Q4 2019 Earnings Call
[music].
Greetings and welcome to the Columbia Sportswear fourth quarter in fiscal year 2019 financial results Conference call.
This time all participants.
Mr only mode.
Sure that's recession will follow a formal presentation.
If anyone should require operator assistance during the conference. Please press star zero under telephone keypad.
As a reminder, this conference is being recorded.
It's my pleasure to introduce your host Andrew Burns. Please go ahead.
Yeah.
Thanks for joining us discuss Columbia Sportswear company fourth quarter and for your results in 2020 outlook. In addition to the earnings release, we furniture 8-K containing a detailed CFO commentary, explaining our results and the assumptions behind our 2020. Our CFO commentary is also available on our Investor Relations website, Investor Dot Columbia Dot com.
With me today on the call, our chairman President and Chief Executive Officer, Jim Boyle, Executive Vice President and Chief Operating Officer, Tom Cusick, Senior Vice President and Chief Financial Officer, Jim Swanson, Executive Vice President Chief administrative officer, Peter Bragdon.
This conference call contain forward looking statements regarding Columbia's business.
Ladies and anticipated results of operations.
Please bear in mind the forward looking information is subject to many risks and uncertainties actual results may differ materially from what we projected many of these risks and uncertainties are described in Colombia annual report on form 10-K, and subsequent filings with the FCC.
Forward looking statements in this conference call.
Or based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward looking statements. After the date of this conference call to conform with forward looking statements the actual results or to changes in our expectations.
I'd also like to point out the during the call. We may reference certain non-GAAP financial measures, including non-GAAP results for 2018 for further information.
<unk> non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an exploration dimensions rationale for referencing these non-GAAP measures. Please refer to supplemental financial information section and financial tables included in our fourth quarter 2019 earnings release.
Following our prepared remarks, we.
The acuity period during which we will in each quarter to two questions. So we can get to everyone by the end of the hour now I'll turn the call Robert.
Thanks, Andrew welcome everyone and thanks for joining US. This afternoon 2019 was another strong year for Columbia sportswear with record net sales, surpassing the 3 billion dollar marks the first time.
And our company's history as well as record gross margin operating income and diluted earnings per share.
I'd base growth was led by the momentum of the Columbia, and Sharell brands and our brand led consumer focused strategy I'd like to thank our global team, whose dedication and focus made these outstanding results possible.
Well, we celebrate these financial results 2019 is also Europe Remembrance, that's we lost our one tough weather chairman and matriarch, Gert Boyle, who strengthened character guided this company for nearly 50 years.
Her MADRA, it's perfect now make it better guides our culture of relentless.
<unk> and her image I liked us likeness will remain an integral part of our branding.
In the fourth quarter, we experienced a challenging retail environment, particularly in outerwear, which resulted in higher levels of promotional activity at her DTC business and higher closeout sales in our wholesale business as we.
Okay actions to reduce inventory levels.
Globally. Many regions also experienced weather that was meaningfully warmer than historical averages, particularly late in the quarter. In this environment. We delivered results generally in line with our guidance, including strong sales growth for the surreal brand.
Overall in the fourth quarter.
Order, we generated 4% net sales growth and operating margin compression 230 basis points, resulting in a 1% decrease in diluted earnings per share compared to non-GAAP fourth quarter 2018 results.
Please note discrete tax items resulted in a lower than planned tax rate.
In the quarter, which benefited deluded earnings per share by nine cents.
For the year, we generated 9% net sales growth expanded operating margins by 10 basis points and deliver 20% earnings per share growth compared to 2018 non-GAAP results.
Both Colombia and Chile.
Bill had actually years.
Growing net sales by 9% and 21% respectively.
Sales growth was broad based by channel, whether a whole show business growing 11% followed by our DTC business, which grew 6% for the year.
2019, our global DTC business.
41% of net sales.
Including our ecommerce business, which represented 11% of net sales.
As we enter 2020, we believe the strength of our you know your unique brand portfolio diversified business model and ongoing strategic investments position us for long term profitable.
Well growth and market share gains.
There is strong demand for the Columbia brand and the focus remains on becoming but number one outdoor brand in the world.
Sure well is expected to remain our fastest growing brand.
Is it successful evolution to a year round function first footwear brand continues.
A prominent and mountain Hardwear, we will be building on the foundational work we began in 2019 with an eye towards unlocking growth potential in the years ahead.
2020 will also be a year of investment as we incur the full year financial impact of initiatives. We began in 2019 many of which.
He went to 2021.
We believe these investments are vital to sustaining our long term profitable growth trajectory the timing of financial benefits derived from these investments is not always aligned with sales growth in any given year.
As a result, our 2020 financial outlook contemplates a modest.
All of operating margin contraction with that said, we have a strong track record of delivering improved profitability with over 300 basis points of operating margin expansion over the last five years and we remain firmly committed to improving operating margin over time I.
I will provide more details our 2020 out.
Okay and growth investments later in the call.
[noise] in recent weeks the Corona virus outbreak in China has gripped the global community. Our first priority has been to take appropriate measures to ensure the health and safety of our employees and partners in the region.
As work continues to.
Chain the spread of the virus, it's having an immediate impact on our business in China, including the effects of store closures and lower store traffic at stores that remain open.
We're also seeing an impact in regions and stores outside of China due to lower tourism related to the outbreak.
This has resulted in a challenging start to the year, which will likely persist until normality returns to the region.
At this point, it's too early to forecast, a regional and global financial impact on our business, including sourcing production and supply chain implications given the real time nature of these developments.
The potential financial impact related to this outbreak has not been factored into the 2020 financial outlook that we are providing today.
[noise] regionally U.S. that sales increased 8% in the fourth quarter driven by high single digit percent growth in wholesale and mid single digit percent growth in.
He see which was driven by new store openings at a high single digit percent increase in E Commerce.
Wholesale growth was primarily driven by higher closeout sales.
In D.C. performance was impacted by a challenging holiday sales environment, particularly in outerwear and difficult comparisons.
Versus exceptional sales performance in the prior year.
For the year U.S. sales grew 12% led by mid teens wholesale growth and high single digit DTC growth, which was comprised a mid single digit brick and mortar growth and low teens percent increase in ecommerce.
In.
2020.
We expect U.S. net sales to increase high single digit percent, including high single digit percent growth in DTC and mid single digit percent growth in wholesale.
Our DTC business remains a viable and profitable growth engine for the company I'd highlight the from 2017 into 2000.
19, our U.S. DTC net sales have grown nearly 30 sad and in 2020, we will continue to selective we opened new brick and mortar locations and invest in our ecommerce capabilities to fuel continued growth.
For my review of International markets and brand performance.
I will reference constant currency growth rates, which we believe best reflect the underlying business trends.
Net sales outside of the U.S. decreased 1% for the quarter, but were up 5% for the full year.
Japan net sales grew low single digit presented the quarter and were up mid single digit per cent for the year.
Fourth quarter sales were negatively impacted by the October 1st 2019 consumption tax rate increase from 8% to 10% as well as warmer weather [laughter] for the year. We're pleased to see Japan is more than two decades span of annual constant currency growth.
Revenue in 2019.
Facing uncertainty around consumer spending in light of the consumption tax rate increase we believe it's prudent to plan 2020 conservatively and are looking for low single digit person net sales growth for the year.
Despite significant geopolitical and economic turmoil.
Excuse me in several L.A.P. distributor markets I'm pleased to report our distributor business generated growth in 2019.
In our EMEA distributor business net sales increased mid teens percent in a quarter and were up low teens percent for the full year.
In or L.A.P. distributor business.
Net sales decreased mid teens percent in the quarter and were down close down low single digit percent for the full year.
In 2020, we expect art you give me a distributor business net sales to increased high single digit for sad and our L.A.P. distributor business declined high single digit percent.
Reflecting a challenging political and economic conditions.
In several markets in Asia, and South America.
Combined our diversified global distributor base remains a valuable and profitable growth engine that mitigates risk, while extending our global reach.
In Canada Netseer.
<unk> decreased 10% in the quarter, primarily reflecting a shift in timing of fall 2019 shipments into the third quarter, while full year net sales increased 8%.
For the year, Canada net sales growth was balanced across our wholesale and DTC businesses.
In 2020, we.
Canada net sales to grow to pay similar to 19 up high single digit per cent for the year.
Europe direct net sales increased mid single digit percenton, a quarter and for the full year [laughter] rose in the quarter was driven by favorable DTC performance as well as higher closeout sales in wholesale.
For the year I'm encouraged that we were able to overcome a challenging retail backdrop and deliver broad based net sales growth.
I recently spent a week in Europe with our European management team and our largest customers and came away confident that demand for the Columbia brand is very strong in this market.
We have.
Significant opportunity to grow market share.
As we look into Twentytwenty, we expect a retail environment to remain challenging.
And our anticipating mid single digit percent net sales growth in our Europe direct business for the year.
[noise] Korea net sales decreased mid single digit percent.
The quarter as warmer weather negatively impacted outerwear sales for the year, we're able to overcome a soft overall outdoor market and generate relatively flat net sales were encouraged that Columbia remains one of the better performing brands relative to our peer group, but we expect softness in the overall outdoor market.
To persist into 2020.
In light of this our initial outlook for Korea contemplates low single digit percent net sales growth in 2020.
[noise], China net sales decreased mid single digit percent in the quarter and were down slightly for the year.
While I'm disappointed by our underperformance.
Certain market, our new leadership team is focused on building a foundation for sustainable long term growth.
Elevating the consumer experience, improving our wholesale distribution and modernizing consumer facing technology technology systems.
We believe that Columbus brand recognition is strong in China.
And are confident that we can reaccelerate growth overtime with the investments we're making.
For 2020, we currently expect China net sales to increased low single digit percent. However, this outlook does not include the potential financial impact of the recent Corona virus outbreak.
Turning to gross.
Margin performance fourth quarter gross margin declined 160 basis points to 50.1% driven primarily by a higher proportion of lower gross margin close that product sales and wholesale and unfavorable DTC project for product margins, reflecting increased promotional activity and.
Shifts in product mix. These headwinds were partially offset by project get at benefits.
For the year gross margin improved 30 basis points to 49.8% has benefits from project connect more than offset a higher proportion of close out sales in wholesale an unfavorable DTC.
Product margins.
Turning to ask DNA performance in the fourth quarter SGN expenses grew 6% compared to last year's non-GAAP EPS DNA expenses up 70 basis points as a percent of net sales from the prior year.
For the full year SGN, a expenses grew 9%.
When compared to last year's non-GAAP SGN, a expenses up 20 basis points as a percent of net sales from the prior year.
The biggest drivers of SGN a growth for the year, where investments to support our expanding global DTC operations and higher personnel demand creation.
And technology expenses.
This was partially offset by a favorable impact from clients foreign currency rates.
As a percent of net sales demand creation increased to 5.5% net sales compared to 5.4% last year.
Overall, our gross margin and operating expense per.
Formats led to an operating margin decline of 230 basis points in the quarter compared to non-GAAP 2018 operating margin for the year operating margin expanded 10 basis points to 13% compared to non-GAAP 2018 operating margin of 12.9%.
Moving to performance by brand I'd like to remind you that I will be referencing constant currency growth rates.
Looking at the Columbia brand globally, net sales increased 4% in the quarter and 10% for the full year led by U.S. wholesale business and was balanced across footwear and apparel.
Within sportswear.
Gee line experienced strong sell through in 2019, and total PSG net sales, including apparel and footwear surpassed $200 million this year.
We were excited to see country singer and brand Ambassador Newcastle wearing his signature black P.S.G. Bahama shirt during his recent Saturday.
I live performance.
I'm also proud of the progress we made towards unlocking the Columbia brands long term footwear opportunity during the year.
The investments, we're making in footwear became evident to consumers with the shift product launch at August which is the first of many new product families to be unveiled in the coming.
Yes, this new product along with refreshed classic styles will be essential to building a much bigger footwear business with existing as well as new wholesale accounts in the fourth quarter footwear outperformed the brand overall, driven by top selling styles, including the ice maiden Newton Ridge and Bugger boot.
[noise] Columbia's innovations remain a key differentiator in the marketplace during the quarter, we received several media call outs and awards.
In apparel men's health feature the well, we're LIBOR interchange jacket in their 10 best ski Jackets for men article and Forbes feature the Columbia Women's Heavenly long.
But a jacket in their top plus size coach for the season.
In footwear business insider feature the omni heat to quit bugaboo. It in their article the best Winter boots for women and self awarded the shift outright amid the best shoe for hiking in their article the 15 best New workout sneakers.
Of 2019.
I'd also like to congratulate a few Columbia sponsored athletes Alex for Europe, Sarah Hoffman, and Kate Kasey sharp for their performance at the 2020 X games. All three athletes earned a spot on the podium and their respective disciplines very well done.
This season Columbia's marketing efforts included the heat seal campaign, which encompass a unified marketing message and marketing assets that were leveraged globally. We also implemented key city attack brands in New York and Denver to drive increased brand awareness during the quarter.
In 2020, we will continue to focus.
Yes, our marketing efforts on key markets and highlighter innovative products, including celebrating omni heeds 10 year anniversary.
For this rail Brad 2019 was an amazing here that reflects the momentum of the brand strategy and positioning as year round function first footwear.
Brad.
Net sales increased 14% in the fourth quarter and were up 22% for the full year driven by robust growth across our U.S. wholesale and E com businesses [noise].
During the quarter circles evolution to be honest legacy winter utility business was once again evident as.
There is continued demand more wearable style focused products.
So well continue to see the positive impact coming off the brands mile long runway event held in New York City in October as evidenced by an increase in consumer awareness engagement and ultimately omni channel sales.
We're proud of this results, but this is just the beginning in 2020 surreal brand is poised to capitalize on the brands momentum and to leverage the investments, we're making in demand creation.
We expect this strategy to drive mid teens percent net sales growth for the brand in 2020.
Turning to Prana 2019 was a transition year with net sales down 3% as the team optimize distribution and reestablish the brands premium positioning in the marketplace in the fourth quarter net sales decreased 10%, reflecting lower wholesale sales.
Partially offset by DTC.
Growth.
We were encouraged by robust E commerce growth late in the quarter as consumers responded positively to to promise refreshed product and positioning.
The brand is focused on elevating the style of its product to differentiate them from their competitive set.
They also have launched their new.
New global tagline clothing for a positive change this has provided them with a broader and far stronger platform for inspiring social and environmental change.
During the quarter, we unveiled the winter of promised dream job campaign.
After reviewing thousands of entries.
We selected one.
One person to receive 100000 dollar prize, allowing them a year to chase their dream.
Winter Quina Bergen is truly inspiring story stood out as a very definition of creating positive change. We wish are the best as she embarked on her nationwide poetry tour.
The dream job.
Brian has been promise most impactful marketing campaign to date and has generated over 60 million impressions.
In 2020, the product team is focusing on growing brand awareness solidifying the brands position at the intersection of style and outdoor and unlocking product category opportunities.
We expect prana brand net sales in 2020 to grow mid single digit percent with sales growth more weighted towards the second half of the year.
We believe products clothing for a positive change message resonates with consumers and we're taking necessary steps to drive sustainable long term growth.
For Mountain Hardwear 2019 was a transformational year, we brought revamped product line to market.
Reignited business with key U.S. wholesale specialty accounts further strengthened our team and reestablish mountain hardwear position in the marketplace.
Our refocused strategy has yielded a healthy.
Fundacion from which we expect to grow going forward.
The success of our fall 2019 product line was evident in strong full price sales growth, which gives us confidence the brand.
Moving into right direction.
Net sales increased 5% in the fourth quarter and were relatively flat for the full year in 2020.
The mountain Hardwear team is focused on further elevating the brands position in the U.S. as well as accelerating DTC through E. Commerce. We're currently planning brand net sales to be up high single digit percent in 2020.
It will be an exciting year for the sport of rock climbing as its introduced.
Into the Twentytwenty Olympics in Japan.
We'd like to congratulate mountain Hardwear sponsored athletes Kyrish Kira Condie, who has earned the opportunity to compete for team USA against the best in the World.
As climbing enters the global spotlight, we're excited to highlight mountain Hardwear authentic brand.
Heritage.
I'll now quickly review the balance sheet and cash flow our balance sheet remains extremely strong with cash balances over 600 million $680 million at year end. During 2019, we repurchased 1.2 million shares of common stock for approximately 121 million.
At an average price of 97 46 per share and paid 65 million in shareholder dividends.
Exiting the year, we had $215 million remaining under the current stock repurchase authorization.
Total inventory at year when year end was up 16.
10% year over year to 606 million, primarily reflecting current and future season inventory.
This includes increased carryover product the majority of which has already been sold as a part of our fall 20 pre season wholesale order book in 2020, we expect to grow inventory.
Hi, this at a rate slower than sales growth and modestly improved inventory turns.
I'd now like to review, our 2020 financial outlook and provide an update on current areas of investment.
Our initial 2020 outlook contemplates, 4.5% to 6% net sales growth including growth from.
All four brands, we anticipate footwear growth to outpace apparel, driven by shrill and the Columbia brands and we also expect both our wholesale and DTC businesses to grow in 2020.
Gross margin is expected to expand up to 30 basis points to 50.1%.
We look to maintain the gross margin benefits of project connect that we realized in 2019 as well as benefit from a lower mix of wholesale closeout sales at improved product margins higher DTC sales mix and lower promotional activity compared to 2019.
We expect SGN.
Hey to grow faster than net sales, resulting in 40 to 50 basis points of SGN, a de leverage compared to 2019.
The increase in SGN expenses is expected to be driven by business growth as well as ongoing and incremental investments in our strategic priorities.
Combined were.
Planning for operating margin declined 20 to 40 basis points to 12.6% to 12.8% compared to 2019 operating margin of 13%.
Based on these assumptions, we expect diluted earnings per share to be in the range of for 75 to 490 in Twentytwenty.
We expect we anticipate strong free cash flow generating in excess of 250 million and we remain committed to returning capital to shareholders via share repurchases and dividends, including the 8% dividend increase we announced today.
In the first half of 2020 our outlet.
That completes low to mid single digit percent net sales growth a slight decline in gross margin and SGN a growth faster than net sales resulted in resulting in a diluted earnings per share range of 80 to 90 cents.
First half operating profit is anticipated to be entirely weighted to the first quarter with a slight.
Turning loss anticipated in the second quarter.
Given the magnitude of the investments, we're making and their impact on SGN Ed growth. This year I'd like to spend some time, highlighting key investments and how they are aligned with our strategic priorities.
First to drive brand awareness and sales growth we.
Main committed to investing in demand creation in 2020, we expect to maintain demand creation as a percent of sales at 5.5%, while continuing to involve our mix towards high return opportunities, including digital and in store marketing.
We believe investing in demand creation to.
Our unique brand stories grow brand awareness and create clear pass to purchase for consumers is essential to propelling sales momentum.
We're investing to enhance our global omni channel capabilities and evolving DTC platforms to deliver a better consumer experience.
In.
2020 investments in our brick and mortar stores, including ongoing store refreshments and optimizing the consumer first or see one platform.
In addition, we're updating in store consumer facing technology systems to meet the needs of consumer demands within China's advanced digital.
Mhm.
And our E Commerce business, we intend to continue rolling out our new mobile platform experience first or X one across the remainder of North America.
We're also investing answer to strengthen our capabilities across the organization.
Within merchandising and product teams we.
I've been investing in personnel to enhance our product engine across our brand portfolio.
For the Columbia brand. This includes product initiatives for 2020 and beyond that span footwear apparel and accessories for Sharell, we're experiencing tremendous brand momentum and have added product creation resources to drive further growth.
In a year round style focused product.
Across the enterprise, we're making investments to enhance our data and analytics capabilities in support of our brand led consumer focused operating model.
In 2020, we're continuing to make investments in processes and systems.
Across our supply chain to improve productivity enhanced service levels and add capacity throughout our distribution and fulfillment networks.
We're investing in systems to unlock greater heat end to end inventory visibility and enable more dynamic and automated planning and fulfillment capabilities.
We're also increasing network capacity and speed to drive faster store replenishment and fulfillment.
I'd also like to highlight that in addition to investing in our business to fuel profitable growth one of our core values is to do the right thing not just for our shareholders, but also for.
Consumers customers employees and the communities that we touch.
I encourage you to review our most recent corporate responsibility report posted to our website, which highlights our strategy and recent accomplishments that we've made empowering people sustaining places and promoting.
Sponsel practices.
In summary, our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to drive global brand awareness and sales growth through increased focus.
Just demand creation investments.
Enhanced consumer experience and digital capabilities in all of our channels and geographies.
Expand an improved global direct to consumer operations with supporting processes and systems.
And invest in our people and optimize.
As our organization across our portfolio of brands.
That concludes my prepared remarks.
We welcome your questions.
Operator could you give us a handle that.
Certainly well now begin ducking your question answer session.
If you like to be placing the question Q. Please press star one under.
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Our first question.
He is coming from Bob double from Guggenheim. Your line is now live.
Hi, Jim.
Good evening.
I I don't think I need to tell you, but I missed Gert and I know you do is.
You know my sympathies and Andrew Burns you got your work cut out for you body in terms that safe Harbor.
Well, thank you [laughter], so I'm sorry, Tim.
And then I guess just.
On the on the.
Guidance for 2020 I was just wondering if as you look forward in terms of the business.
Your visibility on.
Yes, I know screen versus this fall the U.S. expectations for high single digit can can you sort of feel some layers back on that and just help us understand the drivers behind that piece of it. That's my first question and then my second question is essentially I think you inventories was up 16% I think it was in.
And just if you could sort of help us understand the gross margin guidance. Your inventory levels, just sort of put those two pieces that that would be pretty helpful. As we think about 20 to 20 going forward. Thanks.
Certainly well as you know, but we have a high percentage of our businesses at wholesale where we havent advanced.
Book.
So we have significant visibility against the book.
For spread and when the process the shipping that product now so we have a good idea about what we can expect from a gross margin and inventory liquidation period. We also have a good view on fall 2020, as well and.
We.
David or I should say, we have orders against a high percentage of our carryover inventory.
With that we that we have it all.
Going into the full portion of 2020.
We probably got a little aggressive on our inventory purchases for 2019.
On the explicit year that we had in 2018 and beginning of 2019, where inventory levels were compressed we ought we ran out of inventory in certain categories and so we probably got a little ahead of ourselves but.
Our businesses a high percentage of repeat products.
Where we have.
Significant business and.
So those those that merchandise has been as I said on order on orders that we have for our wholesale customers.
Well as inventory that will be placing in our outlet stores. So we have a high degree of confidence in our and our.
We've given you today and.
We have the balance sheet to to provide.
A significant comfort for the company.
Okay, and then if I could just do one follow up which is essentially.
On the footwear business seemed to perform pretty well.
Give us maybe an update what do you think.
Thank you are where you think you're going on that piece of it what you've learned thus far with Peter thanks.
Certainly.
Well the Columbia brand, we think theres enormous opportunity as you know I've been talking about the so since we went public 20 years ago that it should be the biggest product category for the company and we're well on our way now.
Now with some of these.
Interesting products that bring together, the outdoor business and the comfort and convenience of the athletic business in footwear and.
I'm just very convinced we're going to have a very solid business over time, it's not growing as rapidly as we'd like but it's still growing at a high clip and and growing.
Faster than our apparel business in the Columbia brand as it relates to Sorel brand you know Mark and his team has done just a spectacular job of really melding.
Fashion and function together in a really interesting.
Characteristics of products that is really resonated, especially with.
Women now that even said our fall Twentytwenty. So rail product will include men's.
Product not for the first time, but for the first time in casual footwear. So it's really an exciting time for that brand today and we're looking forward to great. Thanks.
Great.
Thanks, Tim Good luck.
Thanks, Bob.
Thank you. My next question is coming from Alex Parry from Bank of America. Your line is now lives.
Yeah. Thanks for taking my question just first can you talk about how you feel about over inventory about overall inventory.
On the channel as we stand here today.
Given the warmer weather.
Within the U.S. and internationally.
Certainly well by comparison to last year they are elevated.
In a we just said enormously warm winter.
Really globally, so I think there elevated.
And this is why.
We talked a lot about our history in the in the winter products business, and our balance sheet, which gives us tremendous confidence and comfort that we.
There were when the right place, we understand how to how to run these seasonal businesses and how to how to build product and.
And stage our products so that will be.
To the extent, we can be insulated from these weather events. So yeah. There are elevated from last year, certainly and but we're comfortable with the right place with our inventories today.
Great. Thanks, and just one on the call me branded footwear specifically.
No you called out some key styles, but can you can you remind us what's what's driving that business.
When the shift platform.
Continues to scale and just more color about from about their call me brand footwear business specifically thanks.
Certainly well that.
The footwear that the Columbia footwear for the back half of 2019 was supported in large part by our traditional products, including.
The new ridge, Bugaboo, and others ice maiden.
And shift created a number of interesting.
Product.
Rollouts from.
Sneaker brands and sneaker.
Retailers well globally I wasn't up in a sneaker store krog, two weeks ago and the entire front of the store was was Columbia shift products. So it's really helped us to gain some notoriety there.
But I think you know the whole concept of less putting together athletic shoe comfort and a traditional hiking shoe to give give ourselves city comfort and and high performance on the trail is going to really be the right way to go and we're very excited about the potential.
With that product combination and Alex's Jim you know our outlook for 2020 also contemplates.
Faster pace of the revenue growth coming out of Columbia footwear.
It's in that within the teen range of growth. So pleased with the direction that we're anticipating that are the business.
Great that's super helpful Best of luck.
Thanks.
Thank you. My next question is coming from Chris. So that's the from Wedbush. Your line is alive.
Thanks for taking my questions on.
Congrats on a year I guess, just first to I guess product question number one just P.
Oh Gee, what do you think that business can ultimately grow too and just sort of thoughts for 2020 and also secondarily just on the omni anniversary for fall just what are you looking to do what can we expect from out from a product pipeline perspective. That's that's my first question.
Certainly.
Well PSG.
Fishing is the most popular participant sport in the United States. So the market is significant and our expectation is that that brand will continue to grow at the mid teens level. The way it has been over the last several years.
We.
We are really.
I should say, we're just tapping into footwear as it were really as it.
Relates to PSG, so the combination of the footwear and that PSG apparel products.
I think are going to be at a significant business for us over time, there already a couple of hundred.
Billion dollars in revenues.
But it's a unique product no. We don't have a lot of competitors in this marketplace and we expect that this.
We'll continue to allow us to expand our business.
And it's really allows us to have innovations present in.
Building for warm weather, so as we get.
Warm events, we have a particular point of view on indications, including Sun Deflector, and omni freeze et cetera that go through that.
As it relates to omni heat as you know.
We're one of the few companies.
It really focuses on developing.
Product and product characteristics and components internally, so we have patented.
Products in omni heat family that'll allow us to have a highly visible technology, which consumers immediately.
And how that works and we have a few different variations of that product today, where we have some elevated with more enhanced thermal capacity.
As well as our initial original on behavior and it creates it allows us to create.
Thats around omni heat, which which can really continue to differentiate our products over others that don't include that so we've got a whole collection of digital assets that will be debuted sometimes in the first part of the full September October which are going to highlight on the.
And then we have a pipeline of new it's interesting Ami he'd variance which will be.
We'll be introducing into full 2021.
Thank you and just Jim for you just on I.
That's the first half died and stuff so any additional color.
You can maybe provide I'm just curious your talk and low to mid single digit revenue gross I can understand Q2 is going to have.
I guess the guidance assumes that loose some money just any color about where maybe more of the gross margin pressure could be or the S. Gene a de leverage just any color there would be helpful.
Yeah, I think as it relates to the gross margin and we provided guidance that's coming down slightly in the first half of the year keep in mind. The comparisons that we had to the first quarter of this last year again. It was similar to the fourth quarter of 18 in that we had an exceptional backdrop from a weather standpoint that.
We drove demand now not as heavily promotional.
We've seen the first part of this year in in January we are anticipating some degree of some degree of margin pressure.
Separate from that and to answer your question with regard to ask DNA, Yes, DNA growth is effectively.
The anniversary or the annual that annualized effect of many of the inflight initiatives, we've begun executing over the course of the better part of last year, we do we've touched on it a couple just everything from.
On the direct to consumer investments with new stores, the C and X one initiatives and so.
And then as we get into latter part of the year certainly your expectation would be that we begin to see a normalization of that at that rate of S. unit growth.
Okay, and just a final thing for me just on.
The overall gross rates for the company had just assumes an acceleration into the back half its not just because of the Q4.
Harrison or do you really have I guess confidence in that and in the backlog in the order book visibility to feel about competition in that and that improvement in revenue kits and start to the back half a year is in part going to be the latter the prior comments you made with regard to.
The more favorable.
Comp.
We'll have in the fourth quarter as it relates to the wholesaler book as Tim commented on we've got the Lions share of that order book in that that would indicate to us that our wholesale business globally for the fall 20 seasons growing in the in the bids in the mid single digit range, probably the low end the low end.
To the guidance that we are providing here today.
Alright, Thank you very much all the best accretion.
Thank you. My next question is coming from Jonathan Komp from Robert W. Baird. Your line is now live.
Yeah, Hi, Thank you I'm, maybe just a bigger picture question how are your view in the operating margin for the business.
Yes overall.
Just two quick yeah, two years of kind of flat to slightly down operating margin, including the guidance for 2020.
Following the number of years it really strong increases do you think longer term, you're kind of reaching a ceiling in terms of operating margin or how do you.
How would you characterize the business.
Longer term.
Yes, certainly.
Yes, I did the there is slight moderation in 2020 contemplated if you look back over several years. We've raised the operating margin is about 300 basis points and if you go back even further in the company's history. There were a period of time, when we had over 20% operating margins.
And I think frankly.
My particular view history, we were to have been criticized for having operating margins that much higher than the average or or our peer group because I think.
We could have reinvested those those profits into marketing funds would have made the company.
Roger quicker so in our goal is to always raise our operating margins to the extent possible. What we want to make sure that we've got the correct advertising and marketing funds demand creation funds available so that we don't.
That would grow the business as fast as we can.
Yeah, John I would I know, we're just we're taking a balanced approach I mean, there's going to be years in which we're making investment is were as we've demonstrated.
The past couple of years and on the same token longer term and we don't see the 13%.
Operating margin that we achieved here in 2019 as being the high watermark certainly was that the aspiration Tim.
On to continue to expand those operating margins overtime and as we look at our performance over the last few years, you know the EBITDA margins that were achieving their there every bit as strong as our peer group and in the upper quartile.
Okay, Great that's very helpful and then.
Follow up just on me the high level commentary about the Corona virus and developments there I'm wondering if you could help provide anymore parameters kind of a major.
Kind of risk you're in terms of financial and operational or you just any more color and I guess, just specifically related to that.
China disruption maybe suffered from a global tourism do you think bears scenarios that.
Yeah, the risk might be contained within your your full year earnings guidance or just any other thoughts about how to.
Got a frame it up.
Well, yes, as we said the guidance doesn't include does not include any implications.
On a virus beyond.
What we've talked about today.
The first and foremost order a business has to make sure our employees and our partners are safe and protected.
But there are going to be implications throughout the supply chain and into our sales and and purchases so maybe might be better.
Over time to talk a little bit more about that topic, yet John So our fall for our our fault or excuse me. Our spring 20 production is largely complete.
To the extent, we've got orders in process for fall those the wine show that production has not been made to extent, we don't have that inventory.
On hand, so thats, what we'd be you know there's the most risk in our business we sit here today.
Okay I appreciate the color.
Thank you. My next question is coming from John Kernan from Cowen and company. Your line is that alive.
Hey, good afternoon, guys. Thanks for taking my question.
Congrats on a good year.
Just wanted to.
Well a lot color on that on the domestic does business with.
A lot of us were out of outdoor retail we.
And I know, what's going on in terms of promotional environment with outerwear here or just any comments on M&A.
I think and Latin America Asia Pacific I think you did.
Give some guidance on the revenue side for both of those regions any any comments there in the state of the inventory not aware.
In those regions and what your outlook is operating international this year.
Certainly well I think in general.
The.
Inventory levels are elevated over last year as I said earlier.
But again, we have the history of the balance sheet to be able to Tim.
Navigate these kinds of temporary issues well the the areas that we can't predict.
Weve certainly accounted for.
And really P. business, you have to remember that we have a significant Hong Kong, Chile, Argentina business, which.
In addition to weather issues. There's also been geopolitical issues in those markets, which are which had been well documented.
EMEA frankly that business has the biggest opportunity for us outside of China.
In terms of a strong economy.
Great brand exceptional acceptance not not our best brand awareness levels, but certainly brand acceptance and product acceptance.
In those markets as significant so.
We see big opportunities there.
And you know.
So those those.
Those areas that we can have.
An impact on were well well coordinated.
Those areas that those particular political or health issues that we have no control over we have the.
Balance sheet to be able to get through those things.
Got it and then Jim the 350 to 400 million dollar.
Guidance for operating cash flow and the $90 million to $110 million in Capex guidance.
Seems to give you you know at high end close to 300 million of free cash flow this year any comp.
Yes on capital allocation this year I know.
Over a year ago, that's going to stock was back.
And in the eighties mid to low Eightys you were fairly aggressive in terms of buyback any any comments on capital allocation. This year, if you hit.
Towards the high end it at.
That cash guidance, Yeah, John I would say that no no.
Fundamental change relative to how we thought about use of cash in the past. We've demonstrated first and foremost were were put investment back into business. We've done that in the form the demand creation kind of the capital investments to ensure that we're able to continue driving growth beyond that and when we think about returning capital to shareholders. Obviously, you know we've made a increase in that.
In the dividend year today, and then consistent with our Pratt past practice, we've got 215 million remaining on our current share repurchase authorization and.
We'll be opportunistic in how we leverage that and then and then one of the thing also embedded in our outlook in our share count is the fact that we do.
Offset the effect of the dilution from our employee stock plans that that's already reflected in that free cash flow estimate.
Got it and then maybe one final question inventory of 15.
You are guiding gross margin up for the year.
And just based on I think where your operating cash flow guidance is for the here it seems like.
You're embedding the.
And the inventories back in line by sales by the back half of the years that does that assumption yeah, absolutely I would expect normalized beginning in the first half and then getting down below the rate of sales growth is we get into the back half of the year and certainly we look at the composition of the inventory that we're carrying.
Into 2020, there's there's a chunk of that is.
Current season or carryover inventory that was carried into fall 2000, so as it relates to the working capital side of the equation that certainly going to benefit how we're thinking about operating cash flow for the year.
Excellent. Thank you.
Thank you My next question is coming from.
Mars from D.A. Davidson Your line is now live.
Yeah.
Okay. Thank you congratulations on a good year as well.
[music].
Wondering if you can tell us a little bit about how city attack went for you what was the learnings there.
The extent to which you might be thinking about rolling that out further.
And then.
Coming year.
And then.
And then I've got a quick follow up.
Well you know unfortunately, we picked this year to have a very real focus on New York City, where the weather was a little bit warmer than we expected. So I would say the results. This year were lackluster, but we're committed to this kind of a focused.
Ladies.
Around certain cities.
And we'll continue to to amplify our voice in those important markets, especially around the areas outerwear consumption and PSG.
So we think it's a way for us with our modest.
Marketing funds.
To be more important in certain markets. So.
That plant is in place for for picture seasons.
Thanks, and then in my follow up on.
The Columbia brand is you're looking into next year with respect to apparel.
Are there any kind of.
Innovation initiatives, you can call out I.
I want to.
There have competitively but.
Question kind of going towards.
Can we see further differentiation.
The apparel business some of these would be the other either.
Brands on the Port.
Oil anything are excited about though.
Certainly well I would say them the lead technology that we've talked about it 2020 is something called Black Dot, which is if you think about our omni heat reflective.
Technology on the inside of the garment. This is basically a heat sink.
Application to the exterior garments. So these these are technological innovations, which.
We're very excited about they perform terrifically, they're a little bit unusual also.
Maybe that the uptake is not a sterling as the as the technology, but we're excited about that possibility.
And then as we go forward into into 21.
We've got further enhancements of our omni heat as I said, which will be an exciting expansion.
Our omni heat, we've sold billions of dollars of products with omni heat on them and consumers know them well, but you know.
I am to more fashionable product. This has also been really important for us.
Great looking forward to casinos. Thanks.
Thanks.
Thank you. Our next question is coming from Mitch Kummetz from pivotal research your line is that alive.
Yes, thanks for taking my questions.
Jim did I hear you correctly that you said that a fall orders are mostly in and that's embedded in the and the outlook for the full year.
Yes, we have a high percentage of our order book, it, yes, and that gives us confidence and the.
Outlook, we've given you today, so Tim cannot change over the next couple.
I am on something you mentioned that out, but a channel inventories elevated no I talked a lot of people or last week, where they were they were saying that retailers are.
You know there they're trying to get clean hopefully at the end of February there. It seems like there's a lot a wildcard taught a question marks around the ability to get clean given kind of.
What the weather's doing I'm just wondering if.
If a channel inventories stay elevated you know when the next month or two that put some risk to the orders that you guys haven't happened.
Well yeah.
We see frequently we get orders everyday and cancellations everyday but frankly, we've never had an experience where we've had.
Significant cancels on future orders.
It any kind of meaningful way.
Certainly at this time of the year you also remember this this krona virus is going to be likely impacting the importation of new product. So.
Actually if we have inventories in line with.
Good product today, we think we're in a superior position and somebody who might be sold out.
Got it that's a that makes sense and then Jim on the on the other guide you guys mentioned, a slight loss for Q2 that implies Q1.
But yes or no better.
More than 80 90 cents you guys did a dollar seven last year. If I'm correct, you mentioned, an exceptional backdrop to the first quarter last year.
Just trying to understand how you kind of gets to sort of implied outlook for Ah for Q1, again I would I would guess that maybe january's got off to a great start you had a tough.
Compare in February as I'm, just trying to understand somebody assumptions around.
Maybe the weather or just how you see the market shape up.
Yeah, you probably want to get into parsing parsing the quarters too much you know.
We're not providing quarterly guy guidance I think the the outlook that we provided for the first half you know based upon all assumptions we have.
Around the order book.
Ms to your point certainly the first quarter poses some additional challenges for the DTC business just given the favorable backdrop. That's all that's all factored into the outlook I'm that we're providing here today. So we'll look forward to providing more of an update on that got it okay.
[noise].
Fair enough. Thanks, good luck.
[noise]. Thank you. Our next question things coming from Paul is used from Citi. Your line is now live.
Hey, Thanks, guys I'm, sorry, if I missed this but.
Did you say anything about what you're seeing in China currently in terms of.
The percentage.
To the business I just wanted to understand.
How about 20 guidance might be reflecting what you're seeing right now on based on current trends and because it's not those on current trends what is driving your assumption.
For China gross.
And 20, maybe any color you can give there also if you could remind us on the percent of your sourcing that is coming from China.
I'd also just how you're thinking generally about raw material costs.
Impact on gross margin enough Connie thanks.
Yeah, what we said early on that.
The guidance today does not include the impacts of the Corona virus.
That haven't been said, we have Oh, we have a decent business in China, and we've given guidance in the prepared remarks today about what our plans are in that market.
[noise].
Yeah, maybe just to jump in a couple of those coupled with the Pacific. So certainly as Tim indicated we've got a fair amount of stores that are closed both that we.
Operate directly ourselves as well as many of our wholesale dealers and over half of those stores or are currently closed we've not at this point in time no. This is fluid.
Duration that have been able to estimate the financial impact in that that's not embedded in our outlook at this point.
So does that mean that you're kind of giving guidance as if those stores one closed that went up until now.
That's correct at this stage.
Got it.
Okay, and then just on the on the sourcing.
Piece, the person coming from China, and I'm just from materials.
The impact on gross margin yeah. So China is a low double digit percentage of our total production higher than that for footwear, a little lower than that for apparel and raw materials Hawaiian shirt footwear around.
Charles are sourced in China, and a fairly significant portion of raw materials for apparel are sourced in China.
Great. Thank you guys. Good luck.
Thank you next question is coming from Jim Duffy from Stifel. Your line is now alive.
Thanks slow guys. Thank you for taking my question.
Tim.
I want to follow up on channel inventories when you discuss channel inventories you spoke using last year as the comparison given out tighter inventories were a year ago that seems almost an unfair comparison.
How would you characterize them versus.
Some other years, maybe like 17 or 18, my my sense is a channel inventories are nowhere near as out of bounds as we've seen in recent history is that fair.
Yeah, I think you're right the average inventories they might be slightly elevated from an average point of view, but frankly and again I hate to.
Talk about.
Ancient history, which seems like.
You know 1989, when we went public it's a long time ago, but we have a long history of managing our way through.
Seasonal inventories and the.
The balance sheet of the company provides us a lot of comfort, but I would say, yes Asia specifically your question about inventories that.
Probably a little bit elevated over average but.
This is this is not to an unusual situation.
Good to hear Okay, and then surreal SEC success, that's been really impressive to watch spark and his team have done a terrific job are there specific pages from the slow thrilled playbook that you think.
Our applicable to the footwear business for the Columbia brand.
[noise], probably you know I would say Mark has a much higher focus on fashion and design than we have at Columbia that the fashion design. In addition to the functionality of this rail products are the key differ.
Freshwater for Columbia, we've always emphasized our our innovations and.
Maybe we over emphasize that but frankly the results for the last call at 18 months on our footwear business have been significant and as we add design into the into the innovation packages at Columbia I think were.
With that.
The opportunity to grow the business very rapidly it's still the biggest opportunity product categorical wise the company.
Very good thanks, Good luck action.
[noise]. Thank you we reached end of our question and answer session, let's turn the floor back over to.
But for any further closing comments.
Well. Thank you very much for listening in we look forward to talking to you at the end of Q1, and we're all hopeful that the.
At the corner virus, a topic will be behind us by then.
<unk>.
Thank you that does conclude today's teleconference.
You may disconnect your lines at this time and have a wonderful day, we thank you for your participation today.