Q4 2020 Columbia Sportswear Co Earnings Call
Greetings and welcome to the Columbia Sportswear fourth quarter, 'twenty and 'twenty financial results Conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
And it's now my pleasure to introduce your host Andrew Burns.
Thank you Mr. Burns you may begin.
Good afternoon, and thanks for joining us and discuss Columbia sportswear company's fourth quarter results and is this.
And to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our results and CFO commentary is also available on our Investor Relations website Investor day at Columbia Dot Com.
With me on the call today here 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, our beliefs about the future each day.
And that's our express and good faith and are believed to be 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 as SEC filings.
We caution that forward looking statements are inherently less reliable and historical information, 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 actual results or changes and 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 further information on the 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 and supplemental financial information section and financial tables included in our fourth quarter 2020 earnings release.
Following our prepared remarks, we will host a Q&A period during which we will limit each caller to two questions. So we can get to everyone by the end of the hour now I will turn the call over to Tim.
Thanks, Andrew and good afternoon, I hope everyone is well and your families are all safe and healthy I'm pleased to report above planned fourth quarter results with broad based outperformance across our brand portfolio and regions. These results are particularly impressive with a backdrop of a global pandemic and demonstrate the.
Patient and commitment of our global workforce of employees, who overcame enormous pandemic related disruptions.
Our consolidated net sales and earnings remained below remains below prior year levels trends sequentially improved compared to third quarter and we remain poised for continued recovery in 'twenty and 'twenty one.
2020 was an unprecedented year of adversity by almost any measure.
Our team's swift cost containment and capital preservation actions, along with disciplined working capital management enabled free cash flow of nearly $250 million and cash and short term investments of over $790 million and no borrowings exiting the year.
Our profitable growth trajectory and fortress balance sheet have given our board of directors the confidence to approve a quarterly cash dividend increased our stock repurchase authorization and returned to our pre pandemic capital allocation strategy.
Fourth quarter net sales declined 4% and diluted earnings per share declined 14% year over year.
Merely reflecting the ongoing negative effects of the COVID-19 pandemic, partially offset by the benefit of later timing of fall 'twenty and 'twenty shipments that we referenced and our third quarter earnings release.
Emotional pricing activity and the quarter was less than expected, resulting in gross margin expansion.
On a 50 basis points compared to fourth quarter and 2019.
I would note that fourth quarter 2020, operating income includes $18 1 million and retail impairments and store closure charges and $17 5 million and prana trademark impairment.
Wholesale net sales declined 5% and the fourth quarter driven by earlier actions to curtail purchases of fall 2020 inventory in conjunction with wholesale customer order cancellations and lower consumer demand, resulting from the pandemic.
This was partially offset by later timing of fall 2020 shipments I'm encouraged by the strong fall 2020 sell through rates and our wholesale partners are well positioned to exit this season with clean inventory positions.
DTC net sales declined 3% driven by lower brick and mortar sales, partially offset by strong E commerce growth.
And the fourth quarter, our ecommerce net sales increased 41% and represented 23% of the total net sales mix.
As a reminder, we went live on our new mobile first ecommerce platform X, one and North America for the Columbia, Sorel and mountain hardware brands during the third quarter I'm pleased to report the X one platforms performed exceptionally well during the peak season.
And contributed to improved site performance and conversion for.
For the full year net sales declined 18% and earnings per share declined 66% year over year, primarily reflecting the negative effects of the COVID-19 pandemic.
A bright spot for the year was our DTC E Commerce, net sales, which grew 39% year over year and represented 19% of the total net sales mix.
If you include our partners wholesale online businesses, along with our own E. Commerce sites, we estimate online sales were over 30% of our global net sales mix in 2020.
Investing and supporting this growth across both our E commerce sites and wholesale partner sites is a top priority for us.
And we know that when the Columbia brand is democratically offered across our broad distribution.
<unk> choose our innovative products.
As we begin 2021, we're encouraged by the building momentum across our brand portfolio, which is reflected in the continued robust growth of our ecommerce channel as well as a meaningful recovery and wholesale orders for the spring and fall 2021 seasons.
That being said, we're also facing several operational headwinds and unknowns, resulting from the ongoing pandemic.
And there is tremendous uncertainty regarding the timing and effectiveness of global efforts to contain the spread of COVID-19.
We are also facing industry wide supply chain and logistics capacity constraints that are resulting and later receipts and customer deliveries of spring 2021 production.
Additionally, brick and mortar traffic trends remained depressed with stores and destination locations and tourist dependent markets remaining some of the hardest hit.
We anticipate traffic and these markets to remain depressed until international tourism is zone.
Yes.
Before detailing our strategy to mitigate these challenges and grow our business in 2021 and beyond I'd like to quickly review, our fourth quarter and 2020 financial performance.
Sales trends during the fourth quarter remained highly correlated to each market's management of the pandemic and consumers' willingness to shop in store.
And the U S fourth quarter net sales decreased 6%. This performance reflects a mid single digit percent decline and both wholesale and DTC net sales.
Stronger than anticipated consumer demand helped fuel strong wholesale reorders. Despite a warm start to winter that reduced early season outerwear sell through.
As colder weather arrived and December outerwear sell through accelerated and retailers are well positioned to exit the season with clean inventory positions recut.
And recovery curves across our broad distribution vary greatly with sporting goods and online retailers and leading the recovery and wholesale.
And DTC stronger than anticipated consumer demand drove high 30% E commerce growth and improved store performance. We are pleased to see that brick and mortar net sales decline moderate compared to the third quarter, but just channel remains under pressure.
Emitted tourism government mandated restrictions and growing consumer preference to shop online are all contributing to depressed store traffic levels.
From our review of International markets, I will reference constant currency year over year growth rates, which we believe best reflects the underlying business trends.
And our Latin America, Asia Pacific or L AAP region.
Fourth quarter net sales decreased 8% in Asia store traffic and sales trends continued to improve during the quarter with some weeks returning to positive year over year growth.
Looking at net sales growth and our direct markets, Japan grew low single digit percent Korea declined low single digit percent and China was down high single digit percent.
This marks a meaningful improvement and trend compared to the third quarter and the region is positioned to return to growth in 2021.
We know we have powerful brand recognition and China.
And that this market represents one of our largest geographic growth opportunities.
With that said recent trends show that were underperforming.
To unlock China's full potential over the long term, we're committed to supporting and investing in this region.
Last quarter, we announced that Franco from Gilead is leading the company's focus on our global omni channel experience, including oversight of Columbia brand sales in China.
Frank will be working to support and build strong commercial channel teams in China that will drive global brand messaging, while optimizing local product and marketing.
We have also made our regional leadership change and China and the search is underway for a new general manager.
L. A P distributor net sales decreased low, 50%, primarily reflecting lower spring 2021 orders as many distributors work through carryover inventory from the spring 2020 season that was heavily impacted by regional Lockdowns.
And our Europe, Middle East Africa, or EMEA region fourth quarter net sales decreased 18%.
Europe direct net sales grew low single digit percent driven by wholesale and E commerce growth, partially offset by a decline in DTC brick and mortar sales, primarily resulting from lockdown restrictions.
EMEA EMEA distributor net sales decreased high 50%, reflecting challenging conditions in several markets and later timing of spring 2021 shipments that have shifted into the first quarter of 2021.
As a reminder, distributor shipments our factory direct meaning we don't control the timing of shipments or related revenue recognition for this part of the business.
It's also important to note and a large volume of shipments typically occurs around year end, resulting in significant quarterly timing shifts year to year.
Canada net sales increased 37% and the fourth quarter benefited from the later timing of fall 2020 shipments and to a lesser extent robust E commerce sales.
Shifting to fourth quarter margin and profit performance.
Gross margin expanded 50 basis points year over year to 56% of net sales, primarily driven by favorable channel mix lower promotional pricing activity and favorable currency foreign currency hedge rates. This was partially offset by higher freight costs.
SG&A expenses were essentially flat compared to the fourth quarter of 2019.
During the fourth quarter of 2020, we realized approximately $30 million and SG&A savings from cost containment actions and lower variable expenses.
For the full year, we achieved our 2020 cost containment goal of more than $100 million of SG&A expense savings in comparison to last year before non reoccurring expenses and charges.
This performance resulted in an operating margin of 13, 5% of net sales down 100 basis points from the prior year.
Diluted earnings per share decreased 14% year over year to $1 44.
Moving to performance by brand.
Columbia brand net sales decreased 7% and the quarter due to earlier actions to curtail inventory purchases in conjunction with order cancellations and retailers had significantly less inventory on hand entering the season.
Consumer demand ultimately and exceeded our expectations, resulting in strong wholesale reorders and sell through rates.
While a warm start to winter and the U S reduced early season outerwear sell through.
Trends improved in December as colder weather arrived globally I would characterize whether for the fall 2020 season as within the band of normal to favorable for most of our key markets.
By category consumers' interest and polypore styles was quite strong as consumers shopped with their at home routines and mind.
And our insulated styles like women's Heavenly and subtle mountain Jackups were top sellers.
And footwear classic styles like the new bridge and winter boot lines, including the Fairbanks Bugaboo ice maiden and mix were top performers.
Overall strong season to date and sell through rates and cold weather in early 2021 are helping retailers exit the season with clean inventory positions. This creates a favorable backdrop for the fall 2021 order book and season.
In December we launched our fifth annual Star Wars collection. This year's collection based on the hit Disney series demand Delorean was our most extensive to date with several styles for adults and children.
<unk> generated a phenomenal response from our consumers with many styles selling out and the first hour.
Our efforts to promote the collection earned dozens of online and broadcast placements and creating over 300 million impressions across media and social channels.
Columbia's innovations received several media call outs and awards during the quarter.
Columbia is new omni heat black Dot technology was highlighted by several outlets, including gear Junkie Forbes Women's wear daily U S weekly and was honored by popular mechanics as one of the 100 greatest innovations of 2020.
Outerwear styles from our ski collection, including the peak pursuit women's Alpine crux and autumn Park down jacket were highlighted by several outlets, including ski magazine men's health and outside magazine.
And footwear outside featured the fascist 45 out dry and the epic gifts for Ocean attics and.
And their holiday gift guide.
Gear patrol featured the hyper boreal omni heat boot and their article on the best boots or winter Adventures.
During the fourth quarter, we continued to prioritize digital marketing spend including mid funnel investments to further attract active customers and propel online sales growth.
And we took a digital first approach to creative assets and leverage this content across digital and social media platforms around the world.
For the year Columbia, DTC E Commerce business grew 39% and represented 15% and the brands total net sales mix.
On the marketing front, we featured social media outflow answers to tell differentiated brand and product stories and throughout the quarter.
In addition to our omni heat 10th anniversary and warm smarter campaigns.
We had several more targeted marketing events, highlighting our new fashion footwear collection, our popular PFG line and winter ski assortment.
And 2021, I look forward to strengthening Columbia ties with Bubba Wallace as he embarks on his first season with this new team 23, 11, whose principal owners include Michael Jordan and three time, Daytona 500 winter Denny Hamlin and.
In addition to creating brand heat at key races, we will be sharing and new project with National Geographic Creative works. This fall highlighting bubbas outdoor pursuits.
Turning to our emerging brand portfolio. It was quite encouraging to see all three brands returned to growth and the fourth quarter with signs that momentum is building into 2021.
Sorel net sales increased 5% and the quarter led by E commerce growth that reflected strong underlying brand momentum and consumer demand Sorel.
<unk> was our strongest performing brand in 2020 with net sales down only 7%. Despite the challenges presented by the pandemic.
For the year <unk> DTC E Commerce business grew 44% and represented 31% of the brand's total net sales mix.
In 2020, as the pandemic took hold and consumer brand affinity for Sorel Murray remained high and demand shifted towards personal collections such as kinetic sneakers.
Sandals and classics slippers.
And for the full year Sneaker category net sales led by the kinetic collection grew nearly 200% year on year on Sorel is North America E Commerce sites.
Successes and these new categories validate Sorel is evolution beyond its legacy winter utility business to become a year round function first fashion footwear brand.
Corona was our strongest performing brand and the fourth quarter with net sales up 11%.
Top selling categories from the quarter included fleece, fitness apparel, and flannels and as consumers shop for their at home routines.
Growth in the quarter and throughout the year was led by E Commerce.
For the full year promised DTC E Commerce business grew 37% and represented 47 per cent of the brand's total net sales mix.
This growth included record new customer acquisitions.
It's clear that promised commitment to being an industry leader and sustainability and its mission to create clothing for positive change is driving new consumers to the brand.
As we begin 2021, I believe prana is uniquely positioned at the intersection of four growing consumer trends.
Rising participation and outdoor activities.
Conscious consumerism.
Sustainability and growing demand for yoga and active apparel.
This spring prana is continuing to strengthen its commitment to sustainability with the introduction of re Zion.
This next generation of the brand's best selling stretched die on fabric delivers the same elevated performance refined style and versatility of its predecessor with the sustainability benefits of recycled nylon and PFC free durable water authority.
Okay.
Mountain hardware and net sales increased 7% and the fourth quarter led by E Commerce growth for the full year Mountain hardware DTC E. Commerce business grew 31% and represented 25% of the brand's total net sales mix.
The investments we've made in recent years and the mountain hardware Reenergized product line and modernized messaging and look are clearly sparking consumer and retail interest.
Looking at the fall 2021 order book strong growth at key wholesale accounts as well as meaningful new distribution demonstrates retailers are embracing the brand's direction.
In 2021, not and hardware team is focusing on driving U S wholesale growth and sustaining E commerce momentum.
Unlocking the brand's full potential and these two important domestic businesses is the first step to realizing the brand vision of becoming the most desired mountain sports brand and the world.
I would now like to review our key areas of focus for 2021, and our financial outlook before opening up the call for questions.
It's clear the pandemic has changed consumer shopping behavior and we.
We believe many of these shifts including a greater consumer preference for online shopping we will remain intact long. After COVID-19 is contained.
And all aspects of our business operations are being impacted and our distribution channels around the world are evolving.
This is creating both disruptions and opportunities as.
And as the consumer marketplace evolves, we are adapting our business model to capture demand and unlock our brands portfolio's full potential as.
As we planned 2021, there are a few key areas of focus I'd like to highlight.
First we're committed to creating products that inspire active consumers.
The products and the foundation of our success for.
For the Columbia brand and we know that when we provide consumers innovative products that keep them warm dry cool and protected and and exceptional value we win their loyalty and business.
We achieved this with our differentiated technologies, many of which are developed in house and exclusive to our brands as.
As the pandemic took hold and we did not back down on our investments on our investments and product design and innovation and I'm excited about the robust pipeline of innovative products that we have for many seasons to come.
Looking to 2021, we're launching several new exciting innovations.
This spring, we're launching our newest and most advanced cooling technology to date on.
On the free zero ice.
And this touch activated cooling fabric takes on the heat before you start sweating Boyle and improved sweat activated pattern enhances moisture management and evaporative cooling.
This fall we are launching omni heat infinity.
We expect this to be the largest innovation launch in our company's history.
And early retailer feedback and orders have been incredibly encouraging.
And this new addition to our omni heat family provides significant more heat reflection and dramatically different visual appearance to the consumer.
With our product focus footwear is a top priority across both the Columbia and Sorel brands.
I've always said that footwear should be the companys largest category and we've been investing to realize this potential.
We have elevated and our footwear design and merchandising capabilities, resulting in encouraging results across both Columbia and Sorel and recent years.
This momentum remains evident and our spring and fall 2021 order book.
We're also committed to investing and demand creation to leverage our compelling brand portfolio and to connect with consumers.
Given the confidence and our brand portfolio, we anticipate demand creation, increasing as a percent of sales to 6% in 2021 compared to five 7% and 2020 and five 5% in 2019. This represents the highest level of demand creation investment.
As a percent of sales and our history as a public company.
Within our demand creation spending we are prioritizing digital marketing and social media investments to amplify our brand messaging and create clear paths to purchase.
In 2021, continuing to build digital expertise is a priority.
Prior to the pandemic, we were already investing to enhance our digital capabilities with the X One initiative.
Our 2020 E Commerce growth has only increased our confidence that the investments, we're making and digital capabilities.
Are critical to driving sustainable and profitable long term growth.
We're also recalibrating, our DTC brick and mortar strategy to reflect the current retail environment.
In 2020, and closed 13 underperforming stores and the U S and one on Europe.
These were primarily full priced branded stores.
And 2021, we plan to selectively resume opening stores, where market conditions and favorable lease terms and create an attractive return profile.
We currently anticipate opening approximately eight stores and the U S, primarily consisting of outlet stores and the.
The number of stores may increase as we finalize ongoing lease negotiations and evaluate the best opportunities.
We are also committed to investing in talent across the organization.
We recently announced skip partners, joining the company as our Chief Digital Information Officer.
And this newly created role skip will be responsible for leading Columbia as global technology, and technology organization, who will play a pivotal role and evolving our digital footprint and omnichannel and supply chain capabilities across the enterprise.
On a related note we were thrilled to recently welcomed John Culver to our board of Directors John has been instrumental in driving international growth at Starbucks, where almost 20 years, we're excited for him to bring that knowledge and expertise to our board of directors as we continue to focus on unlocking our intern.
National Omni channel growth opportunities. Mr. Culbert also brings a deep understanding of the consumer and consumer trends, including digital transformation, which we hope to leverage during his service on the board.
Yeah.
Turning to 2021 financial outlook.
This commentary includes forward looking statements. Please see our CFO commentary for additional details and disclosures related to these statements.
Our initial 2021 outlook contemplates, 18% to 20% net sales growth to approximately $3 billion with growth growth across all four brands.
This net sales outlook is based on spring and fall 2021 orders and indicated returned to growth and our wholesale business with.
And with notable strength in the fall 2021 order book.
Other items contemplated in this outlook included continued DTC E commerce growth and and returned to growth in DTC brick and mortar sales.
Recovery and brick and mortar sales factors and the benefit of lapping prior year store closures as well as gradual fundamental improvement over the course of the year.
From a category perspective, we anticipate the year over year growth rate of footwear to be relatively similar to apparel and 2021.
We are working to overcome challenges with our footwear manufacturing partners capacity and capture as much of the anticipated demand as we can across both the Sorel and Columbia footwear businesses.
Gross margin is expected to expand approximately 110 basis points to 50% and we expect SG&A to grow slower than net sales <unk>.
Combined we expect operating margin should be and the range of 10, eight to 11, 5% compared to the operating margin of five 5% and 2020.
This resulted and initial diluted earnings per share outlook of $3 75.
And to $4 five.
We are forecasting approximately $240 million and free cash flow and 2021, and we are acutely focused on managing inventory levels and improving turns.
Capital expenditures are expected to be between 60% and $80 million.
Looking at the first half of the year, we believe high teens percent to low 20% year over year net sales growth and the first half of 2020 was achievable.
Looking at the later timing of spring 2021 receipts and deliveries, we expect net sales growth to be heavily weighted into the second quarter.
Industry wide constraints on ocean transportation, including vessel and container shortages are resulting and later selling season.
When compared to 2020.
Our supply chain and logistics teams are working diligently to mitigate disruptions.
As I referenced earlier and the call based on the strength of our balance sheet and confidence and our long term growth and earnings recovery. The board of directors has approved the company's quarterly dividend and its pre pandemic level of 26 per share.
We have also approved an incremental $400 million share repurchase authorization, which is in addition to the $82 million remainder under our existing share repurchase authorization.
We are also reinstated our historical approach to capital allocation.
And this framework our top priority for cash is continue to invest in our business to enable long term profitable growth on.
Our second priority is to return at least 40% of annual free cash flow to shareholders and the form of dividends and share repurchases with an aspiration to increase our dividend overtime.
Other uses of cash include opportunistic mergers and acquisitions.
In summary, I am confident and strategy that we outlined today and encouraged by the fundamental recovery underway.
We are committed to driving sustainable and profitable long term growth and.
And investing and our strategic priorities.
And to drive global brand awareness and sales growth through increased focused demand creation investments.
We will enhance consumer experience and digital capabilities and all of our channels and geographies.
Expand and improve global direct to consumer operations with supporting processes and systems, and invest and our people and optimize our organization across our portfolio of brands.
Okay.
That concludes my prepared remarks, we welcome your questions for the hour operator could you help us with that.
Thank you.
And I will now be conducting a question and answer session.
And if he would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate that your line is and the question queue.
One moment, please moving now poll for questions.
Our first question comes from Bob <unk> with Guggenheim Securities. Please proceed with your question.
Hi, guys.
Good evening Bob.
And.
A couple of questions actually I think well first of all congratulations on a strong finish to the year and and.
And on a.
Very solid outlook.
For 'twenty one.
And I'd like to ask a couple of questions on 'twenty, one if I could just sort of unpack it a little bit.
On so on the order books for fall and for the spring.
Where are you like how much of it is completed and I think you've got some pretty good visibility it sounds like in the fall with the new technology can you just give us any numbers around that aspect of it and I guess the second question I have related to the 'twenty one outlook is just.
What's the E commerce penetration that you contemplate or like is there a range for the full year, just a little bit more color on some of the buckets would be pretty helpful to us.
And certainly well.
As you know Springs Springs Order book for 'twenty, one is essentially in the bag.
We get orders and cancels every day.
On both seasons, but for all intents and purposes spring has done and in the books.
Paul I would say by March will be over 90% done today is probably on the and the eighties, maybe higher than 80%.
So we have a high degree of confidence and the and what we're talking about today in terms of what 'twenty, one is going to look like.
In addition, we talked about the launch of omni heat Infinity, which is dramatically improved.
On.
<unk> product for for Omni heat and we're very excited about the opportunity that is going to bring and it gives us gives us a lot of confidence and our and our view of 'twenty, one, especially on the back half.
The E comm percentages.
And that we're talking about really will depend on the length and.
Transparent links and direction of closure store closures.
Around the World and I think our best view today is that it will mirror last year's penetration and that range and.
And that could be increased I suppose if we if we don't have openings as.
As expected across the globe or contract a bit, but and all for all intents.
And purposes, I think consumers are getting very comfortable with buying online and I think the penetration of that business will be about the same as it was in.
In 2000 and.
And 20, now that and that said, we just have to remind investors that the company does have a significant amount of business with wholesale partners, who run E com businesses and.
Those are growing nicely. So it may be that the combined.
Wholesale digital and Columbia, DTC digital businesses May take us slightly larger portion for next year.
Great. Thank you very much Tim Thanks, Bob.
Okay.
Thank you.
Our next question comes from Laurent <unk> with Exane BNP Paribas. Please proceed with your question.
Good afternoon, and thank you very much for taking my question and congrats on the momentum.
Jim I'd love to ask about the <unk> guidance I saw that you upped it up a little bit from last last quarter was high.
Hi team and now this kind of 20% range.
Is it fair to assume as we think about <unk> dynamics, and maybe <unk>, probably in the mid single digit range or potentially higher.
Well I think the.
As we commented and Mike and the commentary that we provided Lora and you can dig and the details there given some of the delays that we're seeing on inventory receipts for the spring 'twenty one season and they have some impact on the deliveries from our wholesale business as well and our direct to consumer business.
We believe today that the growth that we've got projected for the first half is going to be very heavily weighted to.
To the second quarter, So I think I.
On factor that in in terms of how you look at.
Q1, and Q2 and and then in terms of the improvement we've seen from our prior <unk>.
Guidance that we provided from high teens, and and we've shown a little bit upside relative to that I think that is demonstrating.
The continued steady recovery that we've seen in the business, including our brick and mortar, albeit it's still got a ways to go we're seeing.
Nice trends with regard to on the improvement in traffic and sales level.
Very helpful and then as a follow up question.
I appreciate that you give us your giving us full year guidance and a very uncertain environment. It looks like for Q H 'twenty. One the implied guide is is up mid teens.
Yes, I'm trying to reconcile the comment about just notable strength in the order book for fall 2021, and then secondly.
How do we think about the gross margin evolution over the course of the year high level.
But as it relates to the second half I don't think Theres, a noticed noticeable difference between the growth rates that we would project for the second half and what we're saying for the first half while the first half is high teen to low 20.
Per cent.
The vast majority of our business is more.
More significantly weighted towards the second half I would expect that growth rate to remain at that level and it would be consistent with tims comments with regard to how encouraged we are in the order book, it's come through from our from our wholesale business and then as it relates to gross margin and I don't I don't want to get into parts and that up by quarter at this stage.
We're pleased with the progress the company's made with regard to how we're managing the margin I think if you look at it relative to 2020, we're up 110 basis point projected and were up over 2019 as well.
And so I think that's on the back of a lot of hard work that our product creation teams and whatnot and have done and there is some favorable product costing and there and some benefits from more full price and some shifts and channel mix.
Okay very helpful. Congrats on the momentum thank.
Thank you.
Thank you.
Our next question comes from Alex Perry with Bank of America. Please proceed with your question.
Hi, Thanks for taking my question and congrats on a strong quarter.
Just first on the fourth quarter.
Youre able to take market share during the quarter, given lower competitor inventories versus your ability to service Reorders and is that something youre seeing here as we move and in the first quarter as well.
Yes, I think we had a bit of improvement and our market share view against what we would consider typically our branded competitors, we did see a bit of slip against R. R.
And our customers private label businesses, because if you remember they were not really able to cancel any.
Of their own private label merchandise coming in but they were able to reduce the brands that they had.
And coming in so we felt like we had a great year and we finished up strong and.
Especially against our typical competitors, but there was a bit of.
<unk> against retailers private label, Yes, and Alex I would just add and then our reorders trend throughout the fourth quarter was pretty solid and all the way through and I think that.
Part and demonstration of the sell through rates and just the co.
Finally on us of the overall channel inventories.
That's really helpful. And then I just wanted to follow up on a share of the prior questions and maybe can you just help us parse out exactly what is driving the strength and the fall 2021 order book and is that being helped by the omni key Infinity launch is there can you.
Just help us think through whats driving that particular strength youre seeing there.
Certainly well.
<unk> performance for the brand across the fourth quarter was certainly helpful. Because we took the bulk of our orders.
From the period forward first of December through.
Today.
So certainly the performance at retail of the brands.
Gave us a lot of strength again omni heat infinity is a unique product not available anywhere else from any other brands. So we had.
Distinct points of differentiation that we talk about so much.
Specifically in that area and then the great weather.
Outerwear and winter footwear, which has basically been present across the northern hemisphere.
Four.
Much of December and certainly almost all of January so theres really clean inventories the channels very receptive to winter merchandise and.
And that so I think those things.
Strong indicators and and improves our.
Solid backlog.
I would just add it's very broad based growth.
When we look across each of each of the brands and and certainly Columbia lead the way given the sheer size and whatnot, but.
We're very encouraged particularly and the emerging brand space and it's Ralph.
On a strong track record and <unk>.
And as momentum, but also on the case of the growth that we anticipate from mountain hardware and from and Prana and order book who've taken from them and then from a categorical standpoint footwear has been a strong category for us but.
Apparel growth rates will be every bit every bit as much as or as strong as what we're anticipating from a footwear standpoint. So all in all I'd say pretty broad based growth across brands categories and regions for that matter.
That's really helpful and can I just sneak a really quick follow up here just on the category growth between footwear and apparel.
I think traditionally footwear.
Been a relative outperformer, but it sounds like this year, it's going to be pretty balance and I think you mentioned.
Footwear manufacturing capacity constraints and being one of the limiting factors there.
Should we think about that categories potentially how much is that limiting the footwear growth and 2021 and would that be growing faster for sure.
Wasn't the first and the constraints youre seeing there.
Yes, we think we would have some faster growth but.
This we believe is fairly short term.
The constraint.
Got lots of great product and the pipeline and really this is a bit of a function of the.
The impact of the pandemic on these very large factories that are making footwear for the company and for others.
No.
We believe it is a short term impact but.
Over the long term.
And that we still believe that footwear should be the largest product category for the company.
Perfect very helpful. Thanks, again, and then the buckets you finish out the season here.
Thank you.
Thank you.
Our next question comes from Camilo Lyon with <unk>. Please proceed with your question.
Great. Thanks for taking a question and Mackenzie points and on park.
And.
And my first question and just to do performance.
By geography any detail you can provide.
And then really impressive growth and Canada, given the Lockdowns and then any detail on Europe, as well and Howard on geography, and Theyre performing on into Q.
Thanks.
Yes, I think as it relates to the quarter. One thing you have to keep in mind and Tim touched on it there are some shifts regarding the delivery of our wholesale shipments.
Out of the third quarter and into the fourth quarter. So when you look at Canada. As an example, with the 36 or 37% growth a lot of that was aided by some later shipments and then E Commerce I would say across the board geographically was.
A solid solid growth from that channel and then aside from that I think on timing shift in addition to impacting Canada I think the U S was the other geographies. It was the most impacted by that.
Aside from that I don't think theres any other significant callouts that I would make with regard.
Regional changes.
Great. Thanks, and then just a follow up on the prior question.
I saw on very strong this quarter, obviously bad debt and moderate slightly from last quarter. So I'm just trying to understand.
And your stores reopen and have you seen any digital sales sales flow at all and how do you think about it heading into F. 'twenty, one, especially with the vaccine or allowed inventories and reopening.
On the opening and consumers are feeling more comfortable shopping.
Yes, I think it's yet to be determined or invest the largest investments. The company has made in 'twenty.
From a capital perspective, we're in our digital space and so we've become much more adept at interacting with consumers digitally people, obviously you feel more comfortable.
Shopping digitally today.
And I think they get a better experience as it relates to our products, we are able to much better explain them and some of it and we're quite complicated so.
Our expectation is that over time, we're still going to have a very large digital business and the pace of our of our brick and mortar.
Sales as well as our sales to retailers, who are who have primarily brick and mortar stores is really going to be determined by how and.
How open they are.
Which means and how.
How broadly dispersed and vaccine distribution is.
Thank you best of luck and 'twenty 'twenty one.
<unk>.
Yes.
Thank you.
Our next question comes from John Kernan with Cowen. Please proceed with your question.
Hey, good afternoon, guys and congrats on a nice.
We ended the year and certainly the confidence you're showing and the outlook for 2021 much appreciate it.
And maybe we could talk to the digital business within DTC I know that pre COVID-19.
And whether it was project connect or the ex one initiative you were making a lot of investments and digital and DTC and general I'm, just curious where we are and the evolution of the digital platform and where.
Do you think the long term economics of the digital business skill set.
Well.
We still consider ourselves.
At our.
And that are core to be a wholesale company. So our focus always is going to be on how our products show up at retail or in AR.
And Ah set environment that our that our wholesale partners might provide that hasnt been said.
Our clearest view and are the brand's most.
Most important <unk>.
Visibility to consumers is going to be on on the digital space that we are able to to craft ourselves and so that's why we've made such heavy investments.
In digital space, I would say that I would give ourselves perhaps maybe.
A b minus in terms of what we can do with our digital communications with customers.
And so there's lots of lots of runway for us to get better.
We will continue to make investments and that area and.
Some of it is going to be key.
Content related some of it's going to be.
Performance across the social space and getting more integrated into the and beats.
Between the companies, where AD messages and the and the digital.
Messages are contained in our website and E mail messages.
And it's really will give us a real.
Additional leg up.
It's going to be interesting with skip hires.
Experience to help us.
Positive.
Growing.
Go forward basis on on that.
Net and really how we look at at the web <unk>.
Investments.
We have based.
Basically industry average.
And conversion rates, which means.
Many millions of people come and visit our site with a great marketing message. So I mean, there's lots of great things about.
And the digital business, which.
Which are going to be really supportive of the brick and mortar business as well and John I mean look and just strictly on the economics of the operating margin do we generate out of our E commerce business, even with the significant investments that we've made in the last couple of years.
Our still highly accretive much better than the overall corporate operating margin and now they rival where we are from a wholesale margin standpoint, and so we will continue investing where we believe there is strong returns to the business.
That's helpful. Thanks, and just maybe.
One final question on PFG, and Sorel and to the growth year and smaller brands relative to Columbia any comments on PFG and the growth potential.
You want to take this brand long term outdoor certainly seems like it has a lot of tailwind along with fishing and general.
Yes.
And our PFG is really a Columbia brand, it's a sub brand with <unk>.
<unk>.
But fishing is the largest single.
Category of participation and the United States and so and.
And area, where we have a significant.
Lead on many competitors as it relates to two innovative apparel, whether its sun protection or just per.
Performance apparel for fishing.
And it's also had a very strong opportunity for lifestyle.
And so there's lots and lots of runway on that on that product category and it's.
Extremely popular and the southeast.
Those areas, where the weather is conducive and.
And we've had population growth and that and that area. So very excited about it.
Just.
Barely touching the surface of the opportunity and PFG footwear.
If we get sales many shoes as we sell fishing shirts, we would be a very big business. So.
And that's the plan and as it relates to Sorel.
The really encouraging thing about Sorel was the popularity of the sneaker category for them, this year, which which really.
Shows us the brand strength beyond winter footwear, so lots of good stuff going on.
Got it thanks, guys and best of luck and again and congrats on that strength strong finish to the year.
Thanks, John.
Okay.
Thank you.
Our final question comes from Paul <unk> with Citigroup. Please proceed with your question.
Thank you, it's Tracy Kogan filling in for Paul I had two questions and.
The first is I think over the last couple of quarters, you've mentioned and the lack of innovation by your competitor.
Wondering what your view of competition or the competitive landscape and currently and then secondly, I was just hoping you could give a little more.
Tail on your inventory composition, and how much of the reduction and inventory. This quarter was due to the timing shift and then on the aged inventory piece, which I think you said was up and just wondering if that level improved versus last quarter.
Yes so.
Well I prefer not to get specifics about our competitors' innovation.
But I can tell you more about hours, where and this is an area, where we've invested very heavily and we consider to be the key point of differentiation against other so I mean.
And it's quite common for.
Commodity brands like Gore Tex and.
And and other commodities that are used to produce apparel, especially performance apparel and be used we really have taken the approach that we want to have you.
Unique owner Bowl innovations and that's where we spent the bulk of our time and.
And.
So we have the.
And the omni heat.
Infinity that we talk so much about on today's call as well as.
Items to keep people cool and it's warm and as we know the climate is an important topic.
It's why we think we're and apparel that can keep your cool can help us.
Rely less on on artificial air conditioning, so omni freeze zero ice, which is a new product and we washed and spring.
These kinds of commodities can allow us to be very significantly different.
I'll ask Jim to talk to <unk>.
Try and get to Europe.
Yes, I think as it relates to inventory and the down 8% year over year. So if you adjust for the later receipt of our spring inventory later production of our spring inventory, we still would have been up it would have been up a low single digit to mid single digit percent. So there's still obviously plenty of room for us to.
Prove our operating efficiency and our inventory turns as it specifically relates to the.
And the position of our aged inventory versus last quarter. We've seen we've seen steady improvement I'll have the exact figures, but steady improvement in terms of.
Our aged inventory levels and remain comfortable with those and we're repositioning our outlets and part in terms of that being a more meaningful vehicle for us to closeout or to sell that inventory and then in addition, as we've talked about in the past.
A fair amount of our inventory that carries over season to season as well. So we've pulled back on some of our spring 'twenty. One production. This last year, knowing that we're carrying forward and over inventory from spring 'twenty.
Great. Thank you.
Thank you.
And there are no further questions at this time I would like to turn the floor back over to management for any closing remarks.
Well, we thank you for listening and today, we're very excited about the potential for.
Fault and spring 2021 were well positioned and we're anxious to see it rollout on the vaccine getting us back to normal times and.
And look forward to talking to you about it at the end of Q1.
Thank you.
Ladies and gentlemen. This concludes today's conference you may now disconnect your lines at this time. Thank you.
And you for your participation and have a great day.
Thanks Victor.
You're welcome have a great day gentlemen.
You too.