Columbia Sportswear Co (COLM) 2021 Q3 法說會逐字稿

Greetings, and welcome to Columbia Sportswear Third Quarter 2021 Financial Results Conference Call.

(Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Andrew Burns, Vice President of Investor Relations and Strategic Planning.

Thank you.

You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's Third Quarter Results.

In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results.

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

With me today on the call are Chairman, President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President and Chief Administrative Officer, Peter Bragdon.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future.

These statements are expressed in good faith and are believed to have a reasonable basis.

However, each forward-looking statement 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 SEC filings.

We caution that forward-looking statements are inherently less reliable than historical information, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or changes in our expectations.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales.

For more information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our third quarter 2021 earnings release and the appendix of our CFO commentary and financial review.

Following our prepared remarks, we'll 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, Andrew, and good afternoon, everyone.

I hope everyone is well and vaccinated.

Our third quarter results reflect the unique operating environment in which we find ourselves, characterized by high consumer demand for our products and an unprecedented supply chain disruption.

During the quarter, delayed inventory receipts impacted U.S. wholesale shipments and resulted in a net sales shortfall compared to our internal plan.

I'd emphasize that our net sales shortfall was not a function of consumer demand, which remains robust.

Early Fall 2021 sell-through at our North American wholesale customer stores as well as our own DTC business, has been very encouraging.

The retail environment is healthy with low promotional activity contributing to higher-than-planned gross margin.

When combined with lower-than-planned SG&A spend, we were able to exceed our operating income forecast.

Our fortress balance sheet is intact with cash and short-term investments of over $600 million and no bank borrowings.

We had several brand highlights during the quarter.

Colombia introduced Omni-Heat Infinity, the largest innovation launch in our company's history.

This next evolution of the thermal reflective warmth further strengthens our portfolio of differentiated innovations while providing exceptional warmth and value to customers.

SOREL's bold collection of sneakers, sandals and wedges, drove meaningful growth on sorel.com with e-commerce sales more than doubling compared to third quarter 2019 pre-pandemic levels.

Mountain Hardwear's energized Fall '21 product line fueled outstanding growth, including expanded distribution at new retail doors.

And prAna delivered healthy growth led by broad-based recovery in its wholesale business.

As we enter the important holiday sales season, we're acutely focused on navigating supply chain disruptions and maximizing sales potential.

Our revised net sales outlook reflects the reality that we will not be able to entirely offset this headwind.

Given our improved outlook for gross margin and updated operating expense assumptions, we're raising our diluted earnings per share outlook to $4.55 to $4.80.

As we finish the year and look forward to 2022, I'm excited about our innovative product pipeline and the momentum we see across the brand portfolio.

Based on this strength, we believe we can achieve mid-teens or better net sales growth in 2022 on top of the low 20% growth we anticipate in '21.

I will discuss our initial 2022 commentary in more detail later in the call.

Now I'll quickly review our third quarter '21 financial performance and reference year-over-year comparisons versus third quarter 2020.

Third quarter net sales increased 15%, reflecting DTC growth as well as higher Fall '21 wholesale shipments as we anniversary prior year pandemic disruptions.

By channel, net sales growth was driven by 25% growth in our DTC business and 10% growth in our wholesale business.

Within the DTC business, brick-and-mortar, net sales grew 36%, in line with our expectations.

Store traffic levels improved significantly compared to third quarter 2020, but remain below pre-pandemic levels.

DTC e-commerce net sales grew 6% and represented 11% of the total sales mix.

We are encouraged to see sales in this channel remain substantially above 2019 levels as consumers return to in-store shopping.

Gross margin expanded 180 basis points to 50.7% of net sales and SG&A expenses grew 7% year-over-year.

The combination of gross margin expansion and operating leverage resulted in 440 basis points of operating margin improvement compared to third quarter 2020.

Diluted earnings per share increased 62% to $1.52.

I will now review third quarter year-over-year net sales growth, performance by region and brand.

For this review, I will reference constant currency net sales growth rates unless otherwise noted.

U.S. net sales increased 15%, reflecting mid-30% DTC growth and low single-digit percent wholesale growth.

U.S. wholesale shipments were below our internal plan and would have been higher absent supply chain disruptions.

We're encouraged by our early Fall '21 sell-throughs, which is up year-over-year despite lower retail inventory levels.

The growth in our U.S. DTC brick-and-mortar business reflects year-over-year improvements in-store traffic levels as well as lower promotional activity that resulted in higher average order values.

Our U.S. DTC e-commerce business also benefited from significantly less promotional activity compared to the prior year.

Turning to international sales performance.

During the third quarter, sales trends continue to be influenced by each region's COVID-19 restrictions, vaccination rates and consumers' willingness to shop in-store.

Canada and Europe experienced post-lockdown recoveries, while other regions such as China and Japan were impacted by government-mandated COVID-19 restrictions during the quarter.

Latin America, Asia Pacific region, or LAAP, third quarter net sales increased 10%.

In China, net sales were up mid-teens percent, primarily reflecting higher Fall '21 wholesale shipments, partially offset by lower DTC sales.

In the quarter, DTC performance was impacted by lower store traffic, resulting from COVID-19 related government restrictions as well as isolated flooding and power outages across several provinces.

We remain focused on driving growth and enhancing the consumer experience in this important market.

For Fall '21, we're investing in demand creation, including a digital-first full funnel marketing campaign, highlighting Omni-Heat Infinity.

Korea net sales increased mid-teens percent primarily reflecting higher Fall '21 wholesale shipments, and to a lesser extent, DTC growth.

In Japan, net sales decreased low single-digit percent as demand was impacted by the state of emergency declaration that was in place from mid-July through quarter end.

Year-to-date, there have been over 200 days with some level of state of emergency restrictions in place in Japan compared to approximately 50 days in 2020.

LAAP distributor markets were up low 20%, driven by higher Fall '21 wholesale order shipments.

Europe, Middle East, Africa region, or EMEA, Third quarter net sales increased 9%, driven by low double-digit growth in our Europe direct business and mid-single-digit growth in our EMEA distributor business.

Growth was driven by higher Fall '21 wholesale order shipments as well as improved DTC performance in our Europe direct business as lockdown restrictions eased.

Canada net sales increased 18% in the third quarter, primarily driven by higher Fall '21 wholesale shipments and improving DTC performance as this market reopened.

Looking at performance by brand.

Columbia brand net sales increased 15% in the third quarter as DTC brick-and-mortar growth was constrained by supply chain disruptions that impacted wholesale net sales performance.

Across all channels, sell-through of Columbia's Fall '21 product line has been encouraging.

Top-performing categories include fleece, sportswear and rainwear with continued strength in PFG products.

In October, we officially kicked off our global marketing campaign to support the launch of Omni-Heat Infinity, our new highly differentiated addition to the Omni-Heat family.

This full funnel campaign spans in-store, traditional and digital social outlets and will be engaging customers around the world throughout the season.

In fact, later this winter, Omni-Heat Infinity will enter a new territory as the first Columbia product to reach the moon.

Stay tuned for more details on that front.

Our Omni-Heat Infinity launch has been covered extensively by media outlets, including Men's Journal, Gear Patrol, Good Housekeeping, Women's Health and Outside Magazine, among others.

Combined media coverage of the launch has surpassed 340 million impressions and counting.

Omni-Heat Infinity was also featured on The Late Late Show as host James Corden, and his staff went head to head with our newest brand ambassadors from the USA Curling team.

In September, we announced a multiyear sponsorship with USA Curling.

Colombia will be working closely with the USA Curling National Team program, including the Men's, Women's, Junior and Wheelchair team.

Curling is one of the most watched sports during the Winter Olympics.

The Columbia uniforms and our logo will be prominently displayed as the U.S. team defends its gold medal over multiple weeks of competition.

I can't think of a better way to showcase our brand than a global sport that takes place completely on ice.

In addition to the Omni-Heat Infinity launch, we had several unique brand stories to highlight across our digital platforms during the quarter.

We featured brand ambassador, Bubba Wallace and renowned National Geographic photographer, Babak Tafreshi, as they captured the brilliant Utah Desert night sky.

Together, they journeyed to Utah's remote Gooseberry Mesa to take Bubba's passion for outdoor photography to the next level while relying on their Columbia gear to keep them warm.

Earlier this month, we also got a chance to celebrate Bubba's historic first Cup Series win at Talladega Superspeedway.

Congratulations, Bubba.

We also featured country musician and Columbia ambassador Luke Combs, as he found adventure on the wide open spaces of Montana with his wife and friends.

Led by our Columbia Sportswear adventure crew, they explored some of Big Sky countries, hidden gems during a series of fishing, trap shooting and quad writing excursions.

On the product partnership front, we're continuing our successful collaboration with Disney and Lucasfilm with another Star Wars collection for Fall '21.

This new special edition collection is inspired by the galaxy's most notorious bounty hunter, Boba Fett and will launch ahead of his highly anticipated new Disney+ series this December.

Before discussing our emerging brands, I'd like to update you on some recent Columbia brand management changes.

We're pleased to announce that responsibility for global direct market sales will be managed by Tim Sheerin, in the newly created position of Senior Vice President, Global Wholesale.

Tim will leverage his extensive international experience as he oversees Asia direct, Canada, Europe direct and our U.S. wholesale businesses.

We are also taking this opportunity to further align our Columbia brand offense with our U.S. DTC leadership now reporting directly to Columbia brand President, Joe Boyle.

Turning to our emerging brand portfolio.

Exceptional consumer demand for SOREL was evident in the third quarter.

sorel.com net sales increased over 30% versus third quarter 2020 and were up over 100% compared to third quarter of 2019.

This growth was led by sneakers sandal and wedge category performance as well as popular winter style products like the Out 'N About.

During the quarter, SOREL launched a multichannel marketing campaign to introduce the new Brex boot and heel collection, which is driving new customer traffic to sorel.com and quickly becoming a favorite among influencers and celebrities.

The continued success of these new categories and styles validates SOREL's evolution to become a year-round function-first fashion footwear brand.

Overall SOREL brand net sales decreased 5% as DTC e-commerce growth was more than offset by lower Fall '21 wholesale shipments resulting from supply chain disruptions.

PrAna net sales increased 19% in the quarter, led by broad-based wholesale growth.

I'm encouraged to see prAna's account base, including national accounts, smaller independent retailers and new points of distribution, embrace the [France] Fall '21 product line.

PrAna's latest outerwear collection, which features many sustainable features is off to a promising start to the season.

Female consumers are showing strong interest in the down collection, including the premium-priced Esla series.

PrAna will be emphasizing outerwear, which is an important growth category for the brand and its new marketing campaign launching in early November.

During the third quarter, we announced Monica Mirro was appointed prAna brand President.

She brings extensive experience in leadership roles, building inspirational omnichannel brands.

I'm confident that her growth mindset, strategic discipline and people-first approach will strengthen the prAna brand.

Mountain Hardwear net sales increased 47% in the quarter.

Growth was led by higher Fall '21 wholesale shipments that reflect the team's tremendous efforts to enhance the product line and extend the brand's reach into new retailers.

The new in-store displays at important wholesale accounts look amazing.

I hope you get a chance to see the Mountain Hardwear display at some of the newly opened public land stores.

When reviewing the presentation of Mountain Hardwear's innovative product, you start to get a sense for the tremendous potential of this authentic premium mountain sports brand.

During the quarter, Mountain Hardwear's innovation received awards and media callouts.

Outside Magazine, recently gave the Powabunga ski pack a Gear of the Year Award in its recent 2022 buyer's guide.

GearJunkie featured the Super/DS Stretchdown jacket in a recent article on The Best Puffy Jackets of All Time.

During the quarter, we announced Troy Sicotte was appointed that new Mountain Hardwear Brand President.

Troy has served as Vice President of Sales for the past 3 years, and he's been co-leading the brand on an interim basis.

This well-deserved internal promotion facilitates a smooth transition and allows the team to focus on accelerating growth during this pivotal time in the brand's history.

He is an energetic leader that will serve Mountain Hardwear well.

I'll now discuss our 2021 financial outlook and preliminary 2022 commentary.

This outlook and commentary includes forward-looking statements.

Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements.

Our updated 2021 outlook contemplates a 21.5% to 23% year-over-year net sales growth.

Compared to pre-pandemic 2019 results, our updated 2021 outlook contemplates flat to 1% net sales growth.

Looking at the balance of the year, our updated guidance reflects the supply chain disruptions that have intensified in recent months.

Inbound shipping times, port congestion and other logistic delays have elongated in transit time from factory to inventory receipt.

Additionally, factory closures in Southern Vietnam have added additional pressures to an already stressed global supply chain.

While Vietnam factories began to reopen October, the factory downtown has impacted the availability of Fall '21 products and timing of Spring '22 production.

To date, order cancellations resulting from delayed receipts and deliveries have been minimal.

In this high-demand inflationary environment, we remain confident in our ability to profitably sell in-transit inventory in current or future seasons.

I'd also note that the job market remains very tight and staffing challenges across our retail stores and distribution centers present further risk to realizing net sales during the peak holiday sales season.

Based on year-to-date results and the healthy full price selling environment, we are raising our gross margin guidance.

For the full year, we now expect gross margin to expand by 190 to 210 basis points.

We expect SG&A to grow slower than net sales.

Demand creation is expected to increase as a percent of sales to 6% in '21 compared to 5.7% in '20.

Combined, we expect operating margin to be in the range of 12.6% to 13.2%.

Diluted earnings per share is expected to be in the range of $4.55 to $4.80 compared to our prior range of $4.30 to $4.55.

While significant uncertainty persists, and we have not completed our 2022 planning process, I'd like to share some initial thoughts on how we are approaching the year.

This commentary incorporates our current view of the supply chain disruptions, constraints and expenses but could materially change as conditions evolve.

Our Spring '22 wholesale sales forecast continued to improve since the last update and now reflects over 30% growth compared to Spring '21 sales levels.

Based on momentum we see across the business, we believe mid-teens or better net sales growth for the full year is attainable.

Looking at gross margin performance, we expect higher product and freight costs as well as the likelihood of a more normalized promotional environment will create gross margin pressure in 2022.

We do not expect planned price increases will fully offset these inflationary headwinds.

We are also planning to make investments across the business, including demand creation, retail store expansion, supply chain and digital capabilities that will add to our overall spending levels.

On the digital front, we're accelerating our digital and analytics capabilities to leverage consumer data, enhance the consumer experience across our platforms and drive efficiencies across the organization.

We're also investing in supply chain capabilities to expand distribution capacity, improve inventory management and adapt to shifts in our sales mix.

With these factors in mind, we're currently planning our 2022 operating margin to be similar to the range provided in our 2021 financial outlook.

It's important to reiterate that we are maintaining this level of operating performance despite significant cost pressures and growth investments across the business.

In summary, I'm confident we have the right strategy in place to drive sustainable and profitable long-term growth, and we're investing in our strategic priorities to 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.

That concludes my prepared remarks.

Operator, could you please help us get questions for the remainder of the hour.

(Operator Instructions) Our first question comes from the line of Bob Drbul with Guggenheim Securities.

So a couple of questions, just if you could, I guess, on the supply chain challenges.

In terms of the inventory, the receipts, in terms of you said minimal cancellations, what are you seeing, like in terms of where in transit, like the arrival times of what you're getting?

And when you talk about the spring product, I think you said spring now looking up 30%, like just the ability to actually get that product and make those numbers.

Could you just give us a little bit more insight in terms of how it's running operationally for you guys today?

Yes, certainly.

And I would point out that the bulk of these supply chain logistics-related issues are in the U.S. It seems like in Canada and in Europe, the deliveries have been much more timely.

And just as a reminder, we have product entering the U.S. in many different ports, including Seattle, Portland, Long Beach, Los Angeles, Savannah and others.

So it's a variety of delays at all of these ports.

And so by far, the bulk of our fall merchandise has been shipped from the factory, and much of it has been received.

Although, we did have, at quarter end, we had a fairly significant increase in our in-transit inventory.

And Jim may have the specific numbers, but it's fairly significant.

And it's unfortunately happening at a time when the brand is incredibly popular and selling very well.

So we are turning around this merchandise as it gets into our distribution centers as fast as possible, and the constraints are not necessarily in our DCs but rather in waiting for the merchandise to arrive from those ships.

And Bob, just to add a little bit of color here.

First and foremost, obviously, we're seeing significant consumer demand, so some of our challenges it's a bit more on the supply chain, as you're pointing out.

Some of the specific data to share with you, we've produced well over 90% of our total production for the Fall '21 season and we received right around 70% of that.

So there's still a fair amount that's on the water or coming through a port in order for us to get it out.

And then earlier this year, we were experiencing in-transit times from a logistics standpoint that were about 3 weeks longer than they ordinarily been and with the port situation and availability of trucks and drivers and so forth, worsening as we came through the quarter, that basically doubled.

So 3 weeks has become 6 weeks, and that's effectively what's leading to, one, the miss on the quarter and in part, the reduction of revenue outlook for the year.

Okay.

Great.

And I guess just as you think about the -- what is it?

I think you said 90%, the remainder of the 10%?

And as you think about your spring orders and the orders that you have placed with the factories.

How will you guys address either canceling the orders or will you just take everything and then sit on it and work it through the factory outlets?

Just maybe, if you could talk about how you're philosophically thinking about that over the coming weeks and months would be helpful as well.

Yes, certainly.

Well, as you know, Bob, we have a high percentage of our merchandises carryover year-after-year.

It's a glacial change in our styles, not necessarily changing all the time.

So much of this merchandise is going to be in-line merchandise that we would sell in the spring time throughout -- and maybe even in the south part of the United States we'd sell year round.

So we're in a position, frankly, with the company's balance sheet that we can utilize it to buy and hold this merchandise, especially when we're talking about an inflationary environment that we're seeing on the sourcing side, we're going to be keeping this merchandise and generally selling it to our in-line wholesale customers in a proper time proper season.

Great.

Okay.

And then I guess, just one last question and I'll turn it over.

Sorry.

In terms of the way price increases that you have planned, can you just talk us through how you're thinking about that with many of these higher costs in season merchandise?

Certainly.

Well, the costs associated with ocean freight shipping were relatively unseen and a surprise.

So we're going to be including those prices as well as increased costs from the manufacturing side in our calculations and in our pricing for future seasons.

So our expectations are that there'll be minimal impact.

And as I said, the brand is selling incredibly well now.

There's a shortage of product, and our expectations are that we'll be able to fully pass on these price increases to consumers and retailers.

Yes.

Bob, I just note, we did provide some preliminary remarks regarding our '22 outlook.

And in light of the inflationary headwinds, and to Tim's point, we've increased price where we've got purchasing or pricing power rather.

But we do anticipate some degree of margin pressure, we'll have to come back in and fine-tune that as we come to our year-end earnings call and provide more specific full year '22 guidance.

Our next question comes from the line of Laurent Vasilescu with BNP Paribas.

Congrats on solid results in this environment for sure.

I wanted to ask, did you parse out?

I apologize for not knowing this, but did you parse out?

Was there a shift from 3Q into 4Q?

And then obviously, you lowered your overall revenues by $80 million, $90 million.

Is that lost revenues?

Or is that potential slippage into next year?

And hence, why you raised your spring order book from -- effectively around 20% to now over 30%?

Yes.

Laurent, it's incredibly difficult to measure timing effects between the third and fourth quarter.

You have to keep in mind, we're comping against a very difficult environment last year in light of order cancellations that we placed from a production standpoint.

With that said, as you look at the miss on the quarter of $50 million, so you know there's at least that that's shifting out, and we were already aware of -- certain of the in-transit times being longer and production delays.

If you were to use Q3 of '19 as a bit of an indicator of the degree of timing shift that's going to be in the $100 million plus range, which if you look at our wholesale business, Q3 of this year over Q3 of '19, it's in that order of magnitude in terms of how you think about the relative shift between the 2 quarters.

And then as it relates to your latter question regarding slippage, it's difficult to tell.

As Tim touched on, we've not seen significant wholesale order cancellations to date, there's a need that inventories lean in the market.

And as soon as we can get things shipped and we're working closely with our logistics partners and our customers to expedite freight to the degree possible.

So I think it remains to be seen, but we would -- we're planning to ship through the quarter and hopeful that we can continue to convert those orders in the first part of Q1.

Yes, I was going to say, Laurent, it's probably important to note that for many of our retailers and including our own stores, the month of January for selling winter merchandise is about the same size as the month of November.

Okay.

Okay.

And then impressive, I mean 30% potentially growth for spring orders.

Can you unpack that a little bit?

Is it across footwear apparel?

Is it the emerging brands?

Or is it the Columbia brand?

Like any color on that would be very helpful for the audience.

Yes.

It's pretty broad-based growth, Laurent.

It's growth across the entire brand portfolio.

I think with a particular focus on Columbia, SOREL and Mountain Hardwear, but all 4 brands growing.

And then geographically speaking, nearly all geographies up.

I think at the region level, all regions are up, led by the U.S. Europe is up to a lesser degree, but still meaningful.

China is up mid-teens percent.

The only geography where we'd be down a little bit is Japan, which should come as no surprise just given the state of emergency and just inventory that many of our wholesale customers continue to carry.

And then with respect to apparel, footwear, I don't have the specifics, but I believe we get the footwear category outpacing apparel and I can confirm that while we're on the call here.

That's very helpful.

And maybe in the meantime, just my last question on China.

I was pleasantly pleased to see that it was up mid-teens on a constant currency basis.

Can you just maybe give us a little bit more color just what you're seeing out there?

Is it just order book ahead of the Beijing 2022 games or anything else that you might want to share with us?

Certainly.

Well, as you know, we've been quite open about the fact that China has been an underperforming geography for the company for a few years now.

And we made significant changes in management over there, not only in the senior leadership, but mid-level managers of various specific activities also changed.

And I believe that we're well on our way to being a much improved business over there.

As we've said many times, it's the largest single opportunity for us from a geographic standpoint.

And it's good to know that the brand resonates and the consumers have -- are embracing our brand.

And then when you add in the importance of newness and the impact of Omni-Heat Infinity in that market, I think we're really looking at an opportunity to change and get back to growth in that market.

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

This is Mackenzie Boydston on for Camilo.

First question is just on gross margin next year.

When you say you expect to see pressure, is there any quantification you can give us in terms of, do you think it will be down versus F '21 or F '20?

Just any commentary you can give us on kind of the puts and takes to gross margin next year would be really helpful.

Nothing that we would be able to quantify at this stage.

We plan to come around as part of our February call and provide a more comprehensive update on our full year outlook.

By pressure at this stage, we've contemplated some degree of gross margin contraction as we look at '22, that's the reason for some of the signaling there and the pressure points are going to be a combination of some of these ongoing supply chain effects, namely on the ocean freight and being able to absorb that into our pricing as much as possible.

So that's going to be the more significant component.

And then we've been operating in a very favorable full price environment from a consumer perspective here in '21.

And so to the degree there's a normalization of inventory settles out in the marketplace, that would be another potential pressure point, but we'll look forward to coming back in February and providing more color.

And I'm just curious, during the quarter, did you see any impact in the U.S. from the Delta variant surging?

Is there any call out specifically by geography and the impact to in-store traffic?

And if so, are you seeing the consumer come back in October, in the geographies where they may have pulled back?

On the whole, I'd say, it was modest.

Our D2C business and looking at just store traffic, throughout the quarter, there was steady progress.

I mean there's certainly some effects that you're going to have in pockets, but it's come back pretty quickly.

So I don't think anything noteworthy to speak up from that standpoint.

We've seen more of an effect internationally.

So we did indicate that Japan has been under a continued state of emergency for most of the quarter.

We saw some similar experiences with the government restrictions in China that we noted.

Those are probably the more meaningful components.

Our next question comes from the line of Paul Lejuez with Citigroup.

It's Tracy Kogan filling in for Paul.

I was wondering if you could talk in more detail about what factors benefited your SG&A this quarter?

I think you mentioned some expense reductions.

I'm just wondering what buckets those are in?

And then I think you mentioned a lease termination benefit.

So I was just hoping you could quantify that?

And then secondly, I think there's some implied SG&A leverage.

Next year, I was wondering what the driver was in that?

Yes, looking at the quarter in particular and where we came in favorable relative to our outlook.

A couple of different things come to mind on this.

One being, it's been a tight labor market.

And so our distribution centers and our retail stores we've been light from that standpoint despite incentives that we've put in place.

So that drove probably the more significant component of SG&A being down on the quarter.

And then to a lesser degree, there's going to be some reductions in discretionary spend and variable spend on the top line miss.

And then looking out to next year, we haven't provided any specific color as it relates to SG&A leverage aside from, we've provided that our operating margins would approximate this year with the range of 12.6% to 13.2%.

I guess it's too preliminary here today to get inside the puts and takes.

There are some strategic investments that we're looking out to next year that we would seek to make in the way of demand creation as we have this year, looking at digital capability in the business and from a supply chain standpoint.

And how do you -- or how long do you forecast currently that these positions will remain open and benefit your SG&A?

Is that -- as you see it now a couple of quarters or more than that?

Well, it's going to be challenging, I think, at least through the fourth quarter here now that we're into it in terms of having the level of staff that we'd like to within our DCs to process orders, within our stores, within our call center.

So I think that issue is something we're going to need to work with for at least through the fourth quarter, which is where our peak volume is and then resettle and plan ahead for 2022.

Our next question comes from the line of Alex Perry with Bank of America Securities.

I was wondering if maybe you could talk a bit about -- more about SOREL in the quarter.

How much of the decline was due to production issues and overall supply chain headwinds?

And maybe could you talk about the outlook for securing additional production capacity for SOREL and also the broader footwear business?

Yes.

So SOREL is an incredibly rapidly growing brand, it's very disappointing that we have the supply chain disruptions in this quarter.

The brand has historically been known almost exclusively as a winter brand, but the real growth has been in the sneaker categories, the wedge categories and its expansion beyond just winter.

So I would say 100% of our miss in that brand was a function of either supply chain disruptions at the factory or inbound logistics issues.

We're working with large factory groups for future production, where we want to be able to fulfill the promise of SOREL's growth, but it's likely going to be at least one more season before we're completely capable of getting all the product that, that brand demands.

It's really been an enormous success and one that's quite disappointing from the supply side.

Yes.

Alex, maybe just to add just a little more color there.

Tim's absolutely spot on with regard to the business being down in the quarter.

It's entirely wholesale based with just what the effects of later production that have been later or longer in-transit times and supply chain disruptions, coupled with the production capacity constraints that we've had.

I think what's most indicative in terms of where the brand is, if you look at the e-commerce business.

So the e-commerce business, we still grew well over 30% on the quarter when you look at it on a 2-year stack basis.

The brand has grown over 100% in comparison to the third quarter of 2019.

So we're -- despite the lower revenue in the quarter, the underlying fundamentals are quite strong, and we're encouraged looking out to next year with the brand.

Yes.

And as it relates to the Colombia brand, because you asked about the footwear business in general.

We're operating under a constrained environment there with factory closures in many parts of Asia.

The brand's footwear business is finally hitting stride.

And as we've talked about for years, it has the capacity to be the largest product category for the business.

So it's disappointing that we're having these supply side issues because the demand is certainly there.

That's incredibly helpful.

And then just my follow-up is, could you maybe help us parse out the mid-teens revenue growth outlook for 2022 a bit more?

I guess how much of that is -- are you seeing benefits from channel fill from some of the other of your larger competitors consolidating their wholesale presence?

And then just off of that, given the supply constraints that you're seeing, does that affect your ability to serve sort of late season reorders as we work our way into 1Q '22?

Certainly.

Well, there certainly has been an advantage for us as some brands have abandoned certain parts of the retail universe.

And that's been helpful, but it hasn't been the entire reason for the brand's growth of popularity.

It's been a function of the increased marketing spend, the product innovations that we've shown.

And so the expectations are, as we've talked about a function of how much product we think we can get to supply the demand for next year because the gross demand would be larger than what we're able to fulfill.

And Alex, the underlying assumptions of the '22 revenue plan, we're still very early.

Obviously, we've got the spring order book in hand.

And I think Laurent had asked a question earlier in terms of is some of that 30-plus percent growth due to fall shipments shifting into the first half of next year.

The vast majority of this is reflective of the spring order book that we've taken.

And so aside from the spring order book, we're just wrapping up sales meetings and going to market for the fall season right now.

So there's not a lot of visibility that we have in terms of fall orders.

We'll take those over the course of the next couple of months.

And then besides -- other than that, it's just the strength that we see in the brand, the product, the innovation that we've got coming into the marketplace that gives us the confidence in the ability to drive that level of growth next year.

That is all the time we have for questions.

I'd like to hand it back over to management for closing remarks.

Well, I want to thank everybody for joining in today.

We're anxious to fulfill the promise of our order book and get our merchandise ship to customers and consumers, and we look forward to following up with you on fourth quarter results.

So thanks for listening in, and don't forget to get vaccinated.

Ladies and gentlemen, this does conclude today's teleconference.

Thank you for your participation.

You may disconnect your lines at this time, and have a wonderful day.