Columbia Sportswear Co (COLM) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Columbia Sportswear third quarter 2017 financial results conference call.

(Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Peter Bragdon, Executive Vice President and Chief Administration (sic) Officer.

Thank you, Mr. Bragdon.

You may begin.

Thank you.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's third quarter results and updated 2017 outlook.

In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our results and the assumptions behind our full year outlook.

The CFO commentary is also available on our Investor Relations website.

With me on the call today are Chairman of the Board, Gert Boyle; President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Operating Officer, Tom Cusick; and Senior Vice President and Chief Financial Officer, Jim Swanson.

Ron Parham was not able to join the call today.

Gert's going to 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 and uncertainties are described in Columbia's Annual Report on Form 10-K and subsequent filing 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 statement after the date of this conference call to conform forward-looking statements to actual results or to change in our expectation.

Thanks very much, Gert.

I'd also like to point out that, during the call, we may reference constant-currency net sales growth, which is a non-GAAP financial measure.

A reconciliation of constant-currency net sales to net sales as reported under U.S. GAAP is included in the supplemental financial tables accompanying our earnings release, along with management's rationale for referencing this non-GAAP measure.

And following our prepared remarks, we're going to host a Q&A period, during which we're going to limit each caller to two questions so that we can try to get to everyone by the end of the hour.

Now, I'm going to turn the call over to Tim.

Tim?

Thank you, Peter.

I just want to ask for some indulgence today.

It looks like everybody in the company here has a cold, including myself, so it's going around.

But if I pause from time to time, I apologize.

We're pleased to report better-than-expected third quarter and year-to-date results, and to essentially reiterate our full-year earnings outlook, which now incorporates anticipated full-year costs of Project CONNECT.

We believe our sustained performance illustrates the strength of our team and of the global multi-brand, multi-channel business model that we've built utilizing our powerful balance sheet to make investments that enable us to adapt as the major markets evolve.

The structural shifts that continue to alter the U.S. wholesale landscape are a meaningful headwind that drove a low double-digit decline in our U.S. wholesale sales for the first quarter and a high single-digit decline through the first nine months.

Nearly half of that year-to-date decline is the direct result of an expecting timing shift of U.S. wholesale deliveries from September into October, with the vast majority of the remainder reflecting wholesale customers' bankruptcies and store closures.

Adjusting for the timing shift, third quarter USA sales would have declined only 5% rather than the reported 12% decline, and the U.S. region would have been essentially flat compared with last year's third quarter.

As we anticipated at the beginning of the year, our U.S. direct-to-consumer business has helped to offset some of the wholesale decline, posting low double-digit sales growth in the quarter and high single-digit growth year-to-date.

Third quarter U.S. DTC growth was a combination of comp store growth, contribution from new stores, and high single-digit growth in ecommerce.

Despite the disruptive dynamics in the U.S. wholesale market, and setting aside costs associated with Project CONNECT, we improved our operating margin through the first nine months by 20 basis points, and our 2017 outlook, also excluding Project CONNECT costs, anticipates a 10 basis point improvement.

As you look across the rest of our business, beyond the U.S. wholesale channel, you'll see that we generated sales growth and improved profitability in every other region in the third quarter, and that the same holds true on a year-to-date basis, with the exception of Korea, where our year-to-date sales are essentially equal to last year.

Our EMEA region has led the way, with constant-currency sales up 15% in the quarter and 14% year-to-date.

Our European wholesale and direct-to-consumer businesses posted a high teens constant-currency growth rate for the quarter and year-to-date, led by broad-based Columbia brand growth across product categories, customers, and countries, as well as the 30% growth from the SOREL brand.

In addition, the independent distributor portion of our EMEA region contributed low double-digit growth in the third quarter and is up high single digits year-to-date on the continued improvement in the Russian market.

More importantly, after achieving break-even profitability in 2016, we now expect our European wholesale and direct-to-consumer businesses to be profitable in 2017.

Our team in Europe has done an outstanding job over the past three years improving the profitability of our business there.

We have plenty of untapped market potential and the existing infrastructure to drive continued growth and expand profitability in the years ahead in that very important market.

In June, we asked the architect of our European turnaround, Franco Fogliato, to relocate to Portland to support the increased focus on our U.S. and Canadian markets and promoted Matthieu Schegg to serve as European GM to continue driving our momentum in Europe.

Our Latin America and Asia-Pacific region posted high single-digit growth in the quarter and is up mid-single digits year-to-date.

Sales to LAAP distributors grew more than 30% in the quarter, benefiting from a favorable shift in the timing of shipments and increased advanced fall season orders.

Sales to LAAP distributors are also up by more than 30% year-to-date.

Our China joint venture posted high single-digit growth on the strength of its digital wholesale and owned ecommerce channels, while Korea produced mid-teens growth by adding new wholesale customers to help accelerate its continued inventory reduction efforts.

In Japan, a mid single-digit constant-currency increase translated into a low single-digit decline in U.S. dollars.

To complete this quick trip around the globe, Canada contributed high single-digit growth, driven by the Columbia and SOREL brands, largely due to a favorable timing shift in wholesale shipments.

Third quarter and year-to-date gross margins improved to 46.7%, and on the spending front, excluding the strategic $8.6 million year-to-date expenses [of] Project CONNECT, diligent expense management by our global team held year-to-date SG&A growth in line with the rate of year-to-date sales growth.

Our balance sheet remains extremely strong, with $430 million in cash and zero long-term debt.

Clearly, we have reason to be confident in our portfolio of brands.

Our global, multi-brand, multi-channel business model, our strong balance sheet, and in our ability to prioritize and allocate capital towards profitable growth opportunities.

Our confidence, and that of our Board, is also reflected in the 6% dividend increase that we announced today, marking our fifth consecutive year of dividend increases and the 10th increase since we introduced the dividend 12 years ago.

Looking at how each of our brands are positioned for the fourth quarter, we continue to believe that the Columbia brand is gaining U.S. wholesale market share in this challenging environment, and that wholesale channel inventories are generally healthy as we await the arrival of seasonal weather and the holiday shopping season.

Over the past year, our Columbia brand team has installed more than 150 new Columbia Shop and Shops and elevated brand presentation at key partner stores around the world, with plans to nearly double that number by the end of 2017.

Our investment in this rollout reflects our commitment to enhance a consumer's experience within our global wholesale channels, and also speaks to the confidence that our customers have in us as one of their most reliable partners, and in the Columbia brand as one of their most consistent performers.

The Columbia brand's Tested Tough brand marketing platform continues to drive a unified global message about enabling consumers to enjoy the outdoors longer.

The second year of our successful Directors of Toughness program concludes this month after driving hundreds of millions of consumer impressions on social media channels.

This fall, we'll launch a new seasonal campaign titled, "Columbia Warm" that sits on top of our existing Tested Tough brand platform.

It will expose consumers to a consistent global story across TV, digital, print, out-of-home, e-mail, and social, and will include new micro-campaigns across digital channels that will be updated regularly to maintain an always-on marketing presence.

This effort kicked off in September with a campaign focused on our partnership and outfitting deal with the U.K. National Park system, and was followed by a content marketing partnership featuring actor and celebrity Zac Efron and his brother Dylan.

It has already driven over 400 million impressions.

For the full year, we expect the Columbia brand to contribute low single-digit global growth with increases in our U.S. DTC channel and every international region, offsetting our anticipated decline in U.S. wholesale.

Our SOREL brand team is very excited about what they have lined up for this fall season.

Next week, SOREL's 4,000-pair limited boot collaboration with renown Paris-based luxury design house Chloe, launches at 14 of Chloe's premium global wholesale partners, including Nordstrom's, Galeries Lafayette, Barney's, and Holt Renfrew.

The boot, which will retail for more than $500, will also be available in Chloe retail stores in major markets around the world, and on chloe.com.

This collaboration is a perfect fit with SOREL's fashion-forward female consumers, and is already garnering traction with global fashion press.

SOREL's complete new fall 2017 line is in stores, and is being supported by the brand's new Defy Marketing campaign that reinforces SOREL's position as the most fashionable brand in outdoor and the most outdoor brand in fashion.

The campaign is anchored by street-level window executions across New York at some of SOREL's most visible and influential partner stores, as well as by extensive social media campaign that features eight up-and-coming fashion influencers who are helping to extend our communications around SOREL's fall product line.

We expect SOREL will contribute high single digit growth for the full year, led by the U.S., Europe, and Canada.

At prAna, during the third quarter, we promoted Russ Hopcus, Columbia's former SVP of North American sales, to prAna brand President.

I'm confident in his and his team's ability to magnify prAna's message of sustainability and healthy, active, free-spirited lifestyle to drive growth.

Early fall sell-through at key wholesale customers has been strong, led by yoga and swim categories.

Our updated 2017 outlook anticipates low single-digit growth for prAna as it overcomes headwinds caused by the U.S. wholesale market disruptions.

At Mountain Hardware, new brand President, Joe Vernachio, continues to build out the new product team that is working to create a compelling, high-performance product lineup.

Mountain Hardware's innovative stretch down products are performing well at retail.

Our full-year outlook anticipates a low single digit percentage of sales decline from Mountain Hardware.

Our updated consolidated 2017 outlook anticipates gross margins up about 20 basis points from 2016, and that inventory levels will be consistent with anticipated full-year 2017 net sales growth.

We also anticipate about 80 basis points of SG&A de-leverage, which includes 60 basis points of de-leverage related to the anticipated full-year costs of Project CONNECT.

In summary, we're pleased with our solid year-to-date performance and how we have positioned ourselves for the remainder of 2017.

It's from this position of strength and confidence that we're moving steadily forward on Project CONNECT, which I described during our July conference call.

As a quick refresher, and for those who are new to this story, Project CONNECT is the comprehensive assessment of our business model and identification of strategic, organizational, and operational initiatives to accelerate execution against our strategic plan and to drive profitable growth.

We launched the realignment of our organization around a brand-led, consumer-first philosophy.

Project CONNECT teams have been identifying initiatives to accelerate our performance against the company's four strategic priorities, which are drive brand awareness and sales growth in our wholesale and direct-to-consumer channels through increased focused demand creation investment; enhance consumer experience and digital capabilities across all channels; expand and improve global direct-to-consumer to channels with supporting processes and systems; invest in our people and optimize our organization across our portfolio of brands.

To give you a sense of its comprehensive scope, Project CONNECT includes initiatives to drive revenue, capture cost of sales efficiencies, generate SG&A savings, and improve our marketing effectiveness.

A few of these initiatives have shorter lead-times and will be among the first to be implemented.

Examples would be into in the area of e-commerce optimization, indirect procurement, marketing effectiveness, and refining the promotional cadence in our DTC channel.

Other initiatives generally entail longer lead-times, particularly those pertaining to product creation, such as a short [win] optimization and intensifying our emphasis on designing products with the features and functions that consumers value most, meaning that some of these may take us till 2020 or beyond to fully implement and realize their benefits.

As we move forward with implementations, our intent is to redirect a significant portion of any realized tangible benefits towards incremental demand creation behind each of our brands in order to drive growth.

We will also invest in other initiatives that contribute to profitable sales growth, gross margin expansion, and SG&A efficiency, and that enhance our strategic global operational capabilities.

We plan to incorporate those initial anticipated benefits and resource allocations in our 2018 financial outlook that we will share in early February in conjunction with our fourth quarter and full-year financial results.

For now, I want to reinforce how committed we are to project connect, and how confident we are that there are significant opportunities for us to transform our business, increase our growth-driving demand creation investments, expand our operational capabilities, and further improve our profitability.

Before we move to our questions, I want to provide a little color about what we're seeing as we look into the first half of 2018.

In September, we wrapped up our spring advanced order-taking process with our global wholesale partners.

Although we no longer report specific backlog figures and are not prepared to provide a full outlook for 2018, I want to share that, based on the visibility we have today, we're optimistic that we will continue to generate global growth, and that our U.S. wholesale business will return to growth in the first half of 2018.

We believe that the combination of our global, multi-brand, multi-channel business, our sound strategic plan, and our teammates around the world form a solid foundation that will enable us to grow, expand our profitability, and increase our total return to shareholders in the years ahead.

You can find out more detail on our Q3 and year-to-date results and our updated 2017 outlook in Jim's CFO commentary available on our website.

That concludes my prepared remarks.

We welcome your questions for the remainder of the hour.

Thank you.

(Operator Instructions) Bob Drbul with Guggenheim Securities.

The first question I have is, when you talk about the shift, or the recovery or return to growth for the U.S. business, U.S. wholesale for the spring period, can you just elaborate what's changing?

Is it just that you're lapping everything, and the reception on the product side that you're seeing with the return to growth in U.S. wholesale?

Certainly.

We're one of the few people in the outdoor business that has a strong presence in the fishing business, so I would suggest our sportswear business is quite strong in spring, led really by our PFG product.

It's unique, and we don't have a lot of competition in that area.

Secondarily, our footwear business is really now gaining traction, and the expectation is from percentage point of growth that our products will be probably led by footwear for the spring.

And then, there's just increasing confidence in our global approach, increased improvement in our European business, and of course in Russia where the business there has improved significantly.

And Tim, I was just wondering if you could also spend some time I guess on your DTC business.

I'd be interested just to hear your ecommerce business versus your wholesale ecommerce efforts, and how that's materializing for you on a global basis.

Certainly.

As we know, there's been significant disruption in the U.S. brick-and-mortar wholesale business, and certainly some of that, if not the majority, is due to the impact of ecommerce businesses, both on the wholesale basis, as well as our existing good customers who have significant investments in businesses in an [ecomm] selling our products and others across the Internet.

So as we've said for years, we really consider ourselves to be a wholesale business.

Our ecomm platforms for all of our brands are really designed, first and foremost, to have visitors to the site [who] see the terrific marketing message about the brand, and hopefully go buy the product, if not at columbia.com, somewhere else.

And I think we're finding that that's certainly happening.

We will continue to make investments in this really important method to communicate with consumers, and with the goal of really providing marketing messages so that consumers can find our products and learn about them, and hopefully buy them somewhere else.

Kate McShane with Citigroup.

With regards to the strength in Europe, a few companies now have reported some very strong growth trends.

I wondered if there was a way to break out how much is comp growth in the region versus incremental growth, or new door opportunities that Columbia has had year-over-year?

Certainly.

Embarrassingly, the company had an enormous European business, call it six or seven years ago, which we did not nourish, and thus had problems with.

And I would suggest that our business today is with our existing and former customers that are now coming back to the brand as we improved our connection with those customers, and our products, and, frankly, our team members in Europe.

We really decided to focus on the biggest customers there, ones that can provide us with solid performance and that we can rely on over the long-term.

So there's really no new customers, for all intents and purposes.

This is all a rekindling of relationships and business that the company had in the past.

And I'd add, by and large, the sales growth we're seeing in the Europe direct businesses, essentially the wholesale business, probably 80%-plus of the growth in Far West from a B2C standpoint, although we're seeing nice growth from our ecommerce business in that part of the world.

Tim, you mentioned that you thought Columbia was gaining share in the U.S. wholesale market.

Are there any particular categories in which you're seeing it, or is it across the board?

Well, I think we're finding it in outerwear, and then certainly in footwear, where we believe that probably the biggest product opportunity for the company.

So I would say it's those two primarily.

And we have a solid sportswear business, and again, as I mentioned earlier, we have a unique position with our PFG product that's -- where we don't have a significant competitor.

Camilo Lyon with Canaccord Genuity.

Tim, I was hoping you could help us maybe quantify how we should think about the benefits from Project CONNECT.

I know that the later initiatives will be more difficult to quantify, but maybe help us think about where you see the most impact from these initiatives coming to life.

Yes, Camilo.

As Tim shared in the prepared remarks, we've really kind of looked at the project, and as you're aware, not ready to provide specific guidance as it relates to 2018.

That said, as we look at the cadence and where we'd anticipate seeing that benefit, certainly there's some shorter lead-time related initiatives that are in there [via the likes] of indirect procurement, some of the work that we're doing from ecommerce optimization standpoint and really driving more traffic and conversion from an ecomm standpoint.

Then, of course, there's longer lead-time initiatives, as well, and those longer lead-times (inaudible) really be in the product creation space where we've got more lead time associated with the product creation cycle itself, where we could be well out into 2019 and 2020.

And so we'd anticipate beginning to see some of the benefit flow through in 2018.

That said, as Tim described, we would intend to reinvest back into the business, demand creation being a priority, and we'd anticipate seeing more of a benefit, particularly when we get out to some of those longer-range initiatives in 2019 and '20.

My follow-up question is really to the wholesale market in North America.

Clearly there's disruption that's still present, and the potential for further disruption as retailers, large and small, continue to kind of teeter on the brink.

Can you talk about how you're positioned for that within the sporting goods industry, and how you view that channel as either a source of growth, or one of caution as you approach 2018?

So, not to jinx it, historically, the company's done an exceptional job of extending credit, and we do a diligent job of reviewing our customers' financial positions before we extend credit.

So from that standpoint, I think that we've recognized that we don't need to do anything crazy to hit a number.

We've built the guidance you've seen today based on what we think will happen during the balance of 2017.

And there's likely to be, as you said, continued disruption.

We believe that there's strong opportunities for growth with our brands, with the survivors, and there will be many.

And we're aligned closely with those.

I just want to maybe reiterate what Jim had said regarding Project CONNECT.

This is a very strong, healthy company, and our focus on Project CONNECT is how we eliminate the legacy activities that have not been enhancing our growth.

So we're about making sure that we're going to be here for the long-term and continue to improve our performance.

And we think that there's lots and lots of opportunity for us with Project CONNECT.

Susan Anderson with FBR Capital Markets.

I wanted to maybe dig in a little bit on the Columbia Sportswear product, maybe if you could talk a little bit about where the penetration is of the brand versus outerwear now, and what's the opportunity there, how much more growth could there be on the sportswear side of things.

Certainly.

I want to make sure I heard your question correctly.

You want to know which categories are strongest and where there's opportunity for growth?

No.

So for the sportswear within the Columbia brand, it seems to have grown at least in terms of shelf space somewhat within sporting goods, and just where you think the opportunity there is for continued penetration of sportswear within the Columbia brand versus just outerwear.

Well, maybe I'll ask Jim to jump in here and give us some idea about the approximate size of these categories.

But, frankly, most U.S. consumers would think about us as an outerwear company, and outerwear in the U.S. typically obviously is a third- and fourth-quarter, somewhat first-quarter business, but really weather-dependent.

And the company's been very focused on both the footwear business, the non-winter footwear business, and the sportswear business, because the opportunities there are significant, both in sporting goods and, frankly, in the strong remaining department store businesses where consumers typically shop for sportswear.

So I think there's lots of opportunity for us there.

If I look out five years, I think our fastest-growing and largest product category, if we do everything right, will likely be footwear, but we're going to be focused on growing all those businesses.

And then, Susan, maybe just to follow on to Tim's comments there just in terms of the composition of business from a categorical standpoint, the footwear business represents just between 20% and 25% of the business, and the balance is really pretty equally split between the outerwear and the sportswear categories.

Just one follow-up on Mountain Hardware.

It looks like the trend line continued to improve there.

How should we think about it for next year?

Are you guys feeling good now about where the product's at?

Should we think about that returning to growth at some point?

The most important change, in my opinion, in Mountain Hardware is the management team that we have present there today.

So the categories where there's been most significant strength have been outerwear and equipment, and those are a bit longer lead-times in terms of developing product.

So while we expect to improve in 2018, I don't think we're going to see the significant improvement that the team is quite capable of until 2019.

Lindsay Drucker Mann with Goldman Sachs.

I wanted to ask about U.S. wholesale, where you talked about ex- the timing shift, the business being down mid-single digits.

Is that in line with what sell-through is in U.S. wholesale?

Is it also running down around mid-single digits, or at what pace do you think wholesale sell-through is running at in the U.S.?

As you know, we monitor a significant amount of our wholesale partners' sell-throughs, and today they're running about where they were last year, slightly ahead in some categories, but generally in the neighborhood of where they were last year.

So generally flattish trend.

And do you think any of that is a function of weather, or is that your assumption for how the run rate could be for fourth quarter?

Yes.

So most of the inventory that's in our stores is weather-sensitive merchandise in preparation for the fall-winter season.

So that merchandise is selling as well as it did last year at this time, and so our expectations are the guns are loaded.

I think the channel is relatively clean.

I don't think there's a lot of inventory hanging around from prior periods, so I'm thinking that we're going to be in a good position when the snow flies.

I'm curious if you can give us some insight into, given the retailer bankruptcies that you've endured over the last several quarters, what your playbook is for navigating this choppy landscape, in other words, how you approach a partner that seems to be of fading economic health and just protecting your interests and protecting the inventory you might have normally thought to sell into that partner.

Just any perspective you can give us on how you approach that, as it seems like there's more of that to come over the next three to five years.

Yes, certainly.

Well, as I said, not meaning to jinx anything, we've done an exceptional job.

We -- I credit our credit department for extending credit.

It's a big part of the business.

And so we've had to go through periods when we've had close friends in the business that have had financial reversals, and those were the toughest discussions that we have.

But frankly, we're committed to providing our investors with solid returns really regardless of the economic conditions that would exist.

So typically, if we have a customer that has a financial issue, we will reduce the credit limit, and then move towards some guarantee from a financial institution, or cash in advance, or in some way offer them the help that we can without really putting our investors at risk.

Jonathan Komp with Robert W. Baird.

I know the quarter came in sounded like certainly better than you had projected as of Q2.

And I just wanted to reconcile.

I know you essentially reiterated the full-year outlook, so if you could just reconcile those two pieces, and were there any shifts from Q3 to Q4, if you could just give more color there?

Just to touch on that, in terms of third quarter results, the top line we came in, call it $10 million better than where we'd anticipated.

But when we break down really where we saw that revenue upside, it was by and large with our wholesale businesses in Canada, I believe Europe, and China.

And it was really getting out ahead of some of the shipments with the fall '17 season, so really much more a function of top line, and that kind of more or less fell to the bottom line where you see the [beat] relative to where we had anticipated earnings coming in on the quarter.

So with those results in mind, and with a lot of year ahead of us here, we've retained the outlook that we've provided in July.

Of course, we've updated that outlook to include the impact of Project CONNECT.

Just following up on the Korea market and the Russia market, Korea, it's not entirely clear if the improvement you saw there is sustainable.

But if I could just ask about those two markets combined, the outlook and the sustainability of better trends for each of those?

Certainly.

They're actually quite distinct.

The Korean market is a company subsidiary, and so we have more control there.

The market for outdoor products in that area has just really been significantly diminished.

We spent really the last several years right-sizing our inventory positions.

I think we're close there.

We've still got some work to do, but I believe that we have the right team in place there to manage us back into growth.

I would consider this to be a trough in Korea.

And in Russia, our distributor there is one of the strongest businesses of any type.

We've had a long relationship with them, over 25 years.

And we consider them to be exceptional business people, and they're in a position where they're coming out of the ruble decline.

The ruble's strengthened, and their business has resumed growth.

They're a survivor in that market, and will be flourishing because of the lack of competition there.

So it's really a tale of two issues as it relates to the performance of the Columbia brand there.

I might remind those listening that the Columbia brand I think is in number three or four position behind either Nike, [Adi], Reebok, neck-and-neck with Reebok in terms of awareness to the Russian consumer.

And it's been a great market for us for a long time, and we expect to continue to grow there.

Andrew Burns with D.A. Davidson & Company.

Just curious how we should think about restoring that business to the appropriate margin level long-term.

Is there further improvement?

Is it just all about top line growth from here, or is potentially part of Project CONNECT looking at the cost structure associated with that segment?

No, I think we've actually got our costs as much in line as we can in Europe.

It's really about top line.

Of course, we'll have some tailwinds as we get currency back to position where it was several years ago.

It's very significantly down.

The U.S. dollar has strengthened against the euro.

In fact, one of our issues in Europe was that we had over-built the infrastructure there for the size of the -- what the business ultimately became.

So as the business continues to grow, we will not have to add significant infrastructure there, so there should be a significant profitability from that business as we continue to get the top line up.

Just a follow-up on your positive footwear commentary.

You saw mid-teens growth in the category going back to 2015, and then '16 and '17 seems like it got caught up the same with apparel in terms of the retail headwinds.

It sounds like, from your commentary, that you're thinking that can re-accelerate.

So the question is what needs to happen to get there?

What are some of the catalysts and growth opportunities you're looking at to make that the fastest growing category for you across and SOREL and Columbia?

Certainly.

Well, if you look historically, the business has been so heavily winter-oriented that, when we have a warm winter, it impacts our business significantly because of the expensive nature of those products and the seasonality.

So we've been very focused on de-winterizing especially the SOREL brand, but, importantly, the Columbia brand as well.

And really, much of our success for spring 2018 is a function of our PFG footwear, which just continues to perform very, very well.

So over the next several years, we'll be really focusing on continuing to de-winterize the footwear business and to get products that are in demand regardless of the weather.

Jay Sole with Morgan Stanley.

My question is just on the commentary around returning to growth in the U.S. in the first half of fiscal '18.

By calling it first half, does that sort of imply you see it more [as] a second quarter-type situation, or is it a first-quarter situation?

To step in there, we've not broken down.

We've taken the order book effectively in terms of the comments that Tim's made.

And based upon the orders that we've seen for the spring '18 season, it's given us confidence that we'll see growth in the U.S. wholesale business, the actual flow between spring and fall.

Can't say one direction or another in terms of where we'd see the bulk of that, but with growth, we'll anticipate some benefit there.

Yes.

I would expect that typically the second quarter's the company's lowest revenue quarter of the year.

So we haven't really talked much about '18 in terms of the split by quarter, but certainly it's really going to be spring product.

I would doubt that there'd be much winter product in that mix there in the first half of the year.

With retailers trying to buy closer to need, what percentage of the business do you think you have visibility into for that first half of '18, or for the total amount of sales you expect to do in the first half of '18 at this point here in October?

Well, we have a very high percentage of our order book, and so we have significant confidence in terms of how the order book will play out.

So yes, we're confident.

And maybe we can just transition.

You've been with the Manchester United deal for probably over a year now.

Can you just talk about how that partnership has worked out?

Has it made you more interested in creating more collaborations with other teams, or other types of -- whether pro or college, or in that nature other sports?

Certainly.

Well, Man U was successful for us, and we didn't get as much of an uptake globally as we had hoped, but it was still considered to be a very successful launch.

It really exposed us to consumers, especially in Europe, that didn't know much about the brand.

As it relates to future projects, we're going to be talking about our collaboration with Disney on Star Wars, and we'll have some more information on that in the near future.

But we've got a number of collaborations, not only sports teams, but things like Disney and the Zac Efron collaboration and partnership was really a positive.

So we're trying to differentiate ourselves from the big athletic brands that heavily rely on athletes to promote their products.

And in the outdoor business, consumers typically are more reticent to look just like an athlete.

But we certainly get the brand awareness from these, call them, unusual connections with popular brands and personalities.

Christopher Svezia with Wedbush.

First, Jim, just a question for you.

When I look at the guidance for the remainder of the year, in particular I think for SOREL and for Mountain Hardware, it looks like the guidance for the year has changed slightly, a little bit higher, but you're still maintaining 3%.

Is that just they're too small really to move the needle and just talking about rounding errors?

And how does FX play into it considering I think in the third quarter, FX was pretty neutral?

Because going to fourth quarter, I think it gets a little bit more favorable on a year-over-year comparison.

Just how do we think about that?

I think there's obviously some puts and takes in terms of some of the adjustments you're seeing in the revenue plan.

So I think that's going to be smaller adjustments to each of those brands and not having a meaningful impact when you look at it at consolidated level in terms of the 3% that we've maintained in the overall outlook.

And then, as it relates to the currency side of the equation, we've continued to monitor where we are from a currency standpoint, got that reflected in our outlook, as well, so really no updates there in terms of impact to the year from a translation perspective.

Just on Project CONNECT, you have roughly $15 million or so in expenses related to getting it up and running.

As we think forward, are there any additional expenses, or sort of one-off expenses, that we should think about as we move forward, or is it just simply you start to get some incremental benefit from it, and you take some of that benefit and you're reinvesting it in something like demand creation?

I'm just trying to think about how do we think about this $15 million this year, and how we should think about that going forward from a one-time expense run rate perspective.

So the $15 million that we've incurred in 2017, with obviously some yet to come in the fourth quarter, is made up of a combination of program-related costs and some discreet costs, as well, as we get into 2018.

And not providing a specific outlook today, we'd anticipate there's still a fair amount of runway ahead in terms of incurring additional discreet program-related costs next year.

And of course, as we get visibility to that and we provide an outlook for 2018, we will separate those so that those are clear in terms of what we intend to incur.

And as a part of that, we'll be looking at the benefit flow-through that we anticipate in 2018, building that into our outlook, as well.

Rafe Jadrosich with Bank of America.

Can you give a little more color about the key drivers for the high single digit growth outlook for SOREL, and then maybe break out how much of that will be international versus the U.S.?

So if I'm looking at SOREL, I think the key growth drivers in here are effectively going to be the U.S. wholesale business.

You'll recall we saw a lot of that growth really in the spring season with the expansion of what we've done with the spring line with SOREL.

And then the other major contributor in here being the growth that we're seeing in our European business.

And so it's really kind of the combination of the growth on that U.S. wholesale side coupled with our European direct.

In terms of your U.S. wholesale distribution, can you give some color on the relative size between the different channels, between department stores, sporting goods, specialty?

And then how do you expect that to change over time, or do you think it'll be about the same?

I don't think we've specifically given guidance as it relates to the channel mix in our wholesale business, but I think over time, it's very likely to have a much larger percentage of the wholesale [ecomm] business with our wholesale partners, whether they are pure play or retailers who have an increasingly important ecomm business of their own.

Thank you.

There are no further questions at this time.

I'd like to turn the floor back to Tim for closing comments.

All right, thank you very much for listening.

We appreciate your time and efforts.

We look forward to talking to you about our fourth quarter and plans for 2018 in February.

Thank you.

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