Q3 2023 Columbia Sportswear Co Earnings Call

Okay.

Greetings and welcome to the Columbia Sportswear third quarter 2023 financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Andrew Burns you may begin.

Good afternoon, and thanks for joining us to discuss Columbia sportswear company's third quarter results.

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

This document is also available on our Investor Relations website, Investor Dot Columbia Dot com.

With me today on the call are chairman, President and Chief Executive Officer, Tim Boyle.

They've vice President and Chief Financial Officer, Jim Swanson, and Executive Vice President and Chief Administrative Officer General Counsel Peter Bragdon.

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

These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward looking statement is subject to many risks and uncertainties and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's SEC filings.

Caution that forward looking statements are inherently less reliable than historical information, we undertake any duty to update any of the forward looking statements. After the date of this conference call to conform the forward looking statements to actual results or to changes in our expectations.

Also like to point out that during the call. We may reference certain non-GAAP financial matters measures, including constant currency net sales.

For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures.

Explanation of management's rationale for referencing these non-GAAP measures. Please refer to the supplemental financial information section and financial tables included in our earnings release.

Index of our CFO commentary and financial review.

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'll turn the call over to Tim.

Thanks, Andrew and good afternoon.

Third quarter results reflect a continuation of the trends you've experienced throughout 2023, our international direct markets continue to outperform the U S.

Our DTC business brick and mortar stores are performing better than the E Commerce channel.

Economic and geopolitical uncertainty remains top of mind for consumers retailers.

Overall, new generate 3% net sales growth in the third quarter, Canada, Europe direct in China, all delivered high teens percent or better year over year growth.

In the U S retailers continue to take a cautious approach to managing inventory levels and placing orders.

Super demand for soft goods, excluding apparel footwear remains weak.

Pleased to report the inventory exiting the quarter was down 16% year over year.

Without the year, we've been executing our inventory reduction plan.

I'm in Asia, lower inventory buys shipment of bullet points, Reorders and increased excess inventory sales in our outlet stores has yielded substantial progress towards our goal.

We've done this while generating healthy gross margins, which is a testament to the evergreen nature of our products.

We have a clear path to achieving our goal of reducing year end inventory by over $200 billion compared to last year.

As we head into our peak sales period and excited about the brand Activations in place for this holiday season.

For Columbia Amit.

Used to be one of the fastest growing parts of our business and is prominently featured in our marketing campaigns. This season.

In addition to our innovative warming technologies, the Columbia brand is executing several KOL apps, including the recently launched hundredth anniversary Disney collection inspired by Disney's vintage.

In the coming days, we will launch our latest Star Wars collection, featuring Luke Skywalker Iconix widespread re imagined as a fully equipped ski collection.

To promote the launch we will be leveraging Columbia brand Ambassador mobile wallets as well as a top Jedi master.

You'd be able to find the content on our social media channels.

To celebrate the 15th anniversary of the iconic terrible boot Sharelle recently opened 20 shop in shops at Nordstrom's, featuring key fall styles and unique three D. Sharelle polar bears created by local artists in each market.

<unk> also recently opened a bold new Brooklyn pop up store, featuring exclusive styles and interactive brand experiences.

This all mountain hardware launched it seek while they're past campaign, which reflects a comprehensive brand refresh.

Hardware Dot com has been redesigned and enhanced to bring the brands unique identity to life.

To celebrate the brands 30th anniversary those hardware released the heritage collection celebrating its most iconic styles.

Oh hardware also released a highly sought after co lab with the iconic street wear brand sushi.

As you can see we have a great lineup of brand and marketing Activations planned to engage consumers and drive sales this season.

Now await the arrival of cold weather.

The last several weeks have been unseasonably warm, resulting in a slower start to the fall selling season.

Based on third quarter performance and a more cautious forecast for the remainder of the year, we are lowering our net sales outlook.

Despite this net sales reduction our diluted earnings per share range is moving slightly higher reflecting a relatively unchanged margin outlook and a lower effective tax rate.

I'll provide more details on our 2023 financial outlook and initial 2024 commentary later in the call.

I'll now review, our third quarter financial performance net sales of $986 million were up 3% year over year net sales growth was balanced across our direct to consumer and wholesale businesses.

Within wholesale.

The approximate impact of timing shifts resulted in a $30 million benefit to net sales when compared to the third quarter of last year. This was relatively in line with our expectations heading into the quarter.

Gross margin expanded 70 basis points as lower inbound freight costs and favorable channel mix more than offset our inventory reductions across both wholesale and DTC.

SG&A expenses increased 10%, primarily driven by <unk> growth across our DTC business.

Demand creation investments and supply chain.

Diluted earnings per share decreased 6% to $1 70.

I will now review third quarter year over year over year net sales growth by region.

Let's review, our reference constant currency growth rates.

U S net sales increased 5%.

U S wholesale increased mid single digit percent driven in large part by on time fall 'twenty three shipments relative to late deliveries last year.

U S. DTC net sales increased low single digit percent.

<unk> order was up mid single digit percent driven by the contribution from new stores opened over the last year as well as incremental sales from temporary outlet stores.

U S E Commerce net sales were down high single digit percent the online environment remains competitive and promotional.

Latin America Asia Pacific region or.

Net sales increased 4%.

China net sales increased mid 20%, reflecting strong consumer demand across all channels.

Our team in China has done an excellent job of driving engagement with consumers in new ways that are authentic to Colombia.

During the quarter, we introduced new fall styles to our popular transit product line, our premium China specific product collection.

<unk> was prominently featured in our latest brand campaign in China, which included our new brand ambassador and in person and online brand experiences.

In October we built an entire Columbia brand nature exploration experience at Shanghai as Grand Gateway Mall.

Installation features for specific sectors.

Each cloud Glacier and jumbo.

Within each of these micro climates consumers were able to learn about colombia's warm dry cool is protected innovations and experienced them in action.

Our digital team brought the outdoors.

Consumers digitally.

The Columbia brand virtual reality homepage on T ball.

This immersive outdoor visual experience drove great traffic and consumer brand engagement on the site.

I believe the investments we've made in China to elevate talent and drive operational improvements are yielding results.

<unk> is expected to be one of our fastest growing markets. This year, and we're well positioned looking into the future.

Japan net sales increased low teens percent aided by earlier shipment of fall 'twenty, three orders and DTC growth.

This fall our team in Japan, and equity with consumers to reinforce our heritage through collections and events.

We're also driving energy through locally relevant partnerships like the recently launched co lab.

Tokyo based quality brands beams.

Inspired by one of Pfg's first products, the iconic multi pocketed fishing with the.

The collection of its users technical fishing aspects with beam style.

Launches garnered promising preorder results and is generating extensive media coverage.

We had net sales declined low 30% as we continue to reset the business for long term growth in challenging market conditions.

As we outlined on the last call management is focused on several multi year initiatives across Alan distribution marketing and product.

This process includes closing unprofitable doors and non brand enhancing wholesale accounts as we work to elevate distribution.

We believe these efforts will drive a deeper connection with consumers.

Fuel sustainable growth.

L. A P distributor markets were down mid teens percent, reflecting on time fall 'twenty, three orders, which shifted the timing of sales into the second quarter.

Europe, Middle East and Africa, or EMEA net.

Net sales decreased 21%.

Europe direct net sales increased mid 20% benefiting from earlier shipment of fall towards the product.

Robust DTC growth.

The consumer performance was driven by the addition of seven new brick and mortar doors over the past year as well as strong E Commerce performance.

As part of our strategy to elevate the Columbia brand experience at retail.

10, new shop in shops, with inter sport in France, and Germany. This year.

These enhanced in store displays secure space for the brand at an important strategic retail partner well.

Elevating the assortment presentation.

We are a direct has been one of the top performing markets throughout 2023, despite the positive momentum we're seeing.

Anticipate external headwinds will be more impactful to growth in the quarter.

Go ahead.

Our EMEA distributor business declined high 80%, reflecting the anniversary of shipments to Russia as well as a greater portion of fall 'twenty three orders shipping in the second quarter.

Canada net sales were up 38% driven by earlier shipment of fall 'twenty three orders as well as strong DTC brick and mortar performance.

Looking at performance by brand.

Columbia brand net sales increased 4%.

Including the benefit of earlier.

Sure.

This fall Columbia leads innovation story is omni heat infinity, which remains one of the fastest growing parts of our business.

We're building on last year's momentum with an expanded assortment.

<unk>, a new innovative double wall late construction double wall Lee provides enhanced performance with two layers of omni infinity bookshelves blocked win and traps warms.

We're also expanding the assortment of omni helix, our disruptive colleagues lease technology.

First of all Mark ATM.

Establishing excuse me, it's highlighting these differentiated innovations.

It continues to establish Columbia is the leader.

Right.

The campaign features support across paid media PR, social and E Commerce.

Moving spots on Thursday night football and the first ever NSO Black Friday.

On the partnership front.

We hope Disney celebrate their 100th anniversary with a new special edition collection, featuring Columbia gear inspired by vintage Disney artwork sell through of this collection has been outstanding with key styles with great selling out.

In the coming days to launch our latest Star Wars collection.

So I believe we'll get our most exciting yet Columbia of Lucas films.

Creative teams work closely together to re imagine Luke Skywalker Iconix slide two is a fully equipped ski collection.

The styles incorporate our proprietary technologies. So you can withstand the elements in this galaxy one far far away.

The promoter collections, leveraging our sponsorship of NASCAR team 2300, 11 and driver bubble Wallace.

Bubba has had a career here at 23 advancing into the round of 12 in the playoffs and generating significant coverage.

Rand.

Brands, Bubba NASCAR and Star Wars will be particularly interested to tune into the NASCAR Cup series Championship on November the fifth and.

In preparation for the race <unk> listed.

Listed the help of the top Jedi Master, who will make a surprise appearance in advance of the race.

In footwear, we launched a facet of 75 Alpha. This fall this modern waterproof hiker with trail running DNA received a men's health 2023, Sneaker award along with the PFG grow sport shoe.

This footwear remains the largest category opportunity for the Columbia brand and I am excited about the product pipeline, we have heading into next year.

Before moving to our emerging brands portfolio I'd like to welcome Woody Blackford back to the Columbia brand team as our Chief product Officer.

What he previously spent almost 14 years at Columbia.

What are your spearheaded teams that brought to market some of Columbia's both most innovative products and technologies.

Invented omni heat reflective in 2010, which has been the foundation for billions in sales across the omni heat collection.

I believe this comprehensive understanding of Colombia, and our consumers as well as his passion for product creation can help accelerate colombia's growth around the globe will.

Welcome back Woody.

Yes going toward emerging risks.

So well brand net sales increased 9%, primarily driven by earlier fall 'twenty, three shipments and higher wholesale closeout sales.

This fall the Sorel team is engaging with consumers, bringing products to life in new ways.

The brand recently opened 20 shop in shops at Nordstrom to celebrate 50 years of the iconic caribou boat and the launch of new carrier X collection.

Early season sell through the shop in shops has been very encouraging.

So relatively a pop up shop in Brooklyn includes an augmented reality experience where consumers can stand in front of the special mirror and see how they book in <unk> unique styles.

The brand also collaborated a singer Chloe Bailey on an exclusive terrible ex that was only available for purchase.

Now hardware net sales decreased 9% driven by full 23 wholesale shipments partially offset by DTC.

This fall not hardware is celebrating its 30th anniversary as part of the celebration mountain hardware wash it seek Wilder fast campaign, which reflects a comprehensive brand refresh.

<unk> Dot com has been redesigned and enhanced to bring the brands unique identity purpose and tone of voice.

Yes.

Mountain hardware also released the heritage collection celebrating its close iconic styles, including the exposure parka.

When stopped protect jacket and sub zero Dow Jack these.

These products pay homage to the brand's early style updated with today's fit fabric technology.

Non hardwood co lab with Iconix brand exclusive featuring several co label co branded products, including jackets trousers, and <unk> as well as the collection quickly sold out and meaningfully boosted traffic hardwoods.

So on a net sales decreased 18% in the quarter. The prana team remains focused on repositioning the brand for growth in future seasons.

Our new brand President Patricia Hume Award is quickly assessing progress opportunities and starting with that marketplace.

Central.

I'll now discuss our 2023 financial outlook.

This outlook and commentary include forward looking statements. Please see our CFO commentary and financial review presentations.

For additional details and disclosures related to these statements.

For the fourth quarter, we expect sales to decline, 5% to 10%, reflecting the wholesale sales shifting into the third quarter compared to last year.

Really offset by modest DTC growth.

Our fourth quarter net sales outlook incorporates the slow start to the fall selling season, we've experienced and a more cautious view on sales trends for the balance of the year.

We're forecasting fourth quarter diluted earnings per share to be in the range of $2 93 to $2 eight.

For the full year, we now expect net sales growth to be in the range of one.

One 5% to 2%.

Inclusive of a lower tax rate assumption, we forecast diluted earnings per share to be in the range of $4 45.

The $4 70.

We anticipate strong operating cash flow of approximately $500 million in 2023.

Inventory levels normalize.

While it is early in our 2020 for planning process I would like to provide some commentary on how we're thinking about the year ahead.

I am excited about the product pipeline and growth initiatives, we have planned to fuel demand in 2024.

For spring 'twenty, four we launched omni matched our latest performance innovation and footwear. This new platform provides personal cushioning enhanced stability and increased traction for hikers trail runners.

Yeah.

In apparel, we continue to build out an industry, leading portfolio of cooling and Sun protection technologies.

This spring, we will introduce omni shade broad spectrum airflow.

Offering exceptionally breathable Sun protection with omni with evaporation for fast dry next day skin comfort.

We will continue to invest in omni freeze zero ice our industry, leading cooling and moisture management technology.

The sweat activated cooling technology is featured in the number of styles and activity cabin years, helping to keep our consumers have the rollover for all of our pursuits.

In our quest to find better ways to help humans enjoy the outdoors and look to nature gets discovered new innovations.

All 24, we're launching an exciting new warming technology omni heat Arctic.

This new bio mimicry insulation system is inspired by how poorly bears keep warm in extreme conditions.

Arctic starts with a translucent outer layer.

Lets solar energy yet.

He has been transmitted to installation later closer to the body for a maximum warms mimicking the cologuard once protection systems. The result lightweight high efficient ones.

Boosted by solar power.

We're also investing in key franchises like PFG.

<unk> pioneered fishing apparel category and remains the leader today.

Through product enhancements.

Cutting investments in reaching new consumers.

Focusing on expanding our leading role with <unk>.

Leading market share in the fishing category.

To drive e-commerce growth and enhance the consumer experience.

We're investing in capabilities to enrich content increased.

Increased personalization and optimize our membership program.

We can make these types of investments during turbulent periods because of the strength of our diversified global business model and fortress balance sheet.

Can invest at long term growth opportunities at a time when financially constrained competitive about there.

Even with all the exciting product and growth initiatives plan for 'twenty four we know there will be challenges, particularly in the first half year.

Retailers continue to take a cautious approach to managing inventory levels and placing orders.

Here's a slowing consumer demand as well as the persistence of higher interest rates create leggate economic uncertainty.

The effect of these headwinds most pronounced in the U S and we're starting to see similar conditions emerge in our Europe direct markets Canada.

Geopolitical unrest is adding to the uncertainty.

As previously communicated with phasing our products designed with PFS chemicals across our global product line in 2024.

Our intent is to stop manufacturing any apparel or footwear with PFS prior to our fall 2004 season.

In the U S. We anticipate some retailers will choose to destock. The SaaS styles. The first half of the year before loading of the new styles designed with PSA as free chemistry, all 20 for.

This transition is expected to impact the flow of our wholesale business and how we and others manage through existing inventory.

We also expect our footwear business certainly in challenged through the first half of 2024.

Outdoor footwear category trends remained soft and inventories remain high.

Our spring 'twenty four order book reflects the culmination of these challenges.

As a result, we expect our global wholesale business to be down by a low double digit percent first half.

We expect this wholesale declines will be partially offset by continued growth in our global DTC businesses.

Total net.

Net sales declining mid single digit percent.

For the full year, we believe generating net sales growth is achievable as retail inventories.

Inventory levels normalized and retailers seem to restock products designed with PSA as free category.

And the environment excuse me in this environment. Our objective is to modestly improved full year operating margin 24.

Plan to provide more detail on the 24 outlook when we announce fourth quarter results.

February.

Overall, I am confident in our team our strategies and our ability to achieve significant long term growth opportunities, we see across the business.

We're investing in our strategic priorities.

To accelerate profitable growth.

Great iconic products that are differentiated functional and innovative.

Drive brand engagement with increased focused demand creation investments.

Dan its consumer experiences by investing in capabilities to delight and retain consumers.

Amplified marketplace excellent that is digitally led omnichannel and global.

And empower talent that is driven by our core values.

That concludes my prepared remarks, we welcome your questions for.

For the remainder of the hour operator could you help us with that.

Absolutely at this time, we will be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please.

While we poll for questions. Once again Thats Star one if you have a question or comment.

The first question comes from Bob <unk> with Guggenheim Bob. Please proceed.

Thank you.

Afternoon, Tim.

Tim do you guys.

I guess, Tim I have two questions that I have for you I think the first one is so what.

When you think about.

The next few months of dish.

Holiday season, and sort of what is upon us.

Can you just like with the.

Order book, where it is you're selling is where it is can you elaborate a bit in terms of how you see inventories at wholesale I mean at.

Operator: Greetings. Welcome to the Columbia Sportswear 3rd quarter 2023 financial results conference call. At this time, all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded.

At retail your wholesale partners and then I guess the second piece of this is when you think about your DTC business sort of in the fourth quarter, but also sort of in the 24, just how youre approaching it given a lot of the headwinds that are out there and sort of some of the uncertainty.

Yeah, Thanks, Bob well.

Andrew Burns: I will now turn the conference over to your host, Andrew Burns. You may begin.

This year has been really about inventory management for the company and that's been the focus for us and so we're prepared to have a great fourth quarter.

Andrew Burns: Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's 3rd quarter results. In addition to the earnings release, we finished 8K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our investor relations website investor.columbia.com.

As usual with Colombia, it's going to be a weather story, so we're expecting weather to be normal and.

Frankly, that's a global norm. So we've got places, where they will likely be colder than normal and some places where it may be warmer but.

Andrew Burns: With me today on the call, our chairman, president and chief executive officer Jim Boyle, executive vice president and chief financial officer Jim Swanson, an executive vice president and chief administrative officer in general counsel Peter Bracken.

I would expect it that we planned the business for basically an average year our partners. Our retail partners are well set up we delivered earlier this year than we did last year. So our expectations are that we're going to have a solid sell through.

Andrew Burns: This conference call with a forward looking statements regarding Columbia's expectations, anticipation, or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward looking statement is subject to many risks and uncertainties and actual results made different materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward looking statements are inherently less reliable than its total 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 to actual results or to changes in our expectations.

Bigger products for 'twenty three.

As it relates to 'twenty four.

We basically.

Operating a business that we grew.

Nicely with with local local calendar.

Tell us the spending with the company for quite some time, we've added up.

Professional to help us run the business in a better way.

David issue, we talked about last quarter and our expectations are that as we continue to improve.

Andrew Burns: I'd also like to point out that during the call, we may reference certain non-gap financial measures, including constant currency net sales. For further information about non-gap financial measures and results, including a reconciliation of gap to non-gap measures, and an explanation of the management rationale for referencing these non-gap measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review.

The way, we operate GTT DTC stores.

For the balance of 23 to 24, we're going to see some quite outstanding results frankly were doing quite well.

With the existing fleet, we know we can only improve.

And Tim as you think about the early spring order book, just any more color in terms of.

<unk>.

Andrew Burns: 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.

Pricing or anything in terms of is it all just sort of macro do you think that's impacting what you've seen from your wholesale partners at this point.

Tim Boyle: Now, I'll turn the call over to Tim. Thanks Andrew, a good afternoon.

Yeah, well I think there is.

There are some.

Tim Boyle: There's one little results to reflect. I can continue with the situation of the trends we've experienced throughout 2023. Our international direct markets continues to perform the U.S. Within our DTC business, brick and mortar stores are performing better than the e-commerce channel. The economic and geopolitical uncertainty remains top of mind for consumers and retailers.

For larger operations more Pan American operations there are.

Insurance that they want to manage their inventory levels that contain PFS.

Out of their business inventories, we wondered if the same thing so theres a certain cautiousness there.

And the expectations I think are going to be quite good for for the rest of the year.

Tim Boyle: Overall, we will generate 3% net sales growth in the third quarter. Canada, Europe, Direct, and China. We will do the same for the U.S, and China, all delivered high peens per cent or better year-over-year growth. In the U.S., retailers continue to take a cautious approach to managing inventory levels and placing orders. Consumer demand for soft goods, including a peril, what works remains weak. I'm pleased to report inventory editing the quarter was down 16% year-over-year.

Our expectations are that as as we continue to rollout these innovations.

In excel on these marketing activities that we talked about earlier today that we're going to have a solid year.

Rob and I might I might add a couple of the factors that are contributing to that order book being down certainly the outdoor footwear trend that we've seen this year, our business did a little bit soft in the footwear category. That's that's holding back the order both Tim touched on on the P fast.

Transition, that's having an impact and then to a degree, particularly with smaller customers that may have more liquidity constraints given the environment that we're operating in that that part of our business has been more impacted than when we look at certain of our larger strategic accounts.

Tim Boyle: Throughout the year, we've been executing our inventory reduction plan. The combination of lower inventory buys, shipment of both 23 orders and increased excess inventory sales in our outlet stores has yielded substantial progress towards our goal. We've done this while generating healthy gross margins, which is a testament to the evergreen nature of our products. We have a clear path to achieving our goal of reducing year end inventory by over $200 billion compared to here.

Great. Thank you very much.

Okay. The next question comes from <unk> <unk> with UBS. Please proceed.

Yeah.

So much for taking my questions.

Tim Boyle: As we head into our peak sales period, I'm excited about the brand activations in place for this holiday season. For Columbia, Omni Heat Infinity continues to be one of the fastest growing parts of our business and is prominently featured in our marketing campaigns this season. In addition to our innovative warming technologies, the Columbia brand is executing several colabs, including the recently launched 100th anniversary Disney collection inspired by Disney's vintage art. In the coming days, we will launch our latest Star Wars collection featuring loop skywalkers, iconic flight suit, reimagined as a fully equipped ski collection. To promote the launch, we will be leveraging Columbia brand ambassador, Bumble Wallace, as well as a top Jedi master. You'll be able to find the content on our social media channels.

I wanted to ask I think you mentioned at the end of the of your remarks, you saw some signs of headwinds merging in.

Europe direct in Canada, just wanted to maybe you could provide more details into that.

And then.

I'm talking about the P F a impact on the wholesale order book is there any way you can.

I'll explain a little bit more like.

Which regions should be more impacted maybe I'd like to think about like maybe some regions have.

Retailers, who are farther along in that no road inch transitioning out of <unk>. So that will be very helpful to understand as well. Thank you.

Certainly well.

We're seeing and as it relates to Europe, and Canada were seeing similar constraints that Jim mentioned on the capital.

Lower capitalized retailers that we have in those two markets and again.

Geopolitical disruption, including the war in Ukraine, specifically as it relates to Europe are having an impact.

Tim Boyle: This is how about the 50th anniversary of the iconic caribou boot. Surreal recently opened 20 shop and shops at Nordstroms featuring key fall styles and unique 3D Surreal polar bears created by local artists in each part. Surreal also recently opened a bold new Brooklyn pop-up store featuring exclusive styles and interactive brand experiences. This bold Mount Hardware launched its Seat Wilder Pass campaign which reflects a comprehensive brand refresh. Mounthardware.com has been redesigned and enhanced to bring the brand's unique identity to life. To celebrate the brand's 30th anniversary, Mount Hardware released a heritage collection celebrating its most iconic styles. Mount Hardware also released a highly sought after co-lab with the iconic streetwear brand Stucy.

As it relates to the PFS is.

There's really only two geographies.

In the world that have will have a prohibition beginning in 2025 on PFS.

And so it's possible to navigate these.

And sell product.

Are these too.

Where the products are prohibited.

But large multi state.

<unk> operations that wont.

A comment inventory across their entire fleet those are the areas, where they are being quite cautious on building inventories.

And then just to double back Mourinho as it relates to Europe, and Canada. I'd also note. When you look at our third quarter results consumer demand within our direct to consumer businesses each of those geographies.

Tim Boyle: As you can see, we have a great lineup of brand and marketing activations planned to engage consumers and drive sales this season. We now await the arrival of cold weather. The last several weeks have been unseasonably warm, resulting in a slower start to the fall selling season.

Still a plus 20% in local currency terms, so from a consumer demand standpoint still very healthy in most if not all or close to all of our international regions, where we're beginning to see some of that softness is looking out into the order book and just given the overall.

Tim Boyle: Based on third quarter performance and a more cautious forecast for the remainder of the year, we are lowering our net sales outlook. Despite this net sales reduction, our deluded earnings per share range is moving slightly higher, reflecting a relatively unchanged margin outlook and a lower effective tax rate. I'll provide more details on our 2023 financial outlook and initial 2024 commentary later in the call.

The conservative nature of how retailers are placing orders at this stage.

Okay.

Got it that's super helpful and I guess, just very quickly on when you talk about the you know the in your presentation about the number of stores I just want to make sure does that number include the temporary stores that you're opening and also how long are these temporary stores.

We will be operational.

Jim Swanson: I'll now review our third quarter financial performance. Net sales of 986 million were up 3% year over year. Net sales growth was balanced across our direct to consumer and wholesale business. Within wholesale, the approximate impact of timing shifts resulted in a $30 million benefit to net sales when compared to the third quarter of last year. This was relatively in line with our expectations, heading into the quarter. Rose Margin expanded 70 basis points as lower inbound freight costs and favorable channel banks, more than offset our inventory reductions across both wholesale and DTC. SGNA expenses increase 10%, primarily driven by expense growth across our DTC business, demand creation investments, and supply chain. Lootage earnings per share decreased 6% to $1.70.

I guess I mean the.

The purpose of it is to get rid of excess inventory. So I just want to make sure like how.

How should we think about those those stores once now that the cumulative presumably temporary stores are not reflected in the store count that we provided.

We haven't provided those for a variety of reasons either of these come in all different forms and shapes.

Sizes, and so they're really not comparable to looking at the existing store fleet. So that's why the store counts not included we've begun to extend certain of those leases through much of next year, knowing that we still have work to do in terms of getting our inventory cleaned up as much progress as we anticipate making by the end of this year there is still.

Continued efforts next year, coupled with I think.

The point around some of the feedback inventory certainly to the degree we have remaining unsold inventory, we would look to move that through our outlets that are profitable.

In a profitable manner similar to what we're doing this year.

Jim Swanson: I'll now review third quarter year over year net sales growth by region. For this review, I'll reference constant currency growth rates. US net sales increased 5%, US wholesale increased mid-single digit percent, driven in large part by on-time fall 23 shipments relative to late deliveries last year. US DTC net sales increased low single digit percent. Rick and Mortar was up mid-single digit percent, driven by the contribution from new stores open over the last year, as well as incremental sales from temporary out-of-the-source.

Got it.

Quickly what are the two regions that you mentioned before the.

Regarding the <unk>.

Maybe I didn't hear it but I just want to make sure I got those two as to where those two regions.

New York and California.

Oh, okay.

Those two states that those are the only two states that require.

<unk> free chemicals, and the effective date of that regulation is January one of 25%. So we have between now and then to work through the transition we're well down the tracks on this.

We will for beginning with our fall 'twenty four season, which we've commercialized and we're going to market on.

Jim Swanson: The US e-commerce net sales were down high single digit percent. The online environment remains competitive and promotional. Latin America Asia Pacific region or LAP, net sales increased 4%. China net sales increased mid-20%, reflecting strong consumer demand across all channels. Our team in China has done an excellent job of driving engagement with consumers in new ways that are authentic to Colombia. During the quarter, we introduced new fall styles to our popular transit product line, our premium China-specific product collection.

That product no longer we've designed it so that it no longer has.

Bass chemicals intentionally put into that product and so we'll be working through next year as retailers destock.

Any on hand inventories they have and then restock into.

The new merchandize thats going to create some of the challenges. When you think about first half second half from a growth rate standpoint, because part of that first half order book as soft as retailers begin to contemplate what they needed inventory and be able to sell down those.

<unk> styles and then our expectation is that they'll eventually begin to restock into that as our fall merchandise becomes available in the market.

Jim Swanson: The transit line was probably featured in our latest brand campaign in China, which included a new brand ambassador and in-person and online brand experiences. In October, we built an entire Columbia brand nature exploration experience at Shanghai's Grand Gateway Mall. The installation featured four specific sectors, each cloud, glacier, and jungle. Within each of these microclavids, consumers were able to learn about Colombia's warmth, dry cool, and protected innovations, and experience them in action.

To some degree while this is specific to California, and New York.

We are making this as conversions for our global product line and so to some extent.

While this is specific to New York and California. It does have a carryover impact into other geographies as they need to work through the same transition with all of their retailers.

Yeah.

Got it thank you so much.

Okay. The next question comes from Laurent <unk> with BNP Paribas. Please proceed.

Good afternoon, and thank you very much for taking my question I wanted to ask sorry, I'm going to be the next person ask them a P fast, but I think Jim.

Jim Swanson: Our digital team brought the outdoors to consumers digitally by launching a Columbia brand virtual reality homepage on T-Mole, this immersive outdoor visual experience drove great traffic and consumer brand engagement on the site. I believe the investments we've made in China to elevate talent and drive operational improvements are yielding results. China is expected to be one of our fastest growing markets this year, and we're well positioned looking into the future. Japan net sales increased low teens per cent, aided by earlier shiplets of fall 23 orders and DTC growth.

You've been you've been pretty clear about DFAST, you guys called it out.

Yesterday, I think you've talked about it it's in your 10-Q.

You guys had been had.

The.

I had heard this but.

What do you think are the implications I know you can't speak to other companies, but what do you think the implications are for the industry, where do you think you are.

In terms of phasing this out relative to the overall industry is this applicable to just outerwear or does it just go down will be down to two <unk> zippers and this is more of a broad industry.

Jim Swanson: This fall, our team in Japan is connected to consumers to reinforce our heritage through height collections and events. They're also driving energy through vocally relevant partnerships like to recently launch co-lep with Tokyo-based clothing brand B. James, Inspired by one of PFG's first products, the iconic multi pocketed fishing vest, the collection fuses technical fishing aspects with beam style. The launch is garnered promising pre-order results and is generating extensive media coverage.

Factors to consider.

Well yeah. So this is Jeff so just to be clear PFS has been around in.

Thousands and thousands of products all the way from food containers.

To medical devices, which are implanted in the human body. So this is not.

Just limited to outerwear this is.

This is an endemic across all sorts of stuff, including furniture and <unk>.

Tim Boyle: The re-init sales declined low 30% as we continue to reset the business for long-term growth in challenging market conditions. As we outlined on the last call, management is focused on several multi-year initiatives across talent, distribution, marketing, and product. This process includes closing unprofitable doors and non-brand enhancing wholesale accounts as we work to elevate distribution. We believe these efforts will drive a deeper connection with consumers in fuel sustainable growth. LAP distributor markets were down mid-teens percent reflecting on-time fall 23 orders which shifted the timing of sales into the second quarter.

Anti <unk>.

Anti stain paints issues as you mentioned in <unk>.

So these products are endemic in across all sorts of different products.

So I think we're well ahead in fact I know, we're well ahead of many competitors.

Especially those who are smaller.

So if we think about the size of our business and the amount of.

Opportunity we have.

Capacity to accept additional expenses as it relates to that.

Understanding the chemistry, applying the chemistry to our products et cetera.

And then managing where these products go.

After.

January 125, so that we don't.

We don't run afoul of these.

Tim Boyle: Europe, Middle East, and Africa, or DMEA, net sales decreased 21%. Europe, direct net sales increased mid 20%, benefiting from earlier shipment of fall 23 products and robust PTC growth. Directed consumer performance was driven by the addition of seven new brick and mortar doors over the past year as well as strong e-commerce requirements. As part of our strategy to elevate the Columbia brand experience at retail, we go with 10 new shopper shops with fingersport in France and Germany this year.

Issues.

We're well ahead.

There are other smaller companies, who are quite far behind Davidson some larger ones. So I think we're managing our business to the best we can and I think we're we've got a well organized.

I am proud of what the team has done to manage this.

This process.

Okay.

Helpful.

And then maybe I might have missed this just because we're juggling a bunch of earnings calls, but did you guys.

Talk to you talked a little about your spring order.

Tim Boyle: These enhanced in-store displays secure space for the brand at an important strategic retail partner while elevating the assortment presentation. Europe, direct has been one of the top performing markets throughout 2023. Despite the positive momentum we're seeing, we anticipate external headwinds will be more impactful to growth as it borders ahead. Our AMEA distributor business declined high 80% reflecting the anniversary of shipments to Russia as well as a greater portion of fall 23 orders shipping in the second quarter.

The reflection of the challenges maybe can you just kind of put a finer.

Point on that like how do we think about that for.

As we think about one H and is that reflect.

U S wholesale challenges or Youre also seeing that reflected above.

EMEA as well or other regions.

Yes, we commented on that.

Given the spring 'twenty four order book that we've now fully taken we anticipate our wholesale business globally via down a low double digit percent.

Tim Boyle: Canada net sales were up 38%, driven by earlier shipment of fall 23 orders as well as strong PTC and brick and mortar performance. Looking at performance by brand, Columbia brand net sales increased 4% included including the benefit of earlier fall 23 orders. This fall Columbia's lead innovation story is Omnihede Infinity which remains one of the fastest growing parts of our business. We're building on last year's momentum with an expanded assortment including a new innovative double wall elite construction.

Within that as you think about it from a geographic standpoint, knowing that the U S is where we've seen most of the softness and then you have some of the discrete <unk>.

Activity that we're talking about on the conversion of <unk>. The U S wholesale business declined at a faster rate than the overall global rate to a lesser degree are we seeing that in the case of.

Our European business and that our Asia businesses are actually still quite well performing those index a little bit more.

To DTC channels.

Taking that the outlook for our wholesale business and download the double digit and when we combine that with the expectation that.

Tim Boyle: Double wall elite provides enhanced performance with two layers of Omnihede Infinity which helps block wind and traps warmth. We are also expanding the assortment of Omnihede Helix, our disruptive poly fleece technology. Our fall market campaign is establishing, excuse me, is highlighting these different innovations and continue to establish Columbia as the leader and KVP. The campaign features support across paid media, PR, social and e-commerce, including spots on Thursday night's football and the first ever NFL Black Friday game.

Our DTC business continues to grow in the first half of next year, we believe that from an overall standpoint through the first half of <unk>.

Likely to be down mid single digit percent, we're still very early in our 2020 or planning processes. So we've not got any further than that in terms of what that might mean.

Operating income perspective would expect at least some pressure knowing that theres going to be in the top line to be down through the first half of the year and of course, it's too early for US right now to comment on the full year.

Okay. No. That's helpful. And then maybe to your point, it's Super early but maybe you could just talk about just the degree of flexibility.

Tim Boyle: On the partnership front, we help Disney celebrate their 100th anniversary with a new special edition collection featuring Columbia gear inspired by vintage Disney artwork. Self-through of this collection has been outstanding, with e-styles quickly selling out. In the coming days to launch our latest Star Wars collection, I believe will be our most exciting yet, Columbia and Lucas films, creative teams work closely together to reimagine Luke Skywalker's iconic flight suit as a fully equipped ski collection.

Around the P&L, what could you do.

In terms of pulling back I think.

Got a 5% marketing spend.

Anything that you would be willing to just are there are no sacred cows kind of approach.

Where profitability for <unk>.

As we transition through this <unk> P M.

Yes.

Transition.

Yes, Ron I think I.

I'd just like to make the comment that the company has been historically known as it incredibly conservatively run in.

Tim Boyle: The styles and corporate are proprietary technologies, so you can withstand the elements in this galaxy or one far, far away. To promote the collection, we're leveraging our sponsorship of NASCAR team 2311 and driver Bubba Wallace. Bubba has had a career year in 23, advancing to the round of 12 in the playoffs and generating significant coverage for his movie brand. Fans of Bubba, NASCAR and Star Wars will be particularly interested in the NASCAR Cup series championship on November the 5th.

And very focused efficient company.

You can expect that that will continue and that there are lots of levers for the company to use it to manage our SG&A spend and we will be using every one of them to maximize the return for our investors and not the least of which Laura as you'll recall one of the areas that impacted our P&L in a meaningful way this year is.

The elevated inventory.

How thats.

Added to our SG&A in terms of carrying costs that impacted our gross margin as well. So that is easily the top area that we're focused on getting those inventories back down getting our labor productivity within our operations at a more efficient level, because we know that that can drive meaningful improvement in the operating.

Tim Boyle: In preparation for the race, Bubba had listed the help of a top Jedi master who will make a surprise appearance and enhance on the race. In put, we launched the Bassett 75 Alpha this fall, this modern waterproof hiker with trail running DNA received a men's health 2023 sneaker award, along with a PFG Crow sports shoe. This footwear remains the largest category opportunity for the Columbia brand, and I'm excited about the product pipeline we have heading into next year.

The business going into next year.

Okay very helpful. Thank you. Thank you both and best of luck for this holiday season.

The next question comes from John Kernan with TD Cowen John Please proceed.

Hi, This is Alex Douglas on for John Thank you for taking our question I actually just had a quick follow up on.

Tim Boyle: Before moving to our emerging brand sport folio, I'd like to welcome Woody Blackbird back to the Columbia brand team as our chief product officer. Woody previously spent almost 14 years at Columbia. Woody spearheaded teams that brought to market some of Columbia's most innovative products and technologies. He invented OmniHeat Reflective in 2010, which has been the foundation for billions and sales across the OmniHeat collection.

Something you said in response to last question.

As it relates to the kind of the flow of those elevated inventory costs.

And what you might get back over the next couple of quarters.

How should we think about the magnitude and the timing of that or any additional color you could provide there would be extremely helpful.

Yeah. It can be it can be difficult to provide specific guidance in terms of how we think about that in FY 'twenty for what I would indicate is last quarter, we indicated that the impact of the elevated inventory on our operating profits here in 'twenty three it had about a 200 basis point impact on our operating profit and that's it.

Tim Boyle: I believe his comprehensive understanding of Columbia and our consumers as well as his[inaudible] Surreal's new pop-up shop in Brooklyn includes an augmented reality experience where consumers can stand in front of a special mirror and see how they look in Surreal's unique styles. The brand also collaborated with Singer Koi Lee Bailey on an exclusive terrible ex that was only available for purchase of the pop-up.

Combination of SG&A with the likes of outside storage labor costs, and then of course, the gross margin with the mix of excess excess product and SME.

SMU product that we do specifically for outlets and so there is a.

Looking out to 2024, there is 200 basis points of improvement over time, and what do we what to what.

What extent, we're able to capture all of that is dependent upon continuing to make progress on inventory I wouldn't think that we're going to get all of that.

Back and then certainly.

There are so many other variables in play when we think about 'twenty four from a profitability standpoint now between revenue.

Other other investments and other factors impacting the business I don't want to get into magnitude and flow of what that could potentially look like.

Okay. That's very helpful. Thank you.

Tim Boyle: Not-and-hardware net sales decreased 9%, driven by 123 oil-sales shipments, partially offset by DTC-3rd. This fall, not-hardware celebrating its 30th anniversary as part of the celebration, not-and-hardware launched its Seek While Their Path Campaign, which reflects the comprehensive brand refreshment. Not-hardware.com has been redesigned and enhanced to bring the brand's unique identity purpose and tone of voice to life. Not-hardware also released a heritage collection celebrating its most iconic styles, including the exposure barca, windstopper tech jacket, and sub-zero down jacket.

Okay. The next question comes from Jim Duffy with Stifel. Jim. Please proceed Hello.

Thank you Hello, guys.

A lot of questions have been asked already I wanted to ask just about the trend that youre seeing in your outlet stores.

And I'm curious how the stores are performing given the mix has shifted towards.

Our clearance inventory versus made for product. So if you could comment on traffic and conversion in the stores, what you've seen thus far that'd be great. Thanks.

Yes, we still see nice growth coming out of our out of our outlet channel.

It's difficult to comment on the traffic side of things in particular only from the perspective of to the degree we have opened up and in many cases, we've opened up temporary stores in locations, where we have existing outlets. So there is some cannibalization of were only keep the traffic on an existing store fleet. So it's tough for me to answer that.

Tim Boyle: These products pay homage to the brand's early style, updated with today's fit fabric technology. Not-hardware co-lab with iconic street word brands, FUSY features, several co-labelled co-branded products, including jackets, trousers, and beanies, as well as sleeping beds. The collection quickly sold out and meaningfully boosted traffic to not-hardware websites.

Question, because we know that there are some puts and takes across that but on the whole we're still seeing in the quarter. We've seen nice growth in the BRIC that brick and mortar business I'd say that it's decelerated from an overarching standpoint, when you look at Q3 or sorry, Q1 to Q2 to Q3.

Tim Boyle: Common net sales decreased 18% in the quarter. Not-hardware is focused on redesigning the brand for growth in future seasons. Our new brand president, Chris Fukumeloan, is quickly assessing promise opportunities and charting adapt that unlock a brand's growth potential.

But still still driving nice growth in that part of our business.

Very helpful. Thanks, Jim.

Next question comes from Abbvie.

<unk> with Piper Sandler Abby. Please proceed.

Jim Swanson: The anonymous cusser 2023 financial outlook. This outlook and commentary include forward-looking statements. We see our CFO commentary and financial review presentations. For additional details and disclosures related to these statements. For the fourth quarter, we expect sales to decline 5% to 10%, reflecting the wholesale sales shift into the third quarter compared to last year, partially offset by modest DTC growth. My fourth quarter net sales outlook incorporates a slow start to the fall selling season we have experienced, and a more cautious view on sales trends for the balance of the year.

Great. Thanks for taking my question and I understand the inventory is expected to be down year over 200 million at the end of the year, but it seems like you know with the order book download double digits for the first half.

Coal will likely be to reduce inventory more so.

What does that will be.

Redo thing.

They trade receipts, which I know you commented that you did versus how.

How long will the impact of increased promotions.

Weigh on gross margin. Thank you.

Well.

We're still well on track to get that $200 million reduction in.

Jim Swanson: We're forecasting fourth quarter diluted earnings per share to be in the range of $1.93 to $2.8%. For the full year, we now expect net sales growth to be in the range of 1.5% to 2%. Inclusive of a lower tax rate assumption, we forecast diluted earnings per share to be in the range of $4.45 to $4.70. We anticipate strong, operated cash flow of approximately $500,000,000 in 2023, as our inventory levels normalize.

Inventory exiting the year, our primary focus there has been that that should be less of a.

It should be less of a factor as it relates to the timing of spring 'twenty four inventory receipts and production as we begin to lap spring 'twenty three when we've made progress with regard to the lead times within our supply chain as we as we look forward our supply chain has now caught up so year on year.

It really shouldn't be the factor. This is really much more a function of <unk>.

Continuing to work through the inventory that we're carrying over from prior seasons, and our fall 'twenty three inventory and leveraging our outlets to profitably worked through that inventory here in the fourth quarter and we've been we've been really pleased with the margins that we've seen as we've sold through that excess inventory.

Tim Boyle: Well, it's early in our 2024 planning process. I'd like to provide some commentary on how we're thinking about the year ahead. I'm excited about the product pipeline, and growth initiatives we have planned to fuel to. Man in 2024.

Tim Boyle: For Spring 24, we launched OmniMax, our latest performance innovation in Footwear. This new platform provides versatile cushioning, enhanced stability, and increased traction for hikers, trail runners, and handers. In apparel, we continue to build out an industry-leading portfolio of cooling and sun protection technologies.

In our outlets through the third quarter and into the fourth quarter here.

Okay got it thank you.

And the next question comes from Alex Perry with Bank of America. Alex. Please proceed.

Hi, Thanks for taking my questions here I guess just first what are your current expectations for holiday do you see.

Tim Boyle: This spring, we'll introduce OmniShade Broad Spectrum Airflow, offering exceptionally breathable sun protection with OmniWick evaporation for fast-drying next-to-skin comfort. We will continue to invest in OmniFree's zero ice, our industry-leading cooling and moisture management technology. The sweat-activated cooling technology is featured in a number of styles and activity categories. Helping to keep our consumers outdoor longer for older pursuits.

Sort of expect both you and the industry to lean heavier into promos. During this holiday given what you're seeing from a consumer behavior standpoint, I guess, how do you think the overall promotional environment will play out thanks.

Yes, I think we can expect to be a sort of an average promotional year. This year.

Just to reiterate excuse me Columbia's.

Very weather weather sensitive company in terms of our product offering which is.

Heavily weighted to outerwear and winter.

Winter footwear.

That will be important.

Tim Boyle: In our quest to find better ways to help humans enjoy the outdoors, we look to nature to discover new innovations.

Catalyst for for growth and high margins as it relates to our company.

Tim Boyle: For fall 24, we're launching an exciting new warming technology, OmniHeat Arctic. This new bio-memory insulation system is inspired by how polar bears keep warm in extreme conditions. OmniHeat Arctic starts with a translucent outer layer that lets solar energy in. Heat has been transmitted to an insulation layer close to the body for maximum warmth, mimicking the color bears warmth protection system. The result is lightweight, high-efficient warmth, boosted by solar power.

And then is it.

Do you have to remember that Colombia is a global company. So we can't just look at it.

Weather in.

In North America is going to be important everywhere. So our expectations are that it's going to be an average weather year.

Somewhere in the world and hopefully.

Rest of World.

Perfect and then I just wanted to ask a.

Similar question for sort of the puts and takes for <unk> gross margins and then.

Jim any sort of help on.

How we should start to frame calendar 'twenty for gross margins I know that.

Tim Boyle: We're also investing in key-free franchises like PFG, which pioneered the fishing and burial category and remains the leader today. Through product enhancements, marketing investments and reaching new consumers, we're focusing on expanding our leading role, leading market share in the fishing category.

<unk> been a big benefit as we exited this year offset by some heavier promo I was given the elevated inventory just any color on sort of how we should be framing at least gross margins as we move through next year. Thanks.

Well, let me speak to the fourth quarter. One so our gross margins were up 70 basis points in the third quarter, we would expect our gross margins to be up slightly better than that in the fourth quarter and it's essentially the same drivers that are going to underlie that we know that we're going to continue to have or expect to have the freight benefits those freight benefits.

Tim Boyle: To drive e-commerce growth and enhance the consumer experience, we're investing in capabilities to leverage content, increase personalization, and optimize our membership program. We can make these types of public investments during turbulent periods because of the strength of our diversified global business model and fortress balance sheet. We can invest in long-term growth opportunities at a time when financially constrained competitors cannot do so.

The last couple of quarters have been north of 300 basis points, we should see that same or similar benefit during the fourth quarter channel mix will be positive for us as.

We've got more of those wholesale shipments that we got out in the third quarter. So the business would be a bit more heavily weighted towards DTC business. So combined that's a pretty pretty strong tailwind on the gross margin going into the fourth quarter, the offset to that would be an increase in our promotional cadence.

Tim Boyle: Even with all the exciting product and growth initiatives planned for 24, we know there will be challenges, particularly in the first half here. Retailers continue to take a cautious approach to managing inventory levels and placing orders. Here's a slow and consumer demand, as well as the persistence of higher interest rates create lingering economic uncertainty. The effect of these headwinds is most pronounced in the U.S., and we're starting to see similar conditions emerge in our Europe-correct markets, Canada. Geo-political unrest is adding to this uncertainty.

<unk> markdowns by and large reflecting moving through that excess inventory through our outlets. So we feel we feel good about the margin plan.

Our margin in the third quarter came through a little bit stronger than how we planned coming into the quarter. So we think we're well set there looking out to next year, you know I think the factors I'd be thinking about.

Tim Boyle: As previously communicated, we're facing our products designed with PFAS chemicals across our global product line in 2024. Our intent is to stop manufacturing any apparel or footwear with PFAS prior to our fall 24 seasons. In the U.S., we anticipate some retailers will choose to destock the FAS styles for the first half of the year before loading in the new styles designed with the FAS free chemistry of all 24. This transition is expected to impact the flow over also business and how we and others manage through existing inventory.

Without getting into specifics this inbound freight benefit that we've been seeing this year that'll carry through at.

At least the first quarter of next year, that's probably about the time that that would.

Transition and be comparable for the balance of the year.

The costing environment.

Generally been favorable as we've finalized our product costing for spring 'twenty, four and <unk> 24, and with the favorable neutral to favorable costing environment, we by and large held pricing for our product line next year, so that should be a net net neutral to net positive.

Tim Boyle: We also expect our footwear business to remain challenged through the first half of 2024. Our footwear category trash remains soft and inventory remains hot. Our spring 24 order book reflects the culmination of these challenges. As a result, we expect our global wholesale business to be bound by a low double-digit percent percent of the first half of the year. We expect this wholesale decline will be partially offset by continued growth in our global DTC businesses resulting in total percent net sales defining a mid-single digit percent.

And then of course.

We will have some benefit thats going to be difficult the more difficult part of it.

Measure, but you know as we get inventories back down into more normalized levels.

And.

Better balance on the full price.

Closeout or clearance activity that should provide a margin benefit.

So now the challenge with that is going to be we're going to be you need the top line as well to offset offset some of those margin pressures.

That's incredibly helpful best of luck going forward.

Tim Boyle: For the full year, we believe generating net sales growth is achievable as retail inventory levels normalize and retailer seems to restart products designed with PFAS free chemistry. In the environment, excuse me, in this environment, our objective is to modestly improve full year operating margin 24.

Once again, if you have a question or comment please indicate so by pressing star one. The next question comes from Jonathan Komp with RW Baird. Please proceed.

Yeah. Good afternoon. Thank you.

I just wanted to follow up just to clarify on that.

Topic did I, Miss or maybe could you quantify that.

Back that Youre talking about is that is there.

Across sort of all product lines in all seasons, and then are you willing to sort of talk about.

Tim Boyle: We plan to provide more detail on the 24 outlook when we announce fourth quarter results.

The impact from Destocking that you're hearing about them in the first half.

Tim Boyle: Overall, I'm confident in our team, our strategies and our ability to achieve the significant long-term growth opportunities we see across the business. We're investing in strategic priorities to accelerate profitable growth, create iconic products that are differentiated, functional and innovative, drive brand engagement with increased focused demand creation investments, dance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that has digitally led omnichannel and global and empowered talent that is driven by our core values.

Yes, we are having a difficult time with the audio but I think youre asking about <unk> is that correct.

Yes, hopefully you didn't hear me I was asking it fits really well to all product lines.

Are you able to quantify the drag that you are building into the first half commentary.

Yes, so the <unk> as I said earlier in the call.

Mike across thousands of products and so.

So ours is.

<unk> no exception many of our products contain pvs.

And as we're building, our newer products and getting out of those.

We are changing and we don't intend to have any SaaS products that we're manufacturing after a full 24, so that's where we're headed.

Tim Boyle: That concludes my prepared remarks.

We've got a clear plan to to.

To sell.

Operator: Welcome your questions for the remainder of the hour. Operate if you help us with that. Absolutely.

Sure.

The remainder of our <unk> inventory.

Almost all of it has been sold.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Once again, that star one if you have a question or a comment.

And so we're expecting that that final liquidation.

Minimal impact on the business in the future and then John as it relates to the first half.

Exceptionally difficult to quantify the impact of what we're talking about for a P. Fast transition perspective, there's so many other variables that are impacting the business at <unk>, we didn't even really estimate what that could look like that's meaningful enough that we took in our order book of the common conversation that we've had with our sales team with certain.

Customers.

Bob Drubel: The first question comes from Bob Dravel with Guggenheim. Bob, please proceed. Thank you. Good afternoon. I guess two questions that I have for you. The first one is when you think about the next few months of this, you know, the holiday season and sort of what's upon us, and you just like with the order book where it is, you know, your sell-ins where it is, can you elaborate a bit in terms of how you see inventories at wholesale, I mean, yeah, at retail, your wholesale partners.

And particularly in the U S, but to some degree it is touching on earlier globally as well because it doesn't.

It is a change in our in our global product line.

Okay. That's helpful. Thank you and one follow up just if you could talk a little bit more about what's contributing to the lower growth outlook for this year.

Bob Drubel: And then I guess the second piece of this is when you think about your DTC business sort of, you know, in the fourth quarter, but also sort of into 24, just how you're approaching it, you know, given a lot of the headwinds that are out there. And sort of some of the uncertainty, thanks. Yeah, thanks, Bob.

Longer term I know a year ago at Investor Day, you highlighted <unk> as having the opportunity to grow 20% or higher a year in year out and having a $1 billion revenue opportunities can you just maybe frame up how we should be thinking about.

Low single digit growth this year first of all in terms of the broader opportunity.

Are you still see it.

Yes, we're still very bullish on the column on the Sorel brand and the opportunities there is clear.

I would say that.

The opportunity for us to continue to grow it into a year round brand has been slightly more challenging than we thought.

Tim Boyle: Well, you know, as you know, this year has been really about inventory management for the company, but that's been the focus for us. And so we're prepared to have a great fourth quarter as usual with Columbia. It's going to be a weather story. So we're expecting whether to be normal. And frankly, that's a global, so we've got places in the world where they will likely be colder than normal. And some places where it may be warmer, but I would expect that we plan to business for basically an average year. Our partners, our retail partners are well set up. We delivered earlier this year than we did last year. So our expectations are that we're going to have a solid sell-through. There are products for the 23.

And so it's still dependent heavily on winter product, whereas <unk> is an incredible reputation. Our plan is to continue to focus on expanding.

The seasonal nature of the products that take advantage of the incredible.

Fernandez.

We're also going to be expanding gender to get for mens product.

Children's product in the <unk>.

Offering.

But right now today, it's still it's still a very famous weird.

That's very helpful. Thank you.

Thanks, Doug.

We have no further questions in queue I would like to turn the floor back to management for any closing remarks.

Jim Swanson: As it relates to 24, you know, we've basically been operating a business that we grew nicely with local talent or talent to spend in with the company for quite some time. And we've added a professional to help us run the business in a better way, David These, who we talked about last quarter. And our expectations are that as we continue to improve the way we operate DTC stores for the balance of 23 and into 24, we're going to see some quite outstanding results. Frankly, we're doing quite well with the existing fleet. We know we can only improve.

Well, we think that the listening to US today, we will talk to you soon in February when we have results from the fourth quarter. Thank you.

Thank you. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

Tim Boyle: And Tim, as you think about the early spring order book, just any more color in terms of, you know, is, you know, pricing or, you know, anything in terms of, is it all just sort of macro? Do you think that's impacting, you know, what you've seen from your host cell partners at this point? Yeah, well, I think, you know, there's some for larger operations, more pan-American operations. There are concerns that they want to manage their inventory levels that contain PFAS out of their business inventories week.

Tim Boyle: We want to do the same thing. So there is a certain cautiousness there. And the expectations, I think, are going to be quite good for the rest of the year. Our expectations are that as we continue to roll out these innovations and excel on these marketing activities that we talked about earlier today that we're going to have a solid year.

Jim Swanson: If Bob and I might add, you know, a couple of the factors that are contributing to that order book being down, certainly the outdoor footwear trend that we've seen this year in our business has been a little bit soft in the footwear category. That's holding back the order book. Tim touched on the PFAS transition. That's having an impact. And then to a degree, you know, particularly with smaller customers that may have more liquidity constraints given the environment that we're operating in that that part of our business has been more impacted than when we look at certain of our larger strategic account. Great. Thank you very much.

Mauricio Vega: Okay, the next question comes from Mauricio Serna with UBS. Please proceed. Yes, I thank you so much for taking my questions. I guess I wanted to ask, I think you mentioned at the end of your remarks, you know, when you saw some signs of headwinds merging in Europe direct and Canada, I just wanted to, you know, maybe you could provide more details into that. And then, you know, talking about the PFA impact on the wholesale order book, is there any way you can, you know, explain a little bit more like which region should be more impacted, maybe as I think about, like maybe some regions have retailers who are farther along in that, you know, road and transitioning out of PFA, so that'll be very helpful to understand as well. Thank you.

Tim Boyle: Certainly. Well, we're seeing, as it relates to Europe and Canada, we're seeing similar constraints that Jim mentioned on the capital, the lower capitalized retailers that we have in those two markets. And again, the geopolitical disruption, including the war in Ukraine, specifically, as it relates to Europe are having an impact. As it relates to the PFA, there's really only two geographies in the world that have a prohibition beginning in 2025 on PFA.

Tim Boyle: So it's possible to navigate these and sell products where these two, where the products are prohibited, but large multi-state USA operations that want to have a common inventory across their entire fleet. Those are the areas where they're being quite cautious on building inventories. Yeah, and then just a double back, Maurizios, it relates to Europe and Canada. I'd also note, when you look at our third quarter results, consumer demand within our direct-to-consumer businesses in each of those geographies is still plus 20% of local currency terms.

Tim Boyle: So for a consumer demand standpoint, still very healthy in most, if not all, or close to all of our international regions, where we're beginning to see some of that softest is looking out into the order book and just giving the overall conservative nature of how retailers are placing orders at this stage. But that's super helpful. And I guess, just very quickly, when you talk about the, in your presentation, about the number of stores, I just want to make sure that that number includes the temporary stores that you're opening and also how long are these temporary stores will be operational.

Tim Boyle: Just, I guess, mean the purpose of it is to get rid of excess inventory. So I just want to make sure, like, how should we think about those stores once, now that's the team that person is in the good place? Yeah, the temporary stores are not reflected in the store accounts that we provided. And we haven't provided those for a variety of reasons. These come in all different forms and shapes and sizes.

Tim Boyle: And so they're really not comparable to looking at the existing store plates. That's why the store accounts not included. We've begun to extend certain of those leases through much of next year, knowing that, you know, we felt work to do in terms of getting our inventory cleaned up as much progress. And we anticipate making by the end of this year, there's still continued efforts next year coupled with, I think, the point around some of the PFAS inventory, certainly to the degree we have remaining unsold PFAS inventory, we would look to move that through our outlet that is profitable in a profitable manner, similar to what we're doing this year.

Tim Boyle: I thought very quickly, what are the two regions that you mentioned for the, you know, regarding the PFAS, maybe I didn't hear it, but I just want to make sure I got those two, what were those two regions? New York and California. Okay, just those two states that those the only two states that require PFAS free chemicals and the effective date of that regulation is January 1 of 25. So we have between now and then to work through the transition, we're well down the tracks on this.

Tim Boyle: We'll for beginning with our fall 24 season, which we've commercialized and we're going to market on that product no longer we've we've designed it so that it no longer has PFAS chemicals intentionally put into that product and so we'll be working through next year as retailers destock any on hand inventories they have and then restock into the new merchandise that's going to create some of the challenges when you think about first half, second half from a growth rate standpoint, because part of that first half order book is soft as retailers begin to contemplate what they needed inventory and be able to sell down those PFAS styles, and then our expectation is that they're they'll eventually begin to restock into that as our fall merchandise becomes available in the market and to some degree, you know, while this is specific to California New York, we are making this this conversions for our global product line, and so to some extent, you know, while this is specific to New York and California, it does have a carryover impact into other geographies as they need to work through the same transition with all of their retailers. Got it. Thank you so much.

Lauren Vesolescu: Okay, the next question comes from Lauren Vesolescu with BNP Parabas. Please proceed. Oh, good afternoon. Thank you very much for taking my question. I wanted to ask sorry, I'm going to be next person asked about PFAS, but I think Jim, you've been you've been pretty clear about PFAS. You guys called it out at your desk today. I think you talked about it. It's in your 10 queue. You guys have been ahead of this, but what do you think are the implications?

Lauren Vesolescu: I know you can't speak to other companies, but what do you think the implications are for the industry? Where do you think you are in terms of getting this out relative to the overall industry? Is this applicable to just out of where or does it just go down to either the YK came zippers, and this is more of a broad industry factor to consider. Yeah, so this is just to be clear, PFAS has been around in thousands and thousands of products all the way from food containers to medical devices, which are implanted in the human body.

Lauren Vesolescu: So this is not just limited to outerwear, this is an endemic across all sorts of stuff included furniture and anti-stain paints as you mentioned in the different thing. So these products are endemic and across all sorts of different products. Box. I think we're well ahead. In fact, I know we're well ahead of many competitors, especially those who are smaller. So if we think about the size of our business and the amount of opportunity we have in capacity to accept additional expenses as it relates to the understanding of the chemistry, applying the chemistry to our products, et cetera, and then managing where these products go after January 1st, 25, so that we don't run a foul of these issues, we're well ahead. There are other smaller companies who are quite more blind, even some larger ones.

Tim Boyle: So I think we're managing our business to the best we can, and I think we've got it well organized and I'm proud of what the team has done to manage this process. Okay, very helpful. Tim, and then maybe I might admit this just because we're all juggling up a bunch of earnings calls, but did you guys talk to, you talked a little about your spring order, the reflection of it that challenges, maybe can you just kind of put a finer point on that, like how do we think about that, as we think about one age, and is that reflective of US wholesale challenges, or you're also seeing that reflective of Ameya as well, or other regions?

Tim Boyle: Yeah, we've commented on the losses given the spring 24 order book that we've now fully taken, and we anticipate our wholesale business globally via down a low double digit percent. Within that, as you think about it from a geographic standpoint, knowing that the US is where we've seen most of the softness, and then you have some of the discrete activities that we're talking about on this conversion of PFAS, the US wholesale business will decline at a faster rate than the overall global rate.

Tim Boyle: To a lesser degree, are we seeing that in the case of our European business, and that our Asia businesses are actually still quite well performing, those index a little bit more to C to C channels, taking that outlook for our wholesale business and down low double digit, and when we combine that with the expectation that our B to C business continues to grow in the first half next year, we believe that from an overall standpoint through the first half year is likely to be down a mid-single digit percent. We're still very early in our 2024 planning processes, so we've not gone any further than that in terms of what that might mean, but in operating income perspective, I'd expect at least some pressure knowing there's going to be the top lines going to be down to the first half of the year.

Tim Boyle: And of course, it's too early for us right now to comment on the full year. Okay, so that's helpful. And then maybe yet to your point, it's too super early, but if you could just talk about just the re-eve flexibility around the P and L, what could you do in terms of pulling back? I think you don't know, you've got a 5% marketing spend. Anything that you would be willing to just, are there no sacred cows, kind of approach to hold the profitability for as we transition through this PFAS, or the FAS trends?

Tim Boyle: Foundation. Yeah, Ron, I think I just like to make the comment that the company's been historically known as an incredibly conservatively rod and very focused, efficient company and I think you can expect that that will continue and that there are lots of levers for the company to use to manage or SG&A spend and we'll be using every one of them to maximize the return for our investors and not the least of which Laurent, as you'll recall, you know, one of the areas that's in impacted our P&L on a meaningful way this year is the elevated inventory and how that's added toward SG&A in terms of carrying costs that impacted our gross margin as well.

Tim Boyle: So that is easily the top area, you know, that we're focused on getting those inventories back down, getting our labor productivity within our operations, had a more efficient level because we know that that can drive meaningful improvement in the operating structures of business going into next year.

Tim Boyle: Okay, very helpful.

Operator: Thank you.

Operator: Thank you both and best of luck for this holiday season.

Alex Douglas: The next question comes from John Kernan with TD Cowan. John, please proceed. Hi, this is Alex Douglas on for John. Thank you for taking our question. I actually just had a quick follow up on something you said in response to the last question. And as it relates to the kind of flow of those elevated inventory costs, you know, and what you might get back over the next couple of quarters, you know, how should we think about the magnitude and the timing of that any additional color you could provide there would be extremely helpful.

Alex Douglas: Yeah, it could be difficult to provide specific guidance in terms of how we think about that in FY 24. What I would indicate is last quarter, we indicated that the impact of the elevated inventory on our operating profits here in 23 has had about a 200 basis point impact on our operating profits and that's a combination of SG&A with the likes of outside storage, labor costs, and then of course the gross margin with the mix of excess, excess product and SMU product that we do specifically for outlets.

Alex Douglas: And so there's a, you know, looking out to 2024. There is 200 base points of improvement over time, whether we, what extent we're able to capture all of that is dependent upon continuing to make progress on inventory. I wouldn't think that we're going to get all of that back and then certainly there's so many other variables in flight when we think about 24 from a profitability standpoint. No, between revenue, other, other investments and other factors, in fact, I don't want to get into, you know, magnitude and flow of what that could potentially look like. Okay, but so that's very helpful. Thank you.

Tim Boyle: Okay, the next question comes from Jim Duffy with stifle Jim please proceed. Oh, thank you. Hello guys. A lot of questions have been asked already. I wanted to ask just about the trend that you're seeing in your outlet stores. And I'm curious how the stores are performing given the mixes shifted towards James, you know, clearance inventory versus made for product. So if you can comment on traffic and conversion in the stores, what you've seen thus far, that'd be great.

Tim Boyle: Thanks. We still see nice growth coming out of our outlet channel. You know, it's difficult to comment on the traffic side of things in particular, only from the perspective of to the degree we've opened up. We've opened up temporary stores in locations where we have existing outlets. So there is some cannibalization and we're only keeping traffic on the existing store fleet. So it's tough for me to answer that question because we know that there's some puts and takes across that.

Tim Boyle: But on the whole, you know, we're still seeing in the quarter, we've seen nice growth in the brick, in that brick and mortar business. I'd say that it's decelerated from an overarching standpoint when you look at Q3 or sorry, Q1 to Q2 to Q3, but still, still driving nice growth in that part of our business. Very helpful. Thanks, too.

Jim Swanson: Next question comes from Abby Zvejnieks with Piper Sandler. Abby, please proceed. Great. Thanks so much for taking my question. I understand that inventory is expected to be down, you know, over 200 million at the end of the year, but it seems like, you know, with the order books, download double digits for the first half. The goal will likely be to reduce inventory more. So, you know, what of that will be, you know, reducing inventory receipts, which I know you commented that you did versus, you know, how long will the impact of increased promotion? Way on gross margin. Thank you.

Jim Swanson: Well, you know, we're still well on track to get that $200 million reduction in inventory, exiting the year. Our primary focus there has been that that should be less of a should be less of a factor as it relates to the timing of spring 24 inventory receipts and production. You know, as we begin to lap spring 23 when we made progress with regard to the lead times within our supply chains, we, as we look forward, our supply chains now caught up so year on year.

Jim Swanson: That really should be the factor. This is really much more a function of continuing to work through the inventory that we're carrying over from prior seasons in our fall 23 inventory. And leveraging our outlets to possibly work through that inventory here in the fourth quarter, and we've been, we've been really pleased with the margins that we've seen as we've filled through that excess inventory in our outlets through the third quarter and into the fourth quarter here. Okay, got it.

Operator: Thank you.

Alex Perry: The next question comes from Alex Perry with Bank of America. Alex, please. Hi, thanks for taking my questions here.

Tim Boyle: I guess just first, what are your current expectations for holiday? Do you sort of expect both you and the industry to lean heavier into promos during this holiday given what you're seeing from a consumer behavior standpoint? I guess, how do you think the overall promotional environment will play out? Thanks.

Jim Swanson: Yeah, I think we can expect to be a sort of an average promotional year this year, just to reiterate, excuse me, Columbia is very weather, weather sensitive company in terms of our product offerings, which is heavily witted to outerwear and winter footwear. So that will be an important catalyst for growth and in high margins as it relates to our company. And then, you have to remember that Colombia is a global company, so we can't just look at the weather in North America. It's going to be important everywhere. So our expectations are there's going to be an average weather year somewhere in the world and hopefully across the world.

Operator: Perfect.

Jim Swanson: And then I just wanted to ask a similar question for sort of the puts and takes for four few gross margins. And then, Jim, any sort of help on how we should start to frame calendar 24 gross margins. I know that Freight's been a big benefit as we exited this year, you know, offset by some heavier promos given the elevated inventory. Just any, you know, color on sort of how we should be framing at least gross margins as we move through next year. Thanks.

Jim Swanson: Yeah, yeah, let me speak to the fourth quarter first. So our gross margins were up 70 basis points in the third quarter. We would expect our gross margins to be up slightly better than that in the fourth quarter. And it's essentially the same drivers that are going to underlie that. We know that we're going to continue to have or expect to have the freight benefits. Those freight benefits the last couple quarters have been north of 300 basis points.

Jim Swanson: We should see that same or similar benefit here in the fourth quarter. Channel mix will be positive for us as we've got more of those wholesale shipments that we got out in the third quarters of the business a bit more heavily weighted toward D to C business. So combined, you know, that's a pretty pretty strong tailwind in the gross margin going into the fourth quarter. The offset to that would be an increase in our promotional cadence promotions and markdowns by and large reflecting moving through that excess inventory through our outlets.

Jim Swanson: So we feel we feel good about the margin plans that we put for our margin in the third quarter came through a little bit stronger than than how we planned it coming into the quarter. So we think we're well set there.

Jim Swanson: Looking out to next year, you know, I think the factors I'd be thinking about without getting into specifics, this inbound freight benefit that we've been seeing this year, that'll carry through at least the first quarter of next year. That's probably about the time that that would transition and be comparable for the balance of the year. The costing environment has generally been favorable as we've finalized our product costing for spring 24 and fall 24.

Jim Swanson: And with the favorable neutral to favorable costing environment, we buy in large held pricing for a product line next year. So that should be, you know, net neutral to net positive. And then of course, you know, we will have some benefits. This is going to be difficult, the more difficult part of it to measure. But you know, as we inventory back down into more normalized levels and a better balance on the full price to close out or clearance activity that should provide a margin benefit. So now the challenge with that is going to be we need to top line as well to offset some of those margin pressures.

Operator: Starrers. That's incredibly helpful. Best of luck going forward.

Operator: Once again, if you have a question or a comment, please indicate so by pressing star one.

Jonathan Komp: The next question comes from Jonathan Komp with R.W. Baird. Please proceed. Yeah, good afternoon. Thank you. I just want to follow up just to clarify on the PFAS topic. Did I miss or maybe could you quantify the impact that you're talking about? Is that across sort of all product lines? [inaudible] in the call is a demo across thousands of products, and so ours are no exception.

Tim Boyle: Many of our products contain PFAS, and as we're building newer products and getting out of us, we're changing, and we don't intend to have any PFAS products that we're manufacturing after fall 24, so that's where we're headed. We've got a clear plan to sell. The remainder of our PFAS inventory, almost all of it has been sold, and so we're expecting that that final liquidation will have minimal impact on the business of the future.

Jim Swanson: And then John, as it relates to the first path, it's exceptionally difficult to quantify the impact of what we're talking about from PFAS transition perspective. There's so many other variables that are impacting the business that we couldn't even really estimate what that could look like. It's meaningful enough that as we took in our order book, it was the common conversation that we had with our sales team, with certain customers, particularly in the US, but to some degree it was touching on earlier globally as well because this is a change in our global product line. Okay, that's helpful. Thank you.

Jonathan Komp: And one follow-up just on Surrell. If you could talk a little bit more about what's contributing to the lower growth outlook for this year. And as we think longer term, I know that you were going to invest today, you highlighted Surrell's having the opportunity to grow 20% or higher a year and a year out, and having a billion dollar revenue opportunities.

Tim Boyle: But can you just maybe frame out how we should be thinking about your low single-dig growth this year for Surrell in terms of the broader opportunity and how you still see it? Yeah, we are still very bullish on the climb on the Surrell brand and the opportunities there's clear. I would say that the opportunity for us to continue to grow into a year-round brand has been slightly more challenging than we thought.

Tim Boyle: And so it's still dependent heavily on winter product whereas as an incredible reputation. Our plan is to continue to focus on expanding with the seasonal nature of the products, to take advantage of the incredible brand that Surrell has. We're also going to be expanding gender to get more men's product and children's product in the offering. But right now today is still, is still a very famous leader.

Tim Boyle: That's very helpful. Thank you.

Operator: Okay, we have no further questions in queue.

Tim Boyle: I would like to turn the floor back to management for any closing remarks. Well, we think it's listening to us today and we'll talk to you soon in February when we have a results from my voice order. Thank you.

Operator: This concludes today's conference and you may disconnect your lines at this time.

Operator: Thank you for your participation.