Columbia Sportswear Co (COLM) 2016 Q2 法說會逐字稿

Greetings and welcome to the Columbia Sportswear second quarter 2016 financial results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). It is my pleasure to introduce your host, Mr. Ron Parham, Senior Director of Investor Relations and Corporate Communications at Columbia Sportswear. Thank you, Mr. Parham, you may begin.

Thanks, Bob. Good afternoon. And thanks for joining us to discuss Columbia Sportswear Company's second quarter and first half financial results and our reiterated 2016 financial outlook. In addition to our earnings release, we furnished an 8-K containing a detailed CFO commentary analysing our results and explaining the assumptions behind our 2016 outlook. The CFO commentary is available on our Investor Relations web site. With me today on the call are Chairman of the Board, Gert Boyle, Chief Executive Officer, Tim Boyle, President and Chief Operating Officer Bryan Timm, Executive Vice President of Finance and Chief Financial Officer Tom Cusick, and Executive Vice President and Chief Administrative Officer, Peter Bragdon. Gert will start us off by covering the Safe Harbor reminder.

Good afternoon. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation. Please bear in mind that forward-looking information is subject to many risks and uncertainties and actual results may differ materially from what is projected. Many of these risks are described in Columbia's Annual Report on form 10K and subsequent filings with the SEC. Forward-looking statements on this conference call are based on our current expectations and beliefs and we do not undertake any duties to update any of the forward-looking statements after the date of this conference call, to conform to the forward-looking statements, to actual results or to change this in our expectations.

Thanks, Gert. I also want to point out that during the call, we will reference constant currency net sales growth, which is a non-GAAP financial measure. And in the supplement financial tables that accompany our earnings release, we provide a reconciliation of constant currency net sales to net sales as reported under US GAAP and an explanation of management's rational for including this non-GAAP measure. I'll turn it over to Tim.

Thank you, Ron. Welcome, everyone, thanks for joining us this afternoon. We're pleased to report slightly better than expected second quarter and first-half results, and to reiterate our previous full-year outlook of mid-single digit sales growth and high single digit earnings growth. Our strong balance sheet has always served us well and becomes even more important during periods of market disruptions, like we're witnessing today, because it enables us to keep investing behind our competitive advantages, including our portfolio of powerful brands, innovative and differentiated products, and our global Omni-channel operating model.

As we told you, second quarter is the smallest quarter of the year, and the least indicative of our business trends, therefore, I'm going to focus my remarks on the first-half results, which provides solid evidence that our diverse brand portfolio and global operations performed well in the face of challenging conditions around the world. As you've seen in the press release and CFO commentary, first-half global sales increased 6% or 8% in constant currency, including 6% growth from the Columbia brand, 16% growth from prAna and 22% growth from Sorel.

Our first-half sales growth was especially strong in North America, where we grew 14%, 15% in constant currency, and in Europe where we grew at a high teens rate, mid-20% in constant currency. During the first half, the Columbia brand 6% growth consisted of mid-teen growth in North America, reflecting broad-based strength in sports wear, PFG and rain wear along with trail and PFG footwear. High-teens growth in our Europe direct business, mid-20% in constant currency, featured double digit constant currency growth in all but one of our 17 Europe direct markets.

Columbia footwear and apparel each grew in excess of 20% in Europe, with trail footwear and rain wear the strongest categories. And in Japan the Columbia brand expanded at a mid-single digit rate, low single digit rate in constant currency. The Columbia brand's strong performance in those markets was partially offset by declines in Korea, due to a contracting outdoor market. Currency, economic and geo- political challenges in some LAAP and EMEA distributor markets and a mid-single digit decline in China, up less than 1% in constant currency.

Looking ahead to this coming fall for the Columbia brand, our global tested tough marketing campaign will focus on our patent-pending waterproof breathable OutDry Extreme technology platform, that's revolutionizing the waterproof breathable apparel and foot wear categories. OutDry Extreme redefines waterproof breathable apparel by placing the membrane, which does all the work, on the exterior of the garment. Using the membrane's natural water repellency to keep the wearer dry, by putting the textile against the skin to provide the highest level of breathability of any rain garment.

The additional benefit of OutDry Extreme is the fact that the innovative technology is immediately visible to the consumer, differentiating the garments further from other traditional waterproof breathable apparel. We first introduced OutDry Extreme rain shells in spring 2016 and for fall 2016 we've extended the platform into insulated jackets, gloves and an expanded assortment of rain shells.

At next week's outdoor retailer market in Salt Lake, we'll be highlighting the extension of the OutDry Extreme platform into soft shells and trail footwear for spring 2017. We'll also be showcasing the OutDry Extreme eco- ratio that has been heralded by journalists and at colleges globally as the most functionally performance garment with the least impact on the environment. OutDry Extreme is the latest example of the significant investments we make in innovation that provide us with superior proprietary technologies that define and differentiate the Columbia brand.

In Europe, our marketing team is making final preparations for next month's Ultra-Trail du Mont-Blanc, or UTMB, held in Chamonix, France. The Columbia brand is proud to be the presenting sponsor of the UTMB, recognized as one of the world's most iconic ultra trail running events. The UTMB consists of five endurance races held over an entire week on some of the most stunning and challenging terrain on earth and attracts thousands of spectators, plus global coverage that reaches millions of enthusiasts.

In addition to serving as the presenting sponsor, our brands are also proud to sponsor 25 of this year's UTMB athletes, representing the US, Hong Kong, Japan, Netherlands, New Zealand, Switzerland, China, Spain, and Scotland. UTMB is the perfect global event to showcase Columbia's elevated commitment to the trail running category. Our new trail running collection took the best features of (inaudible) trail, the original trail running brand, and forged them with the best features of our Columbia trail running line to create a versatile assortment of high-performance shoes for endurance athletes.

And finally, beginning this fall, the Columbia brand will commemorate the 30th anniversary of the introduction of its iconic Bugaboo jacket, one of the Company's first major category-defining innovations, with the retro version featuring updated styling, targeted at today's outdoor enthusiast. Since its introduction, we've sold millions of Bugaboos and other styles with the distinctive interchange construction.

Our reiterated full-year outlook contemplates mid-single digit growth from the Columbia brand. The prAna brand is now our second largest first-half brand and contributed $74 million in sales and 16% growth, concentrated in the US. PrAna's product offering this spring included a significantly expanded swim wear line that's resonating well with consumers, along with its more extensive members and women's outdoor lifestyle and men's yoga and fitness offerings.

In addition, during the second quarter, prAna launched new integrated brand positioning and messaging across its marketing platforms, and its retail and wholesale channels. This new messaging supports regional marketing campaigns, targeting Los Angeles, San Francisco, and Denver/Boulder, as well as new fixturing and point-of-sale assets, that are being deployed in a wide cross section of its wholesale accounts and prAna retail stores.

Our full-year outlook anticipates mid-teen growth from prAna and it remains our most seasonally balanced brand. We continue to focus on de-winterizing our Sorel business by gradually increasing the mix of lighter weight fall styles, represented in our wholesale and direct-to-consumer channels. Sorel grew 22% in US dollars and 25% in constant currency during the first half, primarily in the US.

With most of that growth occurring in the first quarter on sales of fall and winter products, and delivery of Sorels new spring line to select wholesale customers. Consumer reaction to Sorel's new spring assortment at select retailers and our own direct to consumer platform, reaffirmed our belief that consumers are ready to embrace Sorel in warm seasons. For spring 2017, Sorel is planning a full-scale launch of an expanded spring assortment and we're increasingly confident in our ability to unlock Sorel's year-round, global potential over the coming seasons.

We've begun delivering advanced wholesale orders for Sorel's fall 2016 season, which also became available recently at Sorel.com and our three Sorel-branded stores in New York, Chicago, and Boston. Sorel's fall line features a higher proportion of lighter weight, less weather-sensitive fashion styles like the updated Joan Wedge collection. Our full-year outlook continues to anticipate high single digit growth from the Sorel brand, with the second half expected to account for nearly 90% of its full-year sales. Mountain Hardware sales declined 9% during the first half, 7% in constant currency.

New Mountain Hardware Brand President, John Walbrecht is aggressively tapping into the brand's rich DNA to re-establish Mountain Hardware as the premiere brand for Alpine athletes. This fall Mountain Hardware's targeted consumers will begin to see examples of the brand's new imaging and messaging platform across social media and in a new print campaign that will appear in leading publications, including Alpinist, Rock and Ice, Climbing, Outside, and Men's Journal, along with many others.

Mountain Hardware's newly assembled product design and merchandising teams are working hard to reinvent the product line, as rapidly as possible, with a deep lineup of innovative, high performance products targeted for introduction to consumers beginning in fall of 2017. Those of you attending next week's outdoor retailers show will get an early glimpse of Mountain Hardware's reinvented brand strategy at its dramatically redesigned trade show booth. Our full-year outlook anticipates Mountain Hardware sales declining at a low double digit rate, compared to its performance in the first half.

Looking a our first-half results geographically, North America sales grew 14%. 15% in constant currency. First-half US direct-to-consumer sales expanded by more than 20%, while wholesale sales achieved high single digit growth. We're on pace to open seven new US outlet stores in 2016, including two that opened in June. Also in June we opened a new Columbia branded retail store at Disney Springs, Florida, that has generated tremendous consumer response in its first month of operation.

Our full-year outlook anticipates high single digit growth in the US. First-half sales in our EMEA region were up 3%, 5% in constant currency, with our Europe direct markets increasing high teens in US dollars and mid-20% in constant currency. Our Europe direct team has now posted six consecutive quarters of 15% or greater constant currency growth. This growth was partially offset by declines in EMEA distributor markets, especially Russia, due to the macro economic factors that we've discussed previously.

We're working closely with our Russian distributors to support their efforts to return to growth in that region. Our full-year outlook anticipates our Europe-direct business generating high teens growth in both US dollars and in constant currency, partially offset by lower sales to EMEA distributors, resulting in low single digit growth for the combined EMEA region. First-half sales in our LAAP region declined 10%, 9% in constant currency. As I mentioned earlier, during my Columbia Brand comments, lower sales in Korea and LAB distributor markets, plus the small decline in China, were partially offset by growth in Japan.

Our full-year outlook anticipates a low single digit net sales decline in the LAAP region, comprised of declines in Korea and LAAP distributor markets, partially offset by growth in Japan and China. Our consolidated inventory levels are in line with our expectations, and reflect earlier receipt of fall production, setting us up for timely delivery of fall wholesale advanced quarters and to support our direct-to-consumer channel. We continue to expect inventory growth to moderate during the second half, to levels comparable to our mid-single digit full-year sales growth expectations.

In summary, we're pleased with our solid first-half performance, particularly against the challenging global background. Despite the challenging environments, we believe that Columbia, Sorel and prAna brands have solid momentum and are gaining market share, particularly in North America and in Europe. And our new Mountain Hardware team is working aggressively to return that brand to growth.

Each brand's direct-to-consumer platform is a source of growth, as well as serving as an increasingly powerful marketing tool to connect with millions of consumers to drive sales, either through our wholesale partners brick and mortar stores and eCommerce sites or through our own. Through periods of rapid growth and periods of uncertainty, our strong balance sheet enables us to make investments that we believe position the Company to deliver on our commitment to shareholders to drive growth, expand gross margins, invest in demand creation, and improve our profitability over the long-term.

You can find many more details on our Q2 and first-half results and our reiterated 2016 outlook in Tom's CFO commentary available on our web site. That concludes my prepared remarks. We're welcome to answer questions. Operator, could you help us with that?

(Operator Instructions) One moment while we poll for questions. Out first question comes from the line of Camilo Lyon, with Canaccord Genuity. Please proceed with your question.

Hi. This is (inaudible) on behalf of Camilo. Thank you for taking our questions. First of all, can you quantify the shift in wholesale advance orders going from Q3 into Q4?

Yes. This is Tom. In October of last year, we had commented that we had about $40 million shift in Q4 into Q3 in 2015. And this year we've got, based on the order book, we've got about $20 million shifting from Q3 to Q4, which equates to a little less than 3% growth.

Great. Thank you. And can you explain what was the reason behind the sales decline in China? And what gives you the confidence that the region will return to growth in the back half?

China we think is one of the Company's largest opportunities internationally. And may at some point in time eclipse the rest of the world's, not the entire rest of the world, but certainly be the largest market for the Company. We've been resetting that market. There's been a tremendous amount of international brands and local brands entering the market there. And we believe that that's impacted our growth. We have a solid team there. We expect growth during the full year of 2016 in that market. But we had a bit of a reset in the first half of the year.

Great. And just last question. What's the magnitude of the (inaudible) business in your Q4 outlook?

I think it's probably a little premature to call that. And we've tried to be fairly limited in how we disclose the direct-to-consumer business. We'll be sure to comment on that coming out of the fourth quarter.

Great. Thanks for taking the questions.

Thank you. Our next question comes from the line of Kate McShane, with Citigroup. Please proceed with your question.

Hi. Thanks for taking my question. My first question; we've heard a couple of competitors talk about the fall, particularly early fall being a much heavier promotional environment. How are you thinking about, again, September, October, early fall, given the amount that was packed away last winter and the promotional cadence that we should expect to see?

Well, I think it relates to the back half of the year, we've been modeling the year somewhat more promotionally than we had in prior periods. So whether that comes at the beginning of the first half or the end of first half is yet to be determined. But, no, I think we expect there to be additional promotional activity.

Okay. Great. And then I believe you've addressed this before, but now that we're kind of post the event, can you talk about how you've handled the inventory that was being sold into Sports Authority and how much of an opportunity did you have to sell to other retailers and how much did you take to put through your own retail channel?

Certainly. We were sorry to see that the Sports Authority have the ultimate disposition that it did. But, frankly, we recognized there was a significant problem in Q4. So we took the bulk of our reserves for any kind of accounts receivable problem that we might have had in that period and we were very cautious in terms of how we approached that business from the beginning of the year, really. So we believe that we've got the inventory that would have had otherwise ended up in Sports Authority, well distributed and its disposition is calculated in the guidance we gave you today.

And, Kate, that would include our own wholesale business, our wholesale business and our own direct-to-consumer business.

Okay. That's very helpful. Thank you.

Thank you. Our next question comes from the line of Lindsay Drucker Mann with Goldman Sachs. Please proceed with your question.

Thanks. Good afternoon, everyone. I was hoping maybe you could square, these might be unrelated, but you have excess inventory exiting Q2 because of earlier receipts of wholesale orders. Yet you expect delayed shipment timing of those orders pushing out of Q3 into Q4. So can you talk about maybe the disconnect there?

Yes. So let me just talk a little bit. A lot of this has to do with the sourcing environment in Asia, which is quite soft. So we've seen where we might have expected merchandise to arrive at the back half of our order of windows. It now comes at the first half. And we're just responding from our deliveries to what the original order dates were from our customers. We haven't seen really any change in the order book since we, for all intents and purposes, closed up in March and April. But I think it's mostly a result of the slow environment in Asia. And then a quicker shipment.

I would say, Lindsay, the other piece is coming out of full 2014, the channel was fairly clean. Certainly not as clean coming out of fall 2015, the order book got written slightly differently this fall, fall 2016 as compared to a year ago fall.

Thanks. And as it relates to you guys held on to some inventory exiting last year to push it through your own outlet stores this year or this season anyway. How should we be thinking about the percentage of made for versus clearance product in outlet and where do you kind of like that ratio to be over time?

Well, I think this year it's slightly lower made for than maybe it would have been in previous periods. You know, at the end of the day, want to make sure we've got a healthy retail business and at the same time an appetite for liquidations of mistakes or other market-caused inventory disruptions. So, you know, we really don't have a perfectly modeled equation for that. But those are the two functions the outlet stores have to serve and we try and balance the inventories as appropriate.

Got it. And then just, lastly, as you think about risks to the back half of the year, and the things that you guys can't control, are there opportunities on the expense side for you to flex in order to kind of manage the earnings number?

Absolutely. I mean, the single largest piece of our SG&A is head count. And, you know, we've shown in the past where we've needed to be managing our SG&A. We've taken steps in that area. But we don't expect that to be the case this year and there are other levers that we could pull to provide the profitability that we've guided today.

And, Lindsay, that's an area that we've been diligently managing from my perspective all year long. If you look our back half guidance, we have roughly 4% SG&A expense growth on mid-single digit top line.

Great. Thanks so much.

Thank you. Our next question comes from the line of Laurent Vasilescu, with Macquarie. Please proceed with your question.

Good afternoon. Thank you very much for taking my question. Under Armour announced a few days ago that they're launching at Kohl's. Can you provide any initial thoughts on this announcement? Can you parse out how big Kohl's is and do you anticipate any future revenue opportunities for the Columbia brand there?

Well, yeah, we typically don't comment on our competitors. Obviously, Under Armour is a strong brand and I know those discussions have been ongoing for quite some time. We expect that the biggest impact from the vendor base would be likely on other athletic brands, as opposed to the outdoor brands that Kohl's carries. We want Kohl's to be a very strong customer and they need to have a broader base I guess of athletic brands that they carry. So I would expect that product line would do well there.

Okay. Very helpful. Then and own inventories, following up on Lindsay's question, last quarter you outlined that you expect inventories to finish up the year generally in line with sales growth. Is that kind of based on fourth quarter sales growth or is that guidance still the case? Or is that really based on long-term growth of, I don't know, mid singles to high singles.

It was really based on the mid-single digit growth rate. For 2016.

Okay. Okay. Very helpful. And then lastly, can you parse out in basis points the FX impact to the first and second quarter gross margin? And then how should we think about FX for Q3 and Q4?

I'm probably not going to get into the quarterly granularity. We've commented over the last two quarters that FX will have about 100 basis point head wind for the full year. And most of that head wind is felt in the first and third quarters, when we do the lion's share of our international wholesale deliveries. So Q3 will see a head wind from currency, much more so than Q2.

Okay. Very helpful. Thank you very much.

Thank you. Our next question comes from the line of John Kernan with Cowen and Company. Please proceed with your question.

Good afternoon, everyone. Thanks for taking my question. Just going back to, you know, shipment timing issues. Are there any disproportionate effects to gross margin or SG&A due to this in the third quarter?

Some but not significant. Hedgings by far is the biggest component of the margin deleverage that we're anticipating in the third quarter.

Okay. And then it seems like there's a pretty powerful theme of you going more direct, with at least direct outgrowing wholesale by a pretty significant amount in key regions so far in the first half. Can you help us understand the economics of the direct business? I mean, from a margin perspective, is it any better, is it significantly better or worse than the wholesale channel?

Well, it depends really on the particular period of time, where we're liquidating inventories or selling product that we made for the outlets. In general we've said many times we consider ourselves to be a supplier to the wholesale trade and that's where our focus has been. And will continue to be, frankly.

Okay. Thank you. And then I guess last question. Just on the distributor business internationally. I think it's lagged a bit from the directly operated channels. Any initiatives you can do to get that distributor business kind of growing again at a more sustainable rate?

Well, most of the issues we have in our distributor business, frankly are a function of the disruption either politically or economically in a particular market. So a great example is the Russian business, which historically has been very strong for the Company. Obviously when the Ruble goes to half its value and the price of oil is impacted, that's impacting our business. So, we're basically selling in every major international market today. And when one of those major markets gets disrupted by forces out of our control, it's very difficult for us to react.

Okay. Thanks. Just one housekeeping question. Free cash flow guidance this year. Any change to that?

No. We're still looking at $110 to $130.

Okay. Thank you.

Thank you. Our next question comes from the line of Jon Komp with Robert W. Baird & Co., Inc. Please proceed with your question.

Hi, if I could first just ask a clarification question on the outlook. I know you reiterated the full-year target for revenue and the earnings. It did sound like there's a little incremental impact from the Sports Authority liquidation. Do we think that the impact from TSA was just immaterial to the full year outlook? Are there some other offsets or do you expect to be at a different point of range of the outlook or any kind of clarification thoughts there?

We've essentially held our top line and bottom line outlook, so the Sports Authority is really not really a factor in the second half outlook really. You know, there's some puts and takes between gross margin and SG&A. But again it's the top line hasn't changed or the bottom line I'd say. The biggest factor that's probably changed in the last 90 days is, you know, (inaudible) continues to soften. So that would be probably the single biggest call-out at this point.

Okay. And then another question just on the shift, the third quarter and the fourth quarter, the relative growth rates. Obviously more fourth quarter weighted than I think we were contemplating previously. But I know you had not given quarter-by-quarter guidance. I'm just curious outside of the order timing that you mentioned, and maybe Korea, are there any other moving parts that you've seen internally, versus your forecast shift more towards the fourth quarter?

No. No, not really. Not really. I mean, you know, we had the order book in hand for Q3 on our April call. So no major changes in that regard.

Okay. Great. And then the last question. I just wanted to ask about that change in the full-year gross margin. Now I think only up ten basis points for the year. I know it was mentioned that you're expecting a more second-half promotional activity. I just wanted to clarify. Is that because of specific differences in the inventory that you see internally? Is it more because of the external environment, I guess what's driving the change in the gross margin outlook for the second half?

It's really the external environment and the inventory that's currently in the channel.

Okay. Thank you.

Thank you. Our next question comes from the line of Susan Anderson with FBR & Co. Please proceed with your question.

Good evening. Thanks for taking my question. Just a follow-up really quick on that last question on the gross margin. Is there an impact at all, too, because you're going to be selling some stuff through the outlets, I guess you guys would have known that before. And then, also, is this excess inventory because of what was left over from last year?

No. I would say that the margin takedown of roughly 20 basis points is predominantly a function of the current health of the Korean market. And to a lesser degree, just the overall promotional environment and the US wholesale sector.

Got it. Okay. That's helpful. And then for fall this year, I think last year you had more wear-now products early on versus the heavy jackets in the store. Are you going to be continuing that, is there going to be more of that this year or are you guys doing anything different from last year?

No. Obviously last year the weather didn't cooperate in the back half of the year. But we didn't make drastic changes in our offerings. But we have products which are appropriate for multiple different seasons. Our expectations are built on the fact that we believe we've planned against a normal winter. If it's something other than that, we believe we've still gotten ourselves in a position to be hitting our number.

Got it. And then on the Sorel brand, I guess going into the fall, maybe if you could just give a little bit more color on how you feel about the brand? I think last year you were already seeing some pretty early orders of boots. Does it feel like it's going to be strong again? I think last year you came out with a lot more fashionable styles. Is there anything else newer going on this year?

Well, yes. We have a very heavy emphasis on de-winterizing the brand. If you remember it was almost exclusively heavy-duty men's work winter brand. And Mark Nenow and his team have successfully transferred that business to being, first of all, female, and second of all much more fashionable and now the focus is really on giving ourselves a significant opportunity when the weather is not there. The fall 2016 product is very heavily emphasizing this wedge, lightweight wedge product, which is done very well for us in our early launch this spring, as well as last fall. And then next spring's product, which has been very well received, includes some rain product, which is going to be an important part of the future. So we're very excited about that brand and how well it's coming along.

Great. That sounds good. And then last question just on shelf space. I know a couple years of really gaining shelf space, especially for the Columbia brand from private label, is there anything else left to take in the stores? Or is it really just kind of growing what you have?

Oh, no. I think frankly there's opportunity in wholesale at other brands that don't have the kinds of brand strength that we have. So the tertiary brands. And against major brands, we have a very strong position, especially in our PFG line. We have very little competition in that area. And it's an area of significant focus for the Company. So there's lots of opportunities for us.

Great. Sounds good. Good luck next quarter.

Thank you.

Thank you. Our next question comes from the line of Jim Duffy with Stifel Nicolaus. Please proceed with your question.

Thanks. Good afternoon, guys. I'll build on your last comment. I was going to ask about the PFG franchise and an update on what you're seeing there, how you feel about the performance of the PFG store and opportunities for that into next spring?

Certainly. Well, we've got several PFG stores, the newest store is the store in Disney. And it's a terrific product. You know, I think if you look at the demographic studies on what people do with their time, their free time, it's fishing and hiking are the dominant activities by far. And with PFG, we're able to get that consumer who wants to make sure not only his wardrobe performs when he's fishing, but when he's at work, reasonably casually dressed, he reflects he's a Fischerman. That's been a really terrific part of the business.

And in North America it really helps to supplant or to counterbalance our heavy emphasis on winter. But it's really begun to resonate in south and Central America and in Europe, which has been fun to watch.

Great. And then the consistent and broad-based strength across direct markets in Europe is encouraging. With the building scale you're seeing here, can you speak to opportunities to drive profitability?

We would have been profitable this year absent the effect of currency. The team there has been very, very singularly focused on rebuilding the product based offering and getting our business bigger there. As you can see, they've been successful. We've really been ultra focussed on the SG&A, because at the end of the day that was probably our biggest mistake several years ago, when we let our SG&A get out of whack there when the business declined.

But I think, you know, the brand is so strong in France and in Spain, that once we start having the right team in place, which we've had now for several years and the right products which we're getting better, products which are relevant for that market, we're going to be a real dominant player in that area. We already have, as you know, the infrastructure is built there. It's just a matter of taking advantage of the strengths that we already have. And the focus. So we're excited.

Good. And with the trend lines you're seeing, obviously difficult to call out to next year, but would you expect to get to profitability next year or be disappointed if you did not?

Obviously, I'll be disappointed. I'm disappointed today because we're not profitable. But it really depends on certain things that are outside our control, including currency, et cetera. But we are on the right path and whether it's the next 12 months or, 18 months, we're going to get there. And we're going to be a much stronger Company as a result of it.

Okay. Thanks for that.

Thanks, Jim.

Thank you. (Operator Instructions). Our next question comes from the line of Jay Sole, with Morgan Stanley. Please proceed with your question.

Great. Thank you. My question is on the golf business. I realize this is a new business but can you give us an update on how that business was doing and if it was a notable contributor in the quarter?

Well, if you remember the golf business for us is licensed. And so we really have taken the bulk of our revenue from that license and plotted it back into the marketing in that market for that market specifically. So we've opened a lot of customers. Our licensee has been focused on the green grass opportunity, which is an area we've never been involved in in the past. We've sponsored a few golfers, we've gotten close a few times. We haven't had a winner yet. But certainly the exposure has been very significant for us. It's our expectation that that part of the business, specifically golf, will continue to grow. And, frankly, it's a good contributor. We'd love to see a real winner wearing Columbia soon. And we expect that we will.

Okay. And then, you know, I know that there's been a lot of questions about the Sports Authority but just looking forward and how you see your business trending, when an event like this happens, where a retailer goes away, do you see the demand filter out to other channels, where, overall it's the same demand picture and it's just happening other places? Or, is this a situation where a retailer is going away and that's a sign of overall demand going down for the product and it's not really a situation where you see demand, where you see people just shopping for the same amount in other places?

Well, you can see our Company growing in the face of declining number of retail locations. So we consider the brand very strong and people are searching it and finding it wherever it might be. You know, I guess our viewpoint of the future is there will likely be continued consolidation and that retailers that don't have solid balance sheets and good operating models will be continuing to be challenged by the reduction in traffic really across that sector.

Okay. Great. That's helpful. Thank you. Good luck.

Thank you. Our next question comes from the line of Rafe Jadrosich, with Bank of America Merrill Lynch. Please proceed with your question.

(inaudible) some of the drivers to the momentum in prAna and can you remind us where you are internationally with that brand?

Sorry, you got cut off on the first part of your question. Would you mind repeating it?

Sure. Can you just kind of talk about what's driving the strong momentum that you're seeing there with prAna, maybe where you see the most opportunity and then remind us where you are in international with prAna?

Certainly. Well, prAna's significant growth in this first half was in North America. And it's really a function of a number of things, including I guess I would call that for sure, the swim wear opportunity, where we think there's big opportunity there for the brand and the fact that it's a company based in Southern California, with access obviously to the oceans and they really have a sense for what products are going to be in demand there. As well as just the unique positioning of the brand between yoga and climbing, that product tends to resonate significantly. Additionally it's heavily favored by women. So we like that. And we would expect that brand is going to continue to grow as well.

There's opportunities in other seasons for prAna, which we think will be focusing on in the future. As it relates to international, we would hope frankly to have had a bigger, quicker uptake on the brand internationally than we've had. The demand is still there. The product personality is still quite unique. And we believe that there's significant opportunities internationally, just taking us a bit longer.

And in terms of the elevated channel inventories that you called out earlier in north America, where do you expect or what's the timing of the inventory of how retailers work through the inventory and I guess the brand as well? Are you anticipating most of that will be in the outlets, off price? And then, can you remind us sort of what your off-price penetration is now and compare that to the prior years?

Yeah. I think when we talk about the elevated inventory levels, it's not necessarily our inventory. It's sort of a amalgamated inventory from all brands and some more significant than ours, certainly. So based on how our customers purchased their fall products or how they approach the fall business for 2016, they were quite cautious. So my assumption is that we're going to have clean inventories at the end of 2016, if we have a normal winter. So we don't talk specifically about our particular off-price percentage of the business, but I believe it's quite healthy. And we have, if you remember our own outlet channels to dispose of merchandise through and, frankly, that's our preference to liquidate through our own channels.

Thank you. That's really helpful. Just one more. You mentioned market share gains earlier. Are there any specific channels or geographies or categories that you can call out, where you're seeing kind of stronger market share gains? Thank you.

Well, certainly in the summer sports wear business, where we have a very strong hiking and trail business, but the addition of our PFG business, which we don't really have competitors in that market of any significance. So when we talk about market share, it's really, I would say, led by sports wear, where we have these iconic categories of merchandise that others don't have.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Andrew Burns with D.A. Davidson. Please proceed with your question.

Hi, guys. Congrats on first-half performance. Tough environment. Historically you've talked about your US wholesale distribution strategy being roughly equally split between specialty, sporting goods and department stores. And I was wondering if that thought process has changed at all, given the dramatic changes in consumer shopping behavior, driving your retail traffic issues and the store closures and bankruptcies we're seeing today? Thanks.

We look at the business the same way today. It's unfortunate to lose a major player in the sporting goods sector, and frankly, in any major segment we work in. We would look at the business, the retailers about the same way today. We might parse the specialty, excuse me, we might parse the sporting goods between athletics, sporting goods operations and hunt, fish, camp. But we basically have the same view of the marketplace and where we belong in those various categories.

Good. Thanks. And then just a follow-up in terms of Korea and the continued weakness there. Is it still just a situation of too many brands, too much inventory? Or underlying all of this, do you think there's been any shift away from outdoor brands in general?

I think there's probably been somewhat of a fashion shift away from the "hiking look". And that coupled with the fact that that market grew so rapidly over the last five or six years and it was flooded with not only all of the major players in the outdoor business, but also some local brands that just got in the business. So, it's another area where our balance sheet allows us to continue to focus on that market, which we believe will continue to be strong. While others leave the market and there have been a lot of departures. But we still have an inventory overhang and then we have to make sure that we focused our time and effort on having the right assortment of outdoor product and not particularly any specific look.

Thanks. Good luck on the balance of the year.

Thank you.

Thank you. Our next question comes from the line of John Kernan, with Cowen and Company. Please proceed with your question.

Thanks for letting me jump back in the queue. Just a few comments on PSG. Have you sized the overall market opportunity and have you disclosed how big that category is for you currently?

You mean, in terms of our sales?

Yes.

Okay. I think our sales are, you know, north of $120 million in that range. In terms of the markets, the applicable market size, it's very significant. The bulk of our PFG sales are in that southern part of the United States, Central America and northern South America, where we have great weather. And where fishing is a real popular sport. But it's a humongous market and that's obviously where there's a large population.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back to Tim Boyle for closing comments.

Thank you, Operator. We look forward to talking to you at our next conference call. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.