Columbia Sportswear Co (COLM) 2016 Q4 法說會逐字稿

Greetings and welcome to the Columbia Sportswear fourth-quarter and FY16 financial results conference call.

(Operator Instructions)

As a reminder this conference is being recorded. It is now my pleasure to introduce your host Ron Parham and Director of Investor Relations and Corporate Communications. Thank you, Mr. Parham you may begin.

Thanks Bob, good afternoon. Thanks for joining us to discuss Columbia Sportswear Company's record fourth-quarter and full-year 2016 financial results and our initial 2017 outlook.

In addition to the earnings release we furnished an 8K containing a detailed CFO commentary explaining our historical results and the assumptions behind our outlook, the CFO commentary is available on our investor relations website. 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. I will say at the start here, about half of the team is fighting a cold.

So apologies in advance, if some of the voices are a bit rough. But Gert will start us off covering the safe harbor reminder.

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 and a subsequent filing with the SEC. Forward-looking statements in this conference, 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 to the forward-looking statements to actual results or to manage in our expectations.

Thanks, Gert. I would also like to point out that during the call we will reference constant currency net sales growth which is a non-GAAP financial measure and will find reconciliation of constant currency net sales as reported under US GAAP in the supplemental financial tables of the company in our earnings release, along with an explanation of management's rationale for including the non-GAAP measure.

Now I will turn the call over to Tim.

Thanks, Ron. Welcome everyone to take for joining us this afternoon.

2016 marked Columbia's Sportswear Company's third consecutive of record sales and our second consecutive year of record operating income and record net income. These results were driven by record gross profit margins up 60 basis points to 46.7% despite 100 basis points of headwinds from foreign currency.

In addition, we improved our operating margin to 10.8% from 10.7% last year, our third consecutive year of improved profitability. During which we have expanded operating margin by a total of 300 basis points despite significant foreign currency headwinds.

Inventory levels are in good shape ending the year up 3% comparable to the sales growth implied in our full-year 2017 outlook. In 2016 we generated record cash from operations of $275 million and returned key profitability measures to levels that are in line with our peers. We're especially proud of these accomplishments because they were achieved despite unique challenges in several of our largest markets, specifically Korea, Russia, and our North American wholesale business where wholesale customers bankruptcies and unseasonable weather had a significant impact.

While those markets were challenged our team in Europe maintained the momentum they created in 2015 to produce a second consecutive year of 20% plus constant currency sales growth and returned our Europe direct business to operating profitability in 2016. Another bright spot was our global sales through our direct to consumer channels which grew more than 10% and represented 37% of global sales in 2016 up from 34% in 2015. Within that, our combined global eCommerce business grew more than 20% to approximately $220 million.

Which represented more than 9% of global sales for the year. We will soon be bringing our European Columbia and Sorel brand eCommerce businesses in-house to service 10 European countries from the prior third-party provider. This change will help drive a superior brand connection and consumer experience gross sales with an expanded product offering while leveraging our existing physical distribution infrastructure.

Our outstanding 2016 results demonstrate our ability to navigate a wide variety of market conditions by capitalizing on the strengths of our brand, leveraging our operating platforms, and prioritizing our investments to drive continued profitable growth across our diverse global business, while maintaining a strong balance sheet. Our first priority is to invest in our brands. That includes a continual flow of new innovative products and demand creation initiatives intended to strengthen consumers emotional connections with our brands.

On the product front during 2016 Columbia's position as a leading outdoor innovator was reinforced by major industry publications and influencers and we're off to another strong start in 2017. At last month's outdoor retailer trade show, Columbia's patent pending OutDry Extreme Eco-technology received recognition from leading media. Backpacker magazine gave it their editor's choice Green Award.

Men's Health honored the OutDry Extreme Eco down jacket, and Digital Trends highlighted the OutDry Extreme Mobile jacket, for eco-conscience design and high performance. In addition, OutDry Extreme Eco won REI's Inaugural Root Award created to highlight their pick for the years innovative and responsibly designed new product.

As a reminder, OutDry Extreme Eco represents the most functional performance rain gear with the least impact on the environment. We don't use any PFCs in its construction. We use non-dyed materials saving 13 gallons of water per garment and estimated materials that are byproducts of recycled plastic water bottles.

Our eco-marketing campaign with REI featuring a partnership with hip-hop musc artist, Macklemore drove over 40 million impressions and numerous placements in major publications. Along with our key wholesale partners we will continue to drive consumer awareness of this innovative technology as we approach the spring and early summer months when rain gear sales hit their annual peak.

Underpinning all of our marketing efforts behind the Columbia brand is the Tested Tough brand platform. Which is now in its second year of global penetration across the roughly 100 countries where Columbia products are sold.

The Tested Tough campaign's core message that Columbia helps people enjoy the outdoors longer is resonating with an expanding range of consumers. The growth of Tested Tough social engagement metrics continue to outpace our outdoor competitors on Instagram and YouTube and the media impressions resulting from our PR efforts more than doubled in 2016 to an all-time high for the Columbia brand. Over the past year we've executed several additional marketing initiatives that elevated the Columbia brand in key markets around the globe.

Two examples. The Columbia brand partnership with Manchester United that hit the market in September, and Columbia Montreal serving as the presenting sponsor of the annual Ultra Trail Du Mont Blanc or UTMB.

In fact you the UTMB was a multi-brand event for us with Mountain Hardwear serving as the ultra partner for equipment and OutDry serving as the official technology partner. Those two brand associations are playing an important role in elevating our brands globally.

As you might remember, each year Columbia hires two adventurous individuals to travel the world testing Columbia gear in some of the most challenging conditions on the planet and documenting their experiences for social media. Columbia's first Directors of Toughness, Zach Doleac and Lauren Steele completed their adventures during 2016. Based on the success of that first year we increased the duration of the job from six months to nine months and expanded the applicant pool beyond the US to include Canada and the UK.

From the nearly 6000 applicants, Mark Chase, a former professional rugby player from the UK, and Faith Briggs, a runner and documentary filmmaker from Brooklyn were selected as this year's Directors of Toughness. Mark and Faith began their nine-month journey around the globe with a visit to Manchester United's famous football pitch where they were greeted by legendary Manchester United fullback, Dennis Irwin. Dennis accompanied Mark and Faith on the first leg of their journey to Iceland where they put their Columbia gear to the test hiking across glaciers and inside glacial ice caves.

That was just the beginning of testing Columbia's newest gear for Mark and Faith. Although still early in season two, this year's Directors of Toughness campaign has already more than doubled the social media results of season one driving more than 200 million editorial impressions and millions of views on YouTube, Facebook, and Instagram. Overall our Director of Toughness campaign is driving nearly one billion annual media impressions.

Last quarter we announced our plan to deploy enhanced in-store environments with key wholesale partners around the globe. We completed the first wave of installations during the fourth quarter with current plans to roll out approximately 200 additional sites during 2017. Finally, I want to highlight Columbia's creative partnership with Disney's Star Wars franchise in which Columbia was the exclusive designer and distributor of a limited collection of Rogue One inspired apparel.

The collection launched in tandem with the movies debut on December 8, drawing long lines outside of Columbia's branded retail stores across the country and driving significant traffic increases at our columbia.com econ-site. The Rogue One project attracted favorable media coverage in the Wall Street Journal, Women'sWearDaily.com, Good Morning America, among many others resulting in nearly 500 million media impressions. The variety and breadth of these brand partnerships illustrates the versatility in the Columbia brand.

We believe each of these programs along with many others that we continue to identify and execute resonate with Columbia consumers and align with consumer trends towards accessible performance outdoor products. Columbia's 2% global sales growth in 2016 consisted of 4% growth in North America, more than 20% growth in Europe direct markets, high single digit constant currency growth in China and low single digit constant currency growth in Japan. Offset by double-digit declines in Korea, LAP distributor markets in Russia, each of which faced distinct challenges that we've discussed in previous quarters.

Our 2017 outlook anticipates mid-single digit constant currency sales growth from the Columbia brand with all four geographic regions contributing. Sorel, our second-largest brand, remains the most cold weather's sensitive of our four brands and although we're making steady progress establishing Sorel's spring and fall fashions assortments Sorel's sales grew 2% in 2016 on top of 26% growth in 2015.

Sales declined 1% in the fourth quarter against 14% growth in last year's fourth quarter primarily due to the late arrival of winter weather which led to higher cancellations of advance wholesale orders and less than planned DTC sales. Our Sorel team took an important step towards de-winterizing the business during 2016 with the successful pilot launch of a spring line in partnership with Nordstrom. Looking ahead to 2017 we are optimistic that Sorel's spring line will be another successful step towards making Sorel a year-round brand.

Last month, Sorel began a full scale spring 2017 launch in partnership with wholesale customers representing nearly 800 doors across North America. Two weeks ago in Park City, Sorel leveraged the popularity of its fall and winter styles to showcase its spring assortment with thousands of A-list celebrities, influential style bloggers and other attendees who were in town for the annual Sundance Film Festival. The spring line is beginning to resonate with consumers who already love the Sorel brand and are seeking more opportunities to wear it throughout the year, as well as with consumers were still just discovering the brand. As Sorel begins to prove its year-round relevance we will capitalize on it's long-term global opportunity. Despite the challenging North American wholesale backdrop we expect Sorel to return to healthy low double-digit sales growth in 2017 with the bulk of that growth coming in the second half led by its lighter weight fall fashion styles led by of the Lea Wedge, Addington, and Out and About collections.

That PrAna brand grew 12% in 2016 to $140 million its sixth consecutive year of double-digit growth despite the negative impact of US wholesale bankruptcies during 2016. During the year PrAna's growth was fueled by the launch of an expanded swim wear line and as a testament to its dual gender appeal its men's yoga, fitness and lifestyle business grew faster than its women's business. Our products team is working hard to increase consumer awareness, enhance in store brand presentation and deliver more segmented assortments.

Overall we expect another year of low double-digit growth from PrAna in 2017. Earlier this week PrAna became aware of a potential cyber security incident involving its eCommerce website PrAna.com. We immediately launched an investigation and engaged a leading third party cybersecurity firm to assist us.

Protecting our customers information is one of our top priorities and we are taking this very seriously. Until the investigation is completed it is difficult to characterize the scope or nature of the potential incident but we are working vigilantly to address this issue. It is important to point out that this potential incident is limited to PrAna's separately managed eCommerce site and does not involve any of our other branded websites.

At Mountain Hardwear, our search for a new brand present is nearing conclusion, while our team in Richmond has continued along the strategic path to reposition the brand and reengineer its product direction. Mountain Hardware's wholesale partners remain confident about the brand based on its heritage and its reputation for superior high altitude performance and have expressed their support for the team strategy and vision to refocus that DNA. They also know the brand remains with strong loyalty among its core consumers.

We still have a lot of work to do before we can expect the sales trend to reverse. Accordingly, we anticipate modest declines from the Mountain Hardware brand in 2017. Our strong balance sheet enables us to invest strategically in our brands, our people, and our operations in order to improve are competitive position diversify our business to become less weather sensitive and manage through business cycles.

Our initial 2017 outlook anticipates global sales growth of approximately 4% with contributions from three of our four brands and all four of our geographic regions. We expect operating income to increase up to 5% representing operating margin of up to 10.9% and full-year 2017 net income to increase up to 4%. You can find more detail on our Q4 and full-year results and our initial 2017 financial outlook in Tom's CFO commentary available on our website.

In the context of the current macroeconomic challenges and rapidly changing consumer behavior, we are very pleased with our 2016 performance and our outlook for continued growth in 2017. Consistent with our focus on relentless improvement the senior management team and I are engaging a leading consulting firm to assist us in performing a thorough assessment of our operating model.

Our goal is to ensure that our business is aligned and organized to successfully execute our strategic plan. I want to thank the more than 6000 employees globally for a successful 2016 and for continuing to execute diligently against our strategies in a very challenging environment. We remain confident in our ability to continue to drive sustainable profitable growth to our powerful brand portfolio.

Before we take your questions I want to take a moment to proactively address the potential of new protectionist measures coming out of Washington DC. Over the past several decades we've created thousands of jobs in the US and elsewhere by designing innovative products that connect active people with their passions.

Notwithstanding political debates our main focus is the same as it has always been. Helping consumers everywhere stay outdoors longer. When we wade into a swap it is usually to test our products.

That said, we are highly aware of the impact protectionist measures can have because, unlike most other industries, the apparel and footwear industry has faced double-digit import tariffs in the US and elsewhere since the 1930s, some as high as 67.5%. Even though we are relatively small company, in 2016 we were the 49th largest payer of US import duties out of more than 375,000 American importers. Our experience and flexibility have always enabled us to adapt, and frankly, excel in this landscape.

With respect to changing trade agreements we have long anticipated the US withdraw from the transpacific partnership. So we're simply proceeding with business as usual. We have also generally not relied on nor particularly benefited from NAFTA and therefore, do not anticipate any direct impact on our business if that agreement is eventually renegotiated.

It is far too early to accurately judge the likelihood or impact of various tax reform proposals that are being floated, but we are actively engaged in monitoring those efforts. Along with most others in the industry including a broad range of retailers we have obvious concerns with federal tax proposals that use the tax code to impose a significant penalty on imports and the consumers who buy them. A border adjustment tax structure would do just that and would be particularly challenging for an industry, which as I said, is already subject to double-digit import taxes.

We're obviously interested in the efforts to simplify the tax code and reduce rates and are hopeful that in the end Congress will not support a border adjustment tax that makes the tax code more complex and uncertain and imposes greater tax expense on company and consumers and limits the president's flexibility to negotiate trade issues on a country by country and industry by industry basis. We will continue to closely monitor these issues working with industry trade organizations individually to inform and educate elected officials about the potentially onerous impacts that some of these proposals would have on the country if enacted.

That concludes my prepared remarks. I'm happy to welcome your questions. Robert, could you help me with that?

Ladies and gentlemen we will now be conducting a question and answer session.

(Operator Instructions)

Our first question comes from the line of Bob Drbul with Guggenheim. Please proceed with your question.

Hi, good afternoon. Tim and team.

I guess have a couple questions for you. One, did you bring the Portland weather to the East Coast this weekend?

If we had that kind of power, it would of shown up in October.

Better late than never though I guess. I guess two bigger picture questions for you, Tim. The first one is on your outlook for 2017 how much of your order book do you have in hand or the visibility of your order book.

And within that outlook, can you just talk about either door count contraction or square footage of your wholesale partners that won't be there in 2017 that were there in 2016. Can you put a little bit of a framework on that for us?

Certainly. As you know, we try diligently to guide with the best information that we have. We have a high percentage of our order book today visible to us.

That gives us confidence to give the guidance we gave today. So its way north of 85%. So we're confident as to where we're going for the year 2017.

I think I heard the quote, something like 20 million square feet of sporting goods has left the retail landscape in the US. We expect frankly further contraction and further bankruptcies and consolidation. The guidance we have given you today contemplates what we see and what we think is likely to happen.

Okay. And then the off-price channel. Can you just talk about how that materialized for your industry and for the category in the fourth quarter and sort of what you think it looks like in 2017?

I can only really speak about our interaction with the off-price channel which has been good but probably slightly lower than in years past. I think that the amount of insulated inventory that is in that channel or being made available to the channel is probably slightly less than prior periods. The available inventory of the channel is definitely less and the availability from other vendors is less as well.

Hey Bob, this is Tom. Part of our revenue miss in the fourth quarter was due to the fact that we shipped less of our excess inventory to the value channel than we planned just because we couldn't get to our margin targets and we can carry that inventory over then sell it at a better margin though our own outlets this year.

Okay. Thanks Tom. I guess the other question that I have I guess is more on the geography piece of this.

When you look at the trends in Korea and I'd say Russia that weighed you done a little bit in 2016, do you think the assumptions you are making in 2017 are achievable, conservative? Do you think there's still some risk and those markets for you that could surprise you as this year progresses?

Yes, just at a very high level, again just to reiterate this is our best view of 2017 we have given you. I think we have properly accounted for issues in those two markets. But Tom may have --

I would say this relates to Russia, Bob, most of that business is all advance order. That's a fairly predictable revenue equation for us.

Korea we're basically planning flat to last year. That revenue is at $75 million to $80 million.

Not a huge part of our total business but we feel like -- as we typically do, we have planned this down the middle. Not aggressive or conservative, at least as we see the business today.

Great. I guess if I could just ask one last question. Could you just talk about with the square footage going away in sporting goods, can you talk about the business trends with Amazon as a partner and how that is materializing and how big it is today and your outlook on that specific channel?

Certainly. We have a good relationship with Amazon really globally. Frankly, it is a place that consumers are going to find merchandise.

So our relationship there is good. We think that channel appears to be growing more rapidly.

Frankly our eCommerce business is growing more rapidly than the rest of the business as well. My expectation is that it will continue to be that way for some time.

Great. Thank you very much. Thank you Bob.

Thank you. Our next question comes in the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.

Thanks guys. Good afternoon. Tom, I think there was a shift in the quarter, I think there was a shift both in LA -- in the Latin America specific region as well as in India. Could you please tell us if there was a net benefit or a net detriment to the quarter in the magnitude of those combined shifts?

In terms of th the distributor shipments? I don't have those numbers specifically in front of me. There wasn't a material shift.

I think one region went one way, one region went the other way. It wasn't significant to the overall quarter.

I would say that the bigger shift was -- we had planned about a $30 million shift in the US wholesale business from Q3 to Q4. About half of that $30 million shift materialized.

About half of it was ultimately canceled given the slow start to winter. That was a bigger part of really the top line miss relative to our implied guidance for Q 4.

That's what I was getting at. Was that concentrated in outerwear apparel or if footwear in Columbia or SOREL.

I don't have those numbers in front of me but it was much more cold-weather outerwear focused and maybe to some degree some of the cold-weather footwear product. And a little bit in the SOREL brand as well.

Okay. Great. Then as you think about, I think, Tim, you mentioned that the inventories are in good shape relative to where you expected guidance fallout for next year.

Can you just comment on -- briefly touch on the off-price inventory in the channel. Can you comment about just the overall channel inventory, how that sits -- and what, if anything, that those two -- how retailers are viewing in the discussions you're having with them right now, how they're viewing their order book and are they shifting more of their order book to an at once business more than maintaining the same percentages that they usually maintained from the pre-book to an at-once perspective?

Let me speak to the last part of the question. Maybe Tom will get to the first part.

For our category of merchandise which would be outerwear and winter footwear. Does those bets have to be placed early on. At once business is virtually a possibility in terms of reducing it in time for production in time for delivery during a snow event.

So our goal is to take our orders from our customers and minimize the risks on weather not showing up and altogether make our guess as to what the weather is going to be. There is no at-once opportunity for all intents and purposes on outerwear or winter footwear.

Okay. And then I guess how does the channel overall look from a price perspective?

I think as it relates to the merchandise -- winter merchandise that's in stores today is probably lower levels than it has been in prior periods. Certainly lower than at the same time with year.

Got it. I'm curious about - actually two more questions.

I'm curious about the move taking of your eCommerce regions in-house. If you could just talk about the timing of that move and any sort of profitability lift that we could expect from that?

Certainly, well in order to kick off our business in Europe on the eCommerce basis we establish a relationship with a third-party that basically managed the order and shipment from their facilities. So we are basically taking that in-house, which means we take back control of the customer so we have a call center establishment in Europe where we are going to be speaking directly to customers as opposed to through a third party call center. We will be able to utilize the existing infrastructure that we have of both to house the call center and also to house the physical distribution of the products.

Those exist in Europe today. We will be able to offer a larger offering than what we were able to offer through the third-party firm. So we have calculated the enhanced profitability in the announcement that we've given you today for 2017.

But at the end of the day, it's going to mean a better more brand enhancing experience for consumers that want to buy products from the Company electronically in Europe. We're expecting that in addition, the marketing results -- that kind of an [effort gives us, will] be superior as well.

Is there no fee as a percent of sales that you recover as you [start] picking that business in-house? I assume there is some sort of profitability mix benefit to this, right?

That's correct.

(Multiple speakers)

That's correct. The current outsourced models or variable cost models are arguably fairly expensive so we will be able to leverage the fixed cost without incremental fixed cost in our business and operate this eCommerce business in Europe much more profitably for our ownership.

That profitably improvement should hit the P&L at the back half of the year? When does that turn on?

Predominantly I would say the second half of the year although we are anticipating to go live mid-first half of this year.

Got it. Perfect. And then just finally for me, I was interested in the commentary around the review of the business bringing outside consultants in.

I guess what prompted the review in the first place and then secondarily what areas of the business are they or you focusing on? Is this a supply chain initiative or understanding what the optimal channel mix should be as time goes on for the next three to five year period? Or and expense rationalization project?

If you could dig a little deeper into what the expected outcome -- what the hoped for outcome will be and when that implementation will take place. Thank you.

Sure. We're kicking off this project here in the next 30 days. We have a very successful business.

You've seen constant improvements from the Company and our operating models over the last several years and we are focused on continuing to improve the business. We know what our strategic plan shows for us in the future. We want to be a larger, more profitable business serving more customers and specifically in the wholesale area. We want to be able to generate more marketing dollars to create demand for the Company's products.

We have some processes in the Company that I'm sure are not as efficient as possible and we want to make sure that we have some help in analyzing those processes and making sure that we are using the assets of the Company in the most efficient way. So that's how we plan to undertake this project and then we're looking forward to a healthy review of how we operate the business today with improvements in mind.

All right guys, thank you. All the best.

Thank you.

Thank you. Our next question comes from the line of Mitch Kummetz with B. Riley. Please proceed with your question.

I just want to drill down on the guidance particularly on your guidance surrounding mid-single-digit growth on the US side. So you're looking DTC at mid teens. I guess my first question there is can you talk about the combination of door growth versus comp.

And then on the wholesale side low single-digits. Tim you said that about 85% of your order book is in, I don't know if you care to comment on how that looks, if it's up, down, or flat. I would imagine under normal weather conditions Tom, you're looking for maybe a better mix of reorders to cancellations the what you saw in the fourth quarter.

Yes that last assumption would be correct. So it's a combination of -- if we look at the growth in the US business for 2017, low single digit growth for the wholesale channel and mid teen growth to the direct to consumer channel. When we look at DTC which is going to drive a lot of our growth and 2017 it's a combination of new stores.

Were planning 13 new stores in the new US this year and I believe we have leases signed for all of those stores as of today. We added seven stores in 2016.

So we will get some benefit in 2017. We would expect our eCommerce business to continue to comp double-digit.

And then on the wholesale side? Can you say what the order book is looking like at this point since you got it largely complete.

Again, I think you already confirmed that reorders should be up. Does that mean order book orders are also up or are they more flattish.

I wouldn't say that we expect reorders be up frankly. We have guided based what we have in front of us and our likely scenarios as we walk over the last several years. So we believe we're taking share, but this is a reflection of our current growth with our good customers and expected changes in our customer base based on weak financial performance by some and you know we're just making sure that we have anticipated all possible financial outcomes for some of our customers.

And maybe just to clarify Mitch, when we look at reorders, we look at reorders that have cancels and we would expect that net reorder cancel rate to be more beneficial in 2017 than 2016 based on a normal weather pattern.

Then could you speak to the environment of struggling with retailers right now. You mentioned it was contemplated in the guidance.

How are you dealing with some of these guys, there's obviously a lot reports around Gander and EMS. Are you shipping these guys, are you changing the payment terms? What are you doing to protect yourselves if they were to go away?

First of all, we would never want to comment on a specific customer. But if you look at our record and I might point to our record as it relates specifically to Sports Authority. In terms of how we manage the extension of credit to that particular customer even during their difficult times and what it would end up costing us. I would say we were in the best quartile of credit extender's.

We've been doing this a long time. We want our customers to thrive and survive and we want to be mindful if that doesn't happen we need to protect the assets of the Company with some significance.

We consider ourselves to be best in class in terms of credit extension and I think we've shown that. We know how to deal with these various problems and without getting into specifics, I think we will do good job.

Thanks guys, good luck.

Thank you. Our next question comes from the line of Jonathan Komp with Robert W. Baird. Please proceed with your question.

Tim can I ask first a bigger picture question on the Columbia brand. I know it's planned in 2017 for mid single-digit sales growth and the way you talk about some of the broader wholesale challenges, you talk about it more structurally than short-term in nature. So I just wanted to maybe gauge your thoughts on the longer-term growth rate for the brand if you think it's a mid-single-digit grower going forward or if you think there's other opportunities to accelerate maybe beyond 2017?

No, I mean we've guided on a fairly narrow tactical basis as it relates 2017. For all intents and purposes -- it's well known to us and we have seen this before. We think there is significant growth in the Columbia brand.

You have to remember that not only here in the US but globally. There's significant opportunity for us. We believe and we have talked to investors in the past about the fact that we have been under investing in demand creation and we know that as we begin to develop more funds for marketing the Company's products not only in the US but also globally, and we've become more efficient at it through things like our connection with Disney and Manchester United, et cetera.

That the Company's products will become better known and in higher demand. I personally am always disappointed if we aren't growing in high teens because I think the opportunity for us at that scale is certainly there. So that's my particular personal plan and I believe if we're not at that level we're under performing.

Switching topics the gross margin guidance for 2017 I think it calls for 25 basis points of expansion. I just want to ask in the context I know and last four years you have meaningfully exceeded that level even despite currency and other pressures and now it's mentioned a favorable sourcing environment is imbedded for 2017. So any perspective on the factors leading to the outlook for this year?

Yes, I would say, a lot of factors go into the gross margin and the gross margin forecast. I would say the biggest driver of the expansion as we see it today is going to be channel mix. With additional benefit from the sourcing environment and we do expect currency to be a slight tailwind as well.

It's a tough environment. We run a multi-channel business so there's lots of moving parts within the gross margin outlook. We're comfortable with that 25 basis points of expansion as we sit here today.

Is there anything going against you like faster growth for the distributors as a mixed impact or something just because I think you mentioned two or three positives and no negative offsets. I'm just wondering why -- maybe only 25 basis points of expansion?

Yes, we're planning for the distributor business to grow at a much faster clip in 2017 than 2016. So that is a net negative as it relates to margin expansion as that channel is the lowest gross margin channel for the business.

Okay and my last question, if I could. Curious to get an update as you look at the wholesale versus the direct business and the profitability of those two when you kind of fully allocate the cost structure.

I'm curious to hear maybe what the relative profitability of this channels and maybe within the direct eCommerce versus the stores. Any color you could give on that would be helpful.

Yes, so I would say let's set aside allocations for moment. As we look at those three channels with eCom, our own brick-and-mortar and our wholesale channels. You know I would say between the wholesale and the eCommerce businesses they are relatively comparable from an operating margin standpoint and then followed by the stores.

So we really look at those three channels of distribution separately because the dynamics between eCommerce and brick-and-mortar are quite different in the cost structure's. So as eCom grows as a faster clip than the brick-and-mortar business that will drive operating margin expansion.

Okay. 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.

Good afternoon guys. Going back to the miss versus your revenue guidance in the fourth quarter you talked about some of those cancellations I guess to about $15 million of shipments you expected to be push in the first quarter that were ultimately canceled and then a decision to not push stuff out into the value channel, were there any other factors that drove the miss.

That was one part of it. The other part was a slow start to winter certainly impacted our direct consumer business in a similar fact fashion to the wholesale business. You know but the US was the majority of the miss and fairly evenly split between those two channels of distribution.

Okay. Got it. I wanted to ask little bit more but the shopping shots, thanks for the detail in your script about the 200 [sites].

I'm not if I missed it but how many did you open in 2016? For the openings in total that you have planned can you give us any detail on retailer or region where the openings are happening?

Certainly. I don't know how many we opened in total in 2016 but in the fourth quarter we opened about 25. Some of those were in Canada, some in the US.

Then our plan of a couple hundred stores approximately for 2017 will include a healthy percentage in China. Where we are remodeling some of our stores there as well as here in the US.

And there may be other parts of the world where there are some small percentage going. But in general the bulk will be China and North America.

Did you have any -- based on the ones you opened in Canada and the US, do you have any insight you can share or what that ultimately does to your productivity in the same store? How it might enhance it.

Historically, we've had a fairly significant lift. We don't know if we have enough of an installed base today on this new model to be able to talk much but its current impact. But I know that where we had distributors that are going to be buying these fixtures and installing them, they are fairly excited about the potential so they are making investments of their own to buy these things, which would not occur if there weren't some high interest and high reliability on the list coming from these fixtures.

Okay. And beyond in wholesale in North America are there any other distribution wins? Any other new doors or new accounts that you are adding in 2017?

No not really in the Columbia brand. We are really everywhere we want to the and we want to be stronger with the stronger players and that's our plan for 2016 with the Columbia brand. Certainly in SOREL there's a plan to add more specialty retail stores.

Women's especially to improve the brand as the non-winter product becomes more important. And then PrAna, where we would like to increase the distribution of PrAna products in certain specific areas.

Okay. And then last one for me.

You talked about pricing a bit in, I don't know if it was your scripted CFO comments. Can you talk about what kind of pricing and maybe some examples of what you have planned for 2017? How you think about price gaps and where you ultimately can take them and maybe tie it to the pricing contribution to your revenue guidance. Thank you.

You are talking about costing Lindsay?

No, raising pricing to the retailers and maybe to consumers.

You're talking about price AUR maybe? Price increases? (multiple speakers) What we have done as a point of differentiation the Company is focused on innovation and where we have products that are made with components that no one else has like omni-heat, reflective or the [Eco] OutDry Extreme Eco.

Those areas we have taken slightly higher prices to be able to drive AUR for our customers. And for ourselves. It's been selective.

Thanks a lot guys.

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

Good afternoon. Curious if I heard correctly, I think you said 13 new stores in 2017.

Just wondering if you could update us on your view in terms of the potential for the long-term of the store base whether it's outlet or full price and whether this ongoing retail traffic declines lends itself to shifting the brick-and-mortar strategy at all. Thanks.

We have a healthy approach to the brick-and-mortar business. We believe that there are certain areas where the Company can get significant marketing lift as well as a revenue lift by opening a retail store there. But we're mindful of the long-term impacts and requirements for a long-term leases and how they could at some point in time impact the Company.

We're very judicious about how we're opening those stores, where we are opening them and I would say investments of some scale certainly are being made into the Company's eCommerce business because while we have industry average conversion rates on our eCom business, that means 95% or 97% of the people who come to visit leave with a great marketing message. We're making investments of some scale in that business as well. And, frankly, as the environment brick-and-mortar changes, it's important that we make sure that we always remind our customers and our investors that we're primarily wholesale business to make sure that we make products that are in high demand and a wholesale partner stores.

Okay. Thanks and I was wondering if you could give us an update. You in the late innings of a multi-year company-wide ERP upgrade cycle.

Are the efficiencies that you hope for being realized. What's left to be seen in terms of margin improvement from that initiative. Thanks.

This is Tom. We are in the late innings, we are China currently. And then we will be making our way to Europe.

The intent is to go live for the first half this year in China and then we will make our way to Europe and then ultimately to Japan. We have not given specific metrics relative to pay back on this investment but I think as you can see an our gross margin expansion over the last three, four years clearly this initiative is having a favorable impact on our gross margin and our inventory utilization. Our inventory turns are not where we want them to be at 2.4 times.

Our goal is to be north of 3 times and we have some work to do there. But we're not going to do that and sacrifice gross margins. So net-net this has been a good investment for the business.

Thanks and good luck.

Thank you, the last question we have time for today's caller comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Thanks. Good afternoon. I have a question around channel inventory, you saw some cancellations.

It sounds like you're holding back some on populating the off-price channel. Is there any way to put numbers around the relative number of channel inventories versus a year ago?

It's difficult. As you know trying to capture market data in this industry where it is very difficult. Competing companies we're trying to provide this information and they are not always comport with the right data.

I can say that certainly since the first of the year, the weather has been very significantly winter-ish including today, in the northeast. We believe that channel started with lower inventories, ours and others since the first of the year and since then it's done nothing but improve. So it's hard to put a number on it, but we're fairly strong in our belief that the inventory levels are lower this year than the last.

Okay. Is it fair to say your seeing a behavioral change in your channel partners where they are asking you to hold more inventory? Or is it business as usual with the exception of external factors like cancellations and the bankruptcies and so forth.

I would say that in general as the weaker retailers in this business go way, the remainder have a stronger point of leverage. We've talked for years about who takes the risk on inventories. That's certainly been a topic.

So yes, but you know at the end of the day we've been around this business long enough to know that you have to take a bet on the inventory. And the risks for us have always been outsized by buying too much and taking too much risk. So our customers know that they cannot rely on as having inventory for the of any significance should the weather turn and they didn't prepare for it.

Okay. My last question, Tim. I was surprised the SOREL numbers weren't stronger given the momentum it carried into the season and then given the spring launch surprised about the commentary for growth to be weighted to the second half. Can you speak in a little more detail about what your seeing with the SOREL brand and why the second half of the year before we will see a larger gross contribution?

Certainly. Well I mean we've been very focused on de-winterizing the brand. I think we've made great strides, but it's still a very strong winter brand with heavy emphasis on winter products.

Which are also very expensive. So it is difficult to offset those expensive winter boots with a lightweight spring shoe but we're working to get that done. I think frankly what I look at what happened in the fourth quarter of this year, the miss as it relates our own DTC business as well as our customers.

They didn't get the sell-through early in the season that would give them the confidence to keep those orders in the last part. We have got the right approach to it, in my opinion. We've got well contained in terms of its inventory positions and I believe there's a big opportunity for us going forward with the brand.

If you remember for all intents and purposes a North America brand and as we get more year-round business we think there's significant opportunities internationally.

Jim, maybe one additional point on that. The spring businesses is still relatively small but we would expect the relative growth rate for the spring business in the first half to be significantly greater than the fall/winter growth rate just given the differences in size business in anticipated growth that we have got planned for the spring business for the small brand.

Okay. Thanks. That's helpful. Thanks for your perspective, guys.

Thank you.

Thank you. I'd like to turn the floor back to Management for closing comments.

I want to thank you all for listening today. I really appreciate your attention. I look forward to talking to you soon.

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