.

Hello.

Hey, Chris.

So I guess first question.

Just in the US market, I'm just curious.

When you guys talked to roughly 20% growth.

Can you maybe just talk between the organic growth rate of the business.

I think it was up 5% in Q1.

Maybe how that looks for the balance of the year.

Boy, so in terms of a bi-quarter look, and when you say organic, from a wholesale perspective, the lion's share of our business is organic, when we separate prAna.

If you take prAna out of that number, we're between the US direct-to-consumer and wholesale business, we're up high teens.

And we historically haven't broken out our direct-to-consumer business in the US separately.

Okay.

That's helpful, Tom.

Thanks.

But with that being said, I would say both the wholesale and direct-to-consumer businesses are growing at relatively equal rates this year.

Okay.

In the US.

Okay.

When you -- can you just talk pricing for a moment.

I know a couple of years ago, a year and a half or two years ago you improved or changed the value messaging on the product, bringing pricing down.

Are you at a point where there's some opportunity on pricing with some of these new product initiatives, just kind of maybe how we think about that?

Yes, we think that there's opportunity for us to increase our prices, especially in these differentiated products.

So you'll see in our spring 2016 launch, I think we aren't talking much about any kind of financial results for 2016.

But we're preparing products for 2016 and we think that we have some disruptive technologies, which we'll be launching in spring 2016, which will allow us to be -- to lever the brands current strength and raise our margins.

So the goal really is to -- at its very highest point is to grow our gross margin and top line, to provide us with more demand creation funds, and a higher operating margin.

We can see that the path to the promise land.

And so we're on the path.

Okay.

And last question here.

Just, Tom, for you.

When I think about the gross margin, I mean, nice performance in the first quarter.

Almost 48%.

You're looking for a decent improvement in second quarter, I think some of that is just timing with distributership in the third quarter.

But sort of the back half, based on the guidance, implies 20ish basis point improvement.

Yes.

That's right.

Where -- is it a little bit on currency, a little bit mixed.

Is it just want to see how the DTTC performs.

Because it's highly dependent in the fourth quarter?

Just some of your thoughts about why so low, the improvement.

Remember last year was kind of the perfect storm.

We had excellent Q4 gross margins.

So we're going up against some pretty tough comps for starters.

In addition, we had a large Korean inventory provision, so we'll get some help on that.

The big factors affecting gross margin in the second half really are that the head wind is currency and the benefit really is a function of channel mix, with the soft Russian business, really wholesale and direct-to-consumer outpacing our international distributor growth.

So that's going to help from a channel mix standpoint.

And then we'll have the benefit of we're expecting of lower inventory provisions.

So that's really -- those are the big impacts for full year and also applying to the second half.

Okay.

Okay.

That's helpful.

Thank you very much.

And all the best.

Thank you.

Thank you.

(Operator Instructions).

Our next question is from Rafe Jadrosich of Bank of America Merrill Lynch.

Please go ahead.

Hi, thanks for taking my question.

Can you guys just give a little color on the challenges in Korea?

And how far away you think that is for maybe turning positive.

And then do you expect any changes in the strategy there, kind of given the new General Manager comment.

Yes.

So the Korean outdoor market has I think approximately triple in the last five years.

Grown rapidly along with the Korean economy in general.

And has attracted the attention and investment from not only other international brands, but other local brands.

It's become quite crowded there.

We had a team in place there that wasn't focused on what we consider to be the right metrics and we allowed our inventories to become bloated there.

And so long story short, we believe that we now have the right folks in place, led by heavy involvement from Portland, as well as focused management by our Japanese management team, which is much closer to the market there.

And where we have a high degree of confidence in their abilities.

Our new manager will be really assessing the situation from some significant experience.

He's been in the sporting goods business for many years and will be good for the business.

But it may take some period of time before we really understand the focus there, that's going to be required.

It's a profitable market for us.

We know we can improve our opportunities there in our returns there.

But it's really yet to know.

So how long it will take us.

But we are focused on that market.

Thanks.

And then can you just give some color on where the incremental marketing investments will be focused.

Is it going to be like more point-of-sale, investments with your retail partners and TV?

Yes.

I would say that the investments from a wholesale perspective will be improving the appearance of our products.

So as you might remember, we added a new Chief Marketing Officer to the Company somewhere in the last six months.

And my charge to him was to have the appearance of our products in our wholesale partners reflect the quality of the merchandise that we manufacture.

And I think we've allowed ourselves to not invest as highly as we should have in those efforts.

And that will be a certain significant percentage of the marketing spend.

Additionally, we found very significant returns when we picked certain markets, US and in it Canada, to heavy up on TV.

So we'll be expanding that group of specifically targeted markets in the US and then applying some of the same research in Europe.

So I would expect it will be a combination of heavy investment in TV in North America, in store and then more focused marketing efforts in certain markets in Europe as well.

No TV in Europe.

Great.

Thank you.

And just last question.

In terms of the North America wholesale momentum, can you talk about maybe performance by channel.

Is there any channel that outperformed or was it pretty balanced?

No.

We had good performance across all the channels.

And some larger than others.

But we certainly had great performance across really every channel.

Okay.

Great.

Thank you.

Thanks.

Thank you.

The next question is from Jim Duffy of Stifel.

Please go ahead.

Hi, guys.

This is Molly on for Jim.

Congrats on the quarter.

Thanks, Molly.

Just a quick one for you.

Most of my questions have been asked.

Wondering if you could talk a little bit about the prAna expansion outside of North America this quarter.

What are your channel partners saying about the brand and can you quantify the contribution to growth from these regions this year and going forward?

Certainly.

Well, I think we just recently had the one-year anniversary of prAna.

I think we announced on this call last year that we had acquired the brand.

So we're very excited about what's happened so far, that their growth has continued.

We had hoped to be further along in our international expansion at this point.

They have organically a relatively small percentage of their business outside the US.

But that has continued to grow.

And the partners that we have been speaking to about prAna expansion internationally, are very thrilled with the product.

They think there's enormous opportunity but they want to take the time to really establish a look and feel in the stores that they plan to open.

And it took a little bit longer than we had thought.

But we still expect that the first jump start, if you will, we can give the prAna brand is going to be international expansion, especially in markets where we have strong independent distributors.

And that would include several in South America and in the Middle East.

And is the growth primarily there coming from wholesale or do you intend to open some retail stores internationally?

Well, I think the plan for our international distributors would be to open stores.

And then help that to enhance the brands awareness and cache in those markets and then harvest some additional wholesale revenues from local multi-brand stores.

Okay.

And how many stores here in the US will you open for prAna this year?

Two to three stores this year, on top of the five existing stores that they currently have.

Yes.

And we'll establish catalog and E-com platform.

Okay.

All right.

And then lastly, on Sorel, what is the exposure of the brand outside of North America?

Is there opportunity here for growth going forward, given how well the brand is received here in the US and Canada?

Yes.

So the brand is not as international frankly as the Columbia brand.

And we think there's opportunity.

One of the key focuses for Mark Nenow and his team will be to enlarge the seasonality, in other words, more fall and summer product from that brand.

So our international distributors can take positions in there, either their multi-brand stores or establish individual stores for Sorel, that can be open year-round and have an opportunity for significant sales volume in seasons that are not winter.

So that's a significant portion of Mark's efforts have been to add spring product to Sorel and to make the brand more important outside of pure winter seasons.

We're making great progress on that frontier in North America.

And we expect that that will.

Once we can prove that that exists and we can be much more international in terms of how we approach that.

So more 2016 and beyond?

I think so, yes.

All right.

Great.

Thanks, guys.

Thank you.

Thank you.

Thank you.

We have no further questions at this time.

I'd like to turn the floor back to management for any closing remarks.

Well thanks everyone.

We're thrilled with the performance so far but there's lots of work for us to do in order to get to average and beyond.

So stay tuned.

Thank you.

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.