Columbia Sportswear Co (COLM) 2018 Q1 法說會逐字稿

Greetings, and welcome to the Columbia Sportswear Company First Quarter Fiscal Year 2018 Financial Results Conference Call.

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

I'd now like to turn the conference over to your host, Christian Buss, Director of Investor Relations.

Mr. Buss, you may now begin.

Good afternoon.

Thank you for joining us to discuss Columbia Sportswear Company's first quarter results and updated 2018 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 2018 outlook.

This CFO commentary is also available on our Investor Relations website, investor.columbia.com.

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

Please bear in mind that the forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's annual report on Form 10-K and subsequent filing with the SEC.

Forward-looking statements in this conference call are based on our current expectations and beliefs, we do not undertake any duty to update any of the forward-looking statements as of the date of this conference call to conform the forward-looking statements to actual results or to change in our expectations.

Thanks, Gert.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including non-GAAP results, which exclude the effect of new accounting requirements associated with ASC 606, programming expenses and discrete costs associated with Project CONNECT and income tax charges associated with the Tax Cuts and Jobs Act as well as constant currency net sales growth.

You'll find the reconciliation of these non-GAAP financial measures to comparable measures under U.S. GAAP in the financial supplemental tables that accompany our earnings release, along with an explanation of management's rationale for referencing these non-GAAP financial measures.

Following our prepared remarks, we will host a Q&A period, during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour.

Now I'll turn the call over to Tim.

Thanks, Christian.

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

We're pleased to report better-than-expected first quarter results, with revenue, gross margin and operating income all at the record level.

As Christian mentioned, my comments are largely based on non-GAAP results.

Non-GAAP net sales increased 7% on a constant-currency basis for the quarter, adjusting for the favorable impact of new revenue accounting standards.

On a reported basis, revenue increased 12%.

In addition, healthy advance orders for fall 2018 across our region increases our confidence in the growth drivers we're seeing for our business for the balance of the year.

It is with continued discipline that we are executing on our strategic priorities, which are allowing us to accelerate market share capture across our geographies and brands.

As a reminder, our 4 strategic priorities are: drive global brand awareness and sales growth through increased focused demand-creation investments, enhance consumer experience and digital capabilities in all of our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems and invest in our people and optimize our organization across our portfolio of brands.

Our focus on investing in the areas of highest-growth potential for our business has driven the strategic decision to buy out the remaining 40% interest in our joint venture in China.

The joint venture's 2017 sales in China totaled approximately $168 million, generating low-teens operating margin.

Reported sales are expected to achieve low double-digit growth in 2018.

As of December 31, 2017, the joint venture operated 86 retail store locations in China.

In addition, the joint venture sells its products through brand specific e-commerce websites in China across multiple platforms and has distribution relationships with approximately 50 wholesale dealers that operate approximately 750 Columbia-branded retail locations.

Our long-term partner, Swire Resources, will continue to operate as the exclusive independent distributor of Columbia Sportswear in Hong Kong and Macau.

Future plans include continued investments in building the Columbia brand in China.

We will also continue to invest in direct and dealer-operated retail locations and e-commerce.

We also intend to maintain the existing management team, staff, dealers and distribution networks that had helped the Columbia brand flourish in China.

We expect to complete the acquisition in early 2019.

Regionally, the United States business grew 9% in the quarter as accelerated investment in our U.S. direct-to-consumer business drove high-teens growth.

In our DTC business, both the brick-and-mortar and e-commerce business exceeded our expectations with improved productivity in brick-and-mortar doors and low 20% growth in our e-commerce sales.

Reflecting a return to growth for spring 2018, our U.S. wholesale business grew at a low single-digit rate for the quarter.

Our successes in the quarter were not limited to our domestic business.

Adjusting for new revenue accounting standards, international sales grew 12% year-over-year, with constant currency growth of 4%.

On a reported basis, international revenue increased 8%, constant currency.

Our EMEA business remains a stand out in our international markets with constant currency sales growth of 15% for the quarter, driven by wholesale and DTC.

Our team in Europe has done an outstanding job over the last 3 years and we have plenty of opportunity to drive continued growth and expand profitability in that important market in the years ahead.

First quarter non-GAAP gross margin was up 110 basis points to 48.6%, as a result of reduced DTC promotional activity, favorable foreign currency hedge rates and mix shift to our higher-margin retail and wholesale businesses and lower sales to our lower-margin international distributors.

We remain focused on cost discipline while investing in growth areas of our business.

In the first quarter, excluding the Project CONNECT program and discrete costs, we improved our non-GAAP SG&A rate by 150 basis points, helping drive non-GAAP operating margin up to 11.7% from 9.1% in the prior year.

Our inventories are clean with total inventory up 2% to $406 million on 12% net sales growth, including a year-over-year decline in excess and closeout inventory.

Excluding an $18.2 million decrease driven by a balance sheet reclassification, comparable inventories increased 6%.

Our balance sheet remains extremely strong with cash balances at a record $808 million exiting the first quarter.

We continue to have no long-term debt.

The enactment of the Tax Cuts and Jobs Act and the resulting change to our territorial taxation system provided us with significantly more flexibility to repatriate foreign cash, and as a result, we were able to repatriate $220 million to the United States in early April.

During the first quarter of 2018, the company repurchased approximately 235,000 shares of common stock for $18.1 million or $76.84 per share and paid $15.5 million in dividends.

As a reminder of our priorities for use of cash, first and foremost, the company remains committed to maintaining a strong balance sheet, while utilizing cash to invest in growth opportunities for the business.

We continue to believe that the lowest -- highest return for the company is to continue to focus on improving the results in the assets that we already own.

We will look to return 40% to 60% of free cash flow to shareholders by increasing our dividend when appropriate and repurchasing shares in the marketplace.

Finally, we have demonstrated the capacity to make and integrate acquisitions as opportunities arise.

Looking at the Columbia brand, our brand-led consumer-centric approach is generating growth, with constant currency net sales increasing 10% in the quarter.

Our marketing and product initiatives are increasing our engagement with consumers, and this is translating into improved sales across channels and geographies.

Our marketing efforts in the quarter were focused on a series of campaigns that expose consumers to consistent global stories across TV, digital, print, out of home, e-mail and social media and includes new micro campaigns across digital channels that are updated regularly to maintain an always-on marketing presence.

Over the course of the quarter, we rolled out programs that emphasize the best of Columbia, including an innovative initiative in our PFG business.

The Columbia PFG team partnered with an elite group of fishermen called Badfish to explore the crystal clear waters of Belize and provide step-by-step instructions on how to make the ultimate fishing film, putting our new Omni-Shade Sun Deflector technology to the test.

We also launched our latest Tested Tough campaign, Road To Trail, featuring 2 Columbia employees, testing the latest Columbia Montrail trail running shoes across Japan, from the busy city streets of Tokyo to the rough mountain trails of Mt.

Nabewari.

The reason -- excuse me, this season, we also teamed up with 3 female social media influencers, inspired by the outdoors to go offline and explore the temperate rainforest of Washington's Olympic Peninsula.

These women put our gear to test by hiking through dense forest, scaling headlands and camping on the beach in the ever-changing Pacific Northwest weather.

We're also excited to be partnering with Platinum-selling country music singer, Luke Combs, as our newest brand ambassador, an avid fishermen, a diehard fan of Columbia's PFG product, we look forward to working with Luke and inspiring his millions of fans worldwide.

Our collaborations with New York-based fashion retailers Opening Ceremony and Kith continue to gain momentum in the marketplace.

New spring launches are earning the attention of young, fashion-forward consumers.

Influential media outlets like HYPEBEAST, GQ and Esquire featured the new spring 2018 collaborations.

And influencers like Kanye West, Chance the Rapper and Caleb McLaughlin from the hit show, Stranger Things, have featured our product on social media, exposing our brand to their followers.

Our success has not been limited to our product collaborations.

Our newest product technology, Sun Deflector, has seen strong initial sell-throughs, with early season reorder activity exceeding expectations.

This spring/summer collection priced between $35 and $70, features a breathable, moisture-wicking fabric and reflective dots that deflect sunlight so you feel cooler and stay protected.

In addition, new product initiatives in footwear are gaining traction in the marketplace, with strong response to new trail-running product and PFG footwear.

During the quarter, we made the decision to intensify our marketing and sales efforts for the PFG product in the fourth largest city in the U.S., Houston, Texas, leading to a 50%-plus increase in PFG footwear sales season-to-date.

We're pleased with the early successes of this market intensification effort, and will execute similar marketing initiatives in the second half of the year for cold-weather Columbia product.

In conjunction with our licensing partner, we've announced a new collaboration featuring co-branded outerwear and apparel for men, women and children, with Major League Soccer.

MLS is expanding rapidly, fueled by some of the most passionate fans in all of sport.

That excitement, combined with the longest schedule of any of the North American pro leagues, provides a unique opportunity for Columbia.

The multi-year agreement covers all 23 soccer MLS soccer teams in the U.S. and Canada, and product is available at retail now.

This adds to the existing relationships with Major League Baseball, the NCAA and NBA.

Operationally, we're continuing to invest in talent at the Columbia brand to allow us to execute on our strategic priorities.

In April, Michael Richardson joined the company as the Vice President of Global Merchandising for the Columbia brand -- in this new role, Michael will be responsible for developing and executing the strategic vision for Columbia's global apparel and accessories product assortment, driving growth through product introductions and strategic expansion of existing categories throughout Columbia's global distribution network.

Michael brings a wealth of retail industry knowledge to Columbia.

Over the past 24 years, he's been an integral part of the leadership team at Gap Inc.

Michael has worked in various capacities, most recently as Vice President of Franchise Product, where Michael managed the product teams in merchandising, planning and buying for the Gap, Banana Republic and Old Navy franchise businesses across approximately 40 countries.

SOREL continue to execute, with sales up 10%, constant currency.

Efforts to diversify the product line to include more spring/summer product are being met with a favorable response in the marketplace with double-digit growth for spring styles, supported by product launches in partnership with ELLE.com and MarieClaire.com.

New products include the kinetic line of casual sneakers and expansion of successful sandal lines, including the JOANIE and the ELLA.

SOREL also saw strong demand for winter product propelled by cold weather across the globe.

In 2018, we're increasing our investment in the SOREL men's business, a sizable under-penetrated opportunity for the brand.

At prAna, 2018 has proven to be a year of regaining momentum.

Sales grew 9% for the quarter, driven by U.S. wholesale growth and a rebound in e-commerce sales.

Notably, prAna continued to deliver on its sustainability promise with all cotton sourced and sold by prAna now 100% organic.

The brand has also found new ways to capitalize on market opportunities with a short lead time design initiative that allowed the brand to launch a collection of women's active bottoms with a key customer that generated several million dollars of sales and is selling-through well at retail.

At Mountain Hardwear, new brand President, Joe Vernachio, continues to build out his product team, is working to create a compelling, high-performance product line.

We're building the brand's U.S. fall 2018 order book.

Response to new product has been favorable with the brand recapturing floor space in several key accounts.

Retailers are excited about its innovative technologies, including StretchDown outerwear, which offers unrivaled freedom of movement for cold-weather active pursuits.

The brand is also introducing new GORE-TEX technical climbing outerwear and gloves for the fall 2018 season, giving a taste of what's ahead, with significant new product and marketing initiatives planned for spring 2019.

In summary, we're pleased with our solid first quarter performance and how we position our brands and regions for accelerated growth in 2018.

And it's from this position of strength and confidence that we are accelerating investment in our strategic priorities.

We continue to make progress with our consumer-first technology initiative, which includes our global retail ERP platform.

The multi-year global initiative is currently in the design phase.

We continue to target regional implementation beginning in the first half of 2019.

The platform will be integrated with our global ERP enterprise resource planning system, which has been implemented in the majority of our operations to date.

We are on plan to transition our Europe direct business on to the system in mid-2018.

With this, we will have completed the major phases of our global ERP rollout.

As a result of the strong momentum we're seeing in the business, we've also made the decision to launch a new initiative, Experience First called X1.

This initiative is designed to upgrade our e-commerce system -- systems to take advantage of the changes in consumer browsing and purchasing behavior for mobile devices.

It encompasses an upgrade of our e-commerce platforms to offer significantly enhanced search, browsing, check out, loyalty and customer care experience for mobile shoppers and is expected to be implemented in the first half of 2019.

The project will be fully integrated with our C1, Consumer-First initiative.

We continue to make progress with Project CONNECT, with implementation of operational improvements throughout the business now underway.

Project CONNECT includes initiatives to drive revenue, capture cost of sales efficiencies through design and assortment optimization, generate SG&A savings and improve our marketing effectiveness.

As these improvements begin to be realized, we intend to further accelerate investment in our strategic priorities.

We are beginning to see the financial benefits from these initiatives and recent progress gives us increasing confidence that we can generate more meaningful financial value capture in 2019.

Finally, I want to provide a little color about our updated expectations for 2018.

During the course of the first quarter, we completed our fall 2018 wholesale order-taking process and are pleased with the composition of the resulting order book with strength in all of our brands.

When combined with the continued growth that we expect from our DTC business, both the first half and the second half of 2018 should show solid revenue growth.

Our 2018 non-GAAP outlook now anticipates 6.5% to 8.5% revenue growth, up from our prior guidance of 4% to 6%.

We continue to expect up to 20 basis points of operating margin expansion to non-GAAP operating expansion -- non-GAAP operating margin to approximately 11.5% of sales.

In light of stronger top line expectations for the year, we have chosen to accelerate the level of investment in our strategic priorities by approximately $10 million, with an emphasis on demand creation, including enhancements to our digital capabilities through our X1 initiative.

The timing of accelerated investments in our strategic priorities will be weighted to the second half of the year.

Together, we now expect 10% to 13% non-GAAP net income growth, driven by the Columbia, SOREL and prAna brands and in all 4 of our geographic regions.

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 continue to drive growth, expand our profitability and increase our total return to shareholders in the years ahead.

You can find more details on our Q1 results and our 2018 financial outlook in Jim's CFO commentary available on our website.

That concludes my prepared remarks.

Operator, if can you help us to coordinate questions.

(Operator Instructions) Our first question will be coming from the line of Robert Drbul with Guggenheim Securities.

I guess, the first question, Tim, just from -- congratulations, by the way, great results and great outlook.

The first question that I have is, when you look at the weather last -- in the winter and then what we've seen so far in the spring and you consider the inventory levels at retail and your order book, can you just give us some insight how you believe retailers are planning the rest of the year from the channel perspective, U.S. wholesale?

Certainly.

Well, obviously, with the late winter in 2017 and the residual winter in 2018, our -- we believe our dealers are quite clean.

And I think that gives us a lot of confidence to be giving the guidance we gave today.

As you know, the bulk of our big customers give us orders early in the year and we believe that they have -- they're not being extraordinarily exuberant, but they are confident in terms of how the business is going to look for '18.

So -- and that gives us a lot of confidence in our guidance today.

Got it.

Okay.

And then, on the decision to accelerate, I think, you said it was $10 million worth of investments in the back half of the year, Tim.

I guess, my question would be, if you're accelerating that and pulling some of those expenses forward, does that make your outlook for '19 a little bit better from a profitability perspective, as -- or do you see more expenses coming, more investments necessary next year?

Just give us some insight into how you're thinking about what you have planned on the horizon over the next few years?

Certainly.

Well, clearly, the plan to invest further, call it, $10 million in the back half of the year in marketing and other enhancements to the systems is just the result of our visibility and our view of the future.

So we're very pleased with that.

And frankly, I think as we look forward in '19 to the fruits of the Project CONNECT returns to the company and where we believe that there's opportunity, this is going to give us the potential to choose to invest even further in the demand-creation and enhancements to the systems, where we're going to be able to be much more surgical in terms of how we approach those investments.

But the business is clearly on a stronger footing than it's been in the past.

And -- and that we just have lots of opportunity, I think, in our future.

Bob, and this is Jim.

I would just add to that, in terms of what Tim's describing, and to your question in terms of whether certain of the expenses are pulled forward and -- that's not necessarily the way I would look at it.

We've -- as we've commented in the past, we'd like to increase the rate of demand-creation spend.

So as we look out to the confidence we've got in the back half of the year and the growth that we're seeing with our fall '18 season, this really provides us the opportunity to begin making some of those investments we've talked to from a strategic priority standpoint.

So not necessarily a pull forward in cost out of '19 and into '18.

Our next question comes from the line of Jim Duffy with Stifel.

So the result and guidance suggest balanced strength across the business.

Tim, is there any way to isolate the key areas of positive surprise relative to expectations in the first quarter?

And then are there any -- I guess, are there any problem regions to know about?

Well, we're actually seeing significant improvements even in our problem areas.

But, I guess, I would point out, we're not completely out of the woods in Korea, even though we've seen improvements there.

And I guess, we just constantly impressed with our results in our Europe-direct business, as you know, that was kicked off by Franco Fogliato and Mattieu Schegg, who's taken over from Franco when he moved to the U.S. That's just been a real stellar performance there in an area that geographically was very challenged.

And that's, for a number of reasons, we see that as a huge opportunity for the company in the future.

And then I would want to point out that the confidence the company has in China, in that marketplace, and willing to buy back the balance of that JV.

And so there's a number of areas geographically.

And again, the U.S. wholesale business is coming along nicely, as well.

So it's -- there's just many, many good stories.

Yes, Jim, I think you hit the nail on the head.

It was pretty balanced growth really across the business that's driving the performance, both for the quarter and what we see on the year and then, just maybe one additional point to what Tim described, I think the direct-to-consumer business and what we saw in the performance of our e-commerce channel through the first quarter was quite encouraging, as well.

Great to hear.

And then Jim, question for you.

The benefit from FX implied in the '18 revenue guide, what are you thinking now?

Like, the release made it seem like you've seen some change there?

Yes, we have updated the currency rates assumed in our outlook.

And really, where we've got those currency rates at this point, Jim, is they're relatively tight to what the current spot rate is.

On the full year, I think, I commented back in February, that we see about a 75-basis-point uplift from currency.

As we sit here today, we see that being about 1.5 points.

That's embedded into our outlook.

Obviously, you see -- you saw a fair amount of that in Q1.

Q1 was up 3 points.

Q2 is probably on a like basis, but then that will really settle out as we go through the year looking for 1.5 points of benefit.

And that's also the reason why when we look at our outlook and the first half versus back half growth, that's contemplated in the outlook.

We'll be a little bit more heavily weighted on a rate-of-growth basis to first half of the year, given where currencies are, relative to the second half, albeit a nice growth in the second half of the year, as well.

Our next question is from the line of Omar Saad with Evercore.

A really fine quarter, everybody.

I was hoping you could maybe talk a little bit more about the really significant shift that you've seen in your business over the last 5 years from wholesale to DTC.

Maybe how that's affected how you think about the business, how you think about the brand, inventory management, what are some of the opportunities, anticipated -- as well as unanticipated consequences of this transition?

Our business, we still consider ourselves to be first and foremost, the wholesale provider of merchandise through retail channels.

But especially, in North America, where we've seen such a significant amount of bankruptcies over the last, call it, 5 to 7 years, where there's just been, frankly, too much retail.

We've needed to make sure that our products could get to consumers and therefore, the investment in our own direct-to-consumer businesses.

And it really speaks to the power of our brands in that the demand for those products continues even though consumers may have to search a bit more for them because the store down the street doesn't exist anymore.

So it's really been a function of trying to get our products to market in the most efficient way.

And as I said, by far, the bulk of the business is still wholesale through independent retailers.

We're pleased with the power of the brands drawing the merchandise through our own stores.

Fabulous.

And then maybe one follow-up, Tim.

You guys have always been prolific marketers and then you're doing a lot of cutting-edge stuff for many years.

Now how you're thinking about the new kind of marketing mediums and platforms that are out there, social media and other digital apps, how does this change the game for you guys as you talk about your brands?

Well, at the end of the day, our focus has been on -- is on points of differentiation for the brands.

And once we have those established for each of the brands, then we could actually much more surgically use these new tools that the Internet provides, social media, et cetera, to be much more efficient with our ad spend.

So those areas that will get more investment in the back half of 2018 are going to be those where we can highly direct messages to consumers that we know are interested in our product and have the propensity to become better customers.

So that's an area where we're focusing a lot of our time and a lot of science.

Our next question is from the line of Andrew Burns with D.A. Davidson.

Just curious on the market indication you highlighted for the PFG product line in Houston.

Could you talk a bit more about that initiative, what it looked like and how scalable it is across other cities as well as potentially other brands?

Certainly.

Well, I think you're talking about the Sun Deflector technology, which is, for all intents and purposes, the inverse of our Omni-Heat Reflective product.

And we currently have it exclusivity at -- on our PFG product, which has been very successful in the southern part of the United States and basically where that market's done the best, that and in Central America.

So did I answer your question properly?

Maybe I...

I was curious, Houston was highlighted as -- as something like a marketing intensification efforts that yielded some good results that you'd flow into other...

We think there's an enormous opportunity with footwear under the PFG sub-brand.

And so we've offered PFG footwear in the past and we've been successful with it, but if we're going to get it to be as big as our apparel business, we have to talk about those kinds of investments in marketing and in product placement that we can make most efficient.

That's why we picked Houston, it's a very large market and an area where it's already PFG country for all intents and purposes.

So that gave us the tremendous amount of learnings and helped us to formulate plans for future geographic specific campaigns.

We will likely pick a mid-western city for fall 2018, and frankly, this is a focus area for us we've been using in China for the last several years and has been an efficient way to focus attention and budgets on large markets.

Great.

And it's early in earnings season, but input cost inflation seems to be an emerging theme, whether it's polyester, cotton or shipping costs.

What is your line of sight to inflation as you look to the balance of the year?

And is it a material pressure as you think about your business?

I would say from a sourcing environment standpoint, it's really neutral to neutral-favorable for fall '18 when you look at from labor to raw material cost.

So not a lot of pressure for the back half of the year.

Our next question is from the line of Laurent Vasilescu with Macquarie Group.

I wanted to follow up on the CFO commentary.

I think the CFO commentary calls out for operating cash flow of $230 million.

Could you parse out further like the moving pieces above that line item to get to $230 million?

Laurent, I don't know if got all that detail in front of me.

I mean, obviously, as you look back at 2017, where we generated substantially more operating cash flow than what we've got modeled currently for 2018, but by and large, it's going to be movement in the working capital side of the equation.

I mean, our -- from an overall profitability standpoint, we're going to up, but it's going to be a function of where our inventory -- any inventory purchases on the year and the settlement from a cash standpoint as we close the year out.

Okay.

Great.

So no onetime items here.

Okay.

Great.

And then it's nice to see -- I think this is the first time you guys actually explicitly break out your channel revenues for the quarter in the CFO commentary, in dollar terms, of DTC and wholesale.

Maybe, first, do you have any -- give the breakdown for, like, the last -- the other quarters from 2017 in dollar terms.

And then for this quarter, I think, it was up 23%.

Can you talk about the growth in store comps, maybe store openings and just e-commerce to drive that really strong 23%?

I would say, in general, as it relates to -- the underlying retail KPIs and metrics as we've discussed in the past.

We're not going to get down into that level of granularity from a disclosure standpoint.

That said, part of what you see in the CFO commentary, and we'll have like disclosure in 10-K when it's filed, certainly that's required disclosure that's a part of the Accounting Standards Codification that Christian had referenced with the revenue accounting standards change.

So that will be a standard disclosure that we provide going forward as we disaggregate our revenue down by channel, and we'll leave it at that level of wholesale and retail.

But obviously, you're seeing continued expansion from a DTC standpoint.

We've wrapped up 2017 at approximately 40% of sales, and it's continued to trend that direction, at least, through the first quarter.

Our next question is coming from the line of Chris Svezia from Wedbush.

I guess, first, just as it applies to the 6.5% to 8.5% revenue growth.

Maybe if you just add a little bit of color how we think about each one of the brands, Columbia, prAna and SOREL, I know Mountain Hardwear is probably going to be down just due to the transitions, but how does or any color you can put or rank how we think about the growth for the year by each of those brands?

And I guess, also, just on revenues.

I guess, Jim, for you, for Q3, I know last year Q3, Q4 there was a big mix in terms of timing of shipments, a lot of that fell into the fourth quarter, how should we think about it this year, is that pretty normalized?

Touched on this first and then, Tim may want to add some color in terms of what we're seeing from an overall growth standpoint across the brand portfolio.

But on a full-year basis, as it relates to the SOREL and the prAna brands, we're seeing solid growth at each of those 2 brands.

I'd anticipate those to be in the double digits.

The Columbia brand probably falling more in line with the full year outlook that we're providing for the company in the high single-digit level.

And then you're right, with regard to Mountain Hardwear, seeing a little bit of decline there.

As it relates to the timing flow, particularly the fall '18 orders, I don't think we're going to see quite significant shift as we had in each of the last 2 years where we're seeing more of that shift out into the fourth quarter.

So I'm not seeing that material.

I think there's, perhaps, some shift as it relates to our distributor business.

As you're aware, those orders from fall '18 or from a fall perspective, typically saddle the June, July time frame.

We may see a little bit of that in the second quarter than we did last year.

But otherwise, no major shifts from a timing flow perspective.

Yes, I might just point out, while we expect Mountain Hardwear to be slightly down, that's really a function of superclean inventory.

So the inventory levels there are perfect -- they're very clean.

And we would expect that even though the sales will be down, the margins will be up and it's really a resurgence of that brand under Joe Vernachio's leadership.

And then typically, once we've had a cold extended winter like we had in '17 and '18, we'll find the bulk of -- well, much more heavy deliveries of the third quarter with slightly less reliance in fourth quarter as it relates to winter -- heavy winter merchandise.

Okay.

And, Tim, maybe, this is for you.

When you -- you're pretty close to this, you're getting close to the double-digit growth rate in sales, knock on wood, maybe get there this year.

I know in the past you've always talked about this company should be growing double digits.

Do you think between all the things that you're doing with Project CONNECT, that potential -- I'm not asking this for guidance in '19, but you're potentially on that pathway towards getting to that level of growth on a more consistent basis?

Well, we've talked about the company's sort of long-term future and my own personal goals for growth.

And I think the missing component has been our ability to generate demand-creation funds, which are certainly on par with our competitors, but more importantly, being efficiently used, that I think the fruits of Project CONNECT are going to give us the opportunity to expand our demand-creation spend.

And that, coupled with a really high-quality team of merchants and sales and marketing folks that we have assembled in really all the brands, is going to give us a real opportunity to get to those lofty goals.

Our next question is from the line of Mitch Kummetz with Pivotal Research.

Tim, on the fall orders, you mentioned you're pleased.

I think, you described the order book as healthy.

I think, in your comments, you also mentioned some market share capture.

I know you're not going to say how much your orders were up.

I was hoping you could elaborate a little bit on it in terms of, like, how much are you taking share?

Like, is the increase that you're seeing orders more about share gain, is it more about retailer's are generally being more aggressive with orders this year than sort of prior seasons, not following a good winter?

And to the extent that you are taking share, how do you know that?

Is that sort of qualitative feedback that you're getting.

Is it any categories, in particular, you're seeing big gains in, in terms of share?

Yes, it'd be -- the response would be really geographic.

So -- especially in Europe where we've had very strong growth, we know that, that's been at the expense of our competitors.

And primarily, those local regional players that -- where we see it taking space and taking share.

So it's more anecdotal, but when we -- after the end of the earnings season, we'll be able to see how our competitors did and whether or not the opportunities have really come forward in the way that we believe they will.

I think the remaining retailers, certainly in North America, are stronger generally.

And so we don't see the kind of overhang on weak players that are likely to be financially embarrassed in the next year or so.

Got it.

And then secondly, the cold weather obviously helped you in the first quarter.

We've had a sort of cold start to the spring season has lingered into April.

Any negative ramifications of that?

I mean, can you say how you -- how exposed you are to warm weather product or maybe to spring reorders in the second quarter?

No.

I think that the season is playing out fairly nicely.

We oftentimes don't talk at length about our rainwear business, but that's been exceptional this year with some opportunities going up to plus 40%.

So that's an area where we don't talk much about it, but it's still a solid business.

And so from a seasonality perspective and keeping people warm, dry, cool and protected, that's one of the key pillars for the company, and that gives us an opportunity to perform well even in a cold, rainy spring.

Our next question comes from the line of Rick Patel of Needham & Company.

I was hoping to learn more about the better-than-expected fall order book in the U.S. Is there any way to contextualize the strength there as we think about brands and categories?

Just curious which type of products your customers seem to be more bullish on versus your prior expectation?

Well, I think it's -- it doesn't really come down to a product-specific area.

It's more a general theme where the brand is taking market share and having strength across the board in many categories of merchandise, including more expensive, higher AUR product as well as continued growth in our PFG business in the fall and winter periods in places in the world where it's just not that cold.

So it's really across the board.

And it gives us a lot of confidence in the ability to -- for the balance of the year to come out as we've guided.

Can you also talk about the outlook for gross margins.

So you had a very nice increase in the first quarter, but it looks like guidance for the year is intact despite expectations for stronger sales.

So just curious if there's anything going on there with the sales mix or FX that could limit upside in the coming quarters or if there's just an element of conservatism in that guidance?

No.

Definitely, I wouldn't look at it that way.

I mean, we're calling in terms of what we're seeing in our fall '18 order book with the mix of geographies, regions in planning the margin.

I would indicate the gross margin benefits that we saw through the first quarter, we're likely to see similar benefits through the second quarter with the key drivers that are there, certainly, in the case of the foreign currency benefits.

And then as we get to the latter part of the year, I just think that some of the drivers of margin performance in the first half of the year, they're just less pronounced, that there'll still be -- the margin will still be up the back half, just not quite to the degree that we've seen in the first.

Our next question is from the line of Ed Yruma with KeyBanc Capital Markets.

This is Noah on for Ed.

Maybe just on e-commerce trends where it accelerated this quarter, follow a lot of the trends last quarter.

I know you guys decided to selectively pull back on promotions in the fourth quarter.

Can you maybe just talk about, has anything changed with your thought process there?

And then maybe some of the drivers of the sequential strength?

And then on the decision to initiate X1?

Certainly.

Well, as we've talked, the Project CONNECT was a wide-ranging review of the company's activities, and one of the areas that we study in some depth was our e-comm business.

And some of the results that we're seeing now are a function of the improved conversion and better spend on our search functions, SEO, SEM.

And that's, in many ways, just a continued sophistication improvement in that business.

Our next question comes from the line of Jonathan Komp with Robert W. Baird.

I was hoping to ask a bigger picture question about the margin dynamic for the company.

I know this year, on a non-GAAP basis, growing top line high single digits and bottom line EBIT profitability or operating margin by 20 basis points.

How does that relationship look going forward?

Do you think you'd only get 20 basis points of expansion on similar revenue growth after 2018?

Or how do you think about the puts and takes?

We haven't put a long-term target out there, Jon, in terms of how we've thought about that.

I think as you look back at each of the last couple of years, you look at the performance that we're putting up this year, we've got a lot of confidence in the plan that we're putting out here.

I think we've got a phenomenal track record in terms, even in years in which we're not growing at the rate that we are this year, of being able to deliver from an operating margin and from an EBITDA-expansion basis.

And we really look at this year as a great opportunity for us in light of the growth that we're seeing, the performance we had in Q1, to take advantage of making some investments that we feel are needed to continue to drive sustainable long-term growth in the business.

And so the investments in demand-creation, the Experience First initiative that Tim touched on.

So longer-term though, there's certainly room to continue to expand the operating margin on this level of growth.

Okay.

Got it.

And maybe a separate question, Jim.

Just on the share repurchase that I noticed, and correct me if I'm wrong, but I think this is the first time you bought back maybe since the stock was in the low-50s from a stock price perspective.

So I'm curious if you'd comment on any changes in kind of the criteria that you're looking at, especially, relative to the cash balance that keeps rising pretty rapidly here, and just any broader thoughts on the cash return and repurchase strategy?

No significant changes relative to what Tim had described and what we've communicated each of the last couple of quarters as it relates to our use of cash and capital allocation approach.

I mean, first and foremost, it's about investing back into the business.

I think you see that reflected in the outlook that we're providing here today in terms of the investments we're making, both from a capital standpoint and with regard to some of the SG&A.

Certainly, as it relates to the return of capital to shareholders, we feel like there's a lot that we're doing from that perspective as well.

As you'll note, in each of the last couple of quarters, we've increased our dividend rate.

And then from a share repurchases standpoint, one of our -- one of the goals that we'd have here is make sure that we're offsetting the dilution from our employee stock plan.

So that's a component of what you're seeing in the first quarter and effectively, what's implied within our earnings per share estimates that we're providing in terms of the underlying share count.

Our next question comes from the line of Camilo Lyon with Canaccord Genuity.

This is Pallav Saini on for Camilo.

Can you give us a little more -- some color on how the performance was in Russia in Q1 and what your outlook is for the year, and if that has changed?

I'm sorry, did you -- I don't want to miss -- you talked about Russia, right?

Because if the Russia...

Russia, yes.

Our business in Russia was quite good this quarter.

It was cold.

The winter came a little bit later this year than in typical, but it was extended for periods of time and we had a solid business in Russia.

And I think the economy there is in an improvement mode.

And as you know, we've talked at length about our partner there, who's very solid financially and a great retailer and distributor.

And so, we're very pleased with that business.

Our next question is from the line of John Kernan with Cowen & Company.

This is Krista Zuber for John.

Just 2 questions.

You kind of talked in the past how some of your peers had spent demand-creation roughly at, say, a low-double, low-teens rate of their sales.

And with the ramp in your own demand-creation spending relative to prior years, kind of where are you comfortable in seeing that ratio to sales falling out?

And then I have one follow-up.

We've talked about, at the top end, there's probably competitor spending in the 12% of sales range.

We're obviously at 5%.

I think we don't need to spend 12%, we need to spend more than 5%.

And I guess, from a historical perspective, as I said earlier, we can be much more surgical in terms of how we spend the money and much more efficient in terms of reaching consumers.

So I'm not really sure what the right number is, but I know we need to spend more and spend it better.

We'll expand incrementally as we're able to generate additional profitability from CONNECT and other parts of the business improving.

And we'll just keep pushing on until we get the right equation.

And then, just as it relates to Project CONNECT, do you still -- I guess, how should we think about the expenses for the initiatives beyond sort of the $23 million you've outlined pretax for this year?

The $23 million that we've contemplated for this year, we're not ready to provide outlook for 2019.

But I -- we don't anticipate a lot of cost beyond 2018.

So I think that's the way I would think about it and model it at this stage.

At this time, I will turn the floor back to Christian Buss for closing remarks.

Thank you, guys, for listening in.

We look forward to speaking to you again when we report the second quarter results in July.

Thank you.

This concludes today's teleconference.

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Thank you for your participation.