Q4 2024 Columbia Sportswear Co Earnings Call
Greetings. Welcome to the Columbia Sportswear fourth quarter 2024 financial resorts 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.
Speaker Change: Good afternoon and thanks for joining us to discuss Columbia Sportswear Company's fourth quarter results. In addition to the earnings release, we furnished an 8k containing a detailed CFO commentary and financial review presentation explaining our results.
Jim Swanson: with me today on the call are Chairman, President and Chief Executive Officer Tim Boyle, Executive Vice President and Chief Financial Officer Jim Swanson, and Executive Vice President, Chief Administrative Officer and General Counsel Peter Bragdon.
Jim Swanson: This conference call will contain four 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.
Jim Swanson: Many of these risks and uncertainties are described in Columbia's SEC filings.
Jim Swanson: We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.
Jim Swanson: I'd also like to point out that during the call we may reference certain non-GAAP financial measures including constant currency net sales.
Jim Swanson: for further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures.
Tim: 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.
Tim: Thanks Andrew and good afternoon. As we begin 2025, I'm encouraged by the continued momentum we see in our international business and the fact that we are returning to growth in North America.
Speaker Change: I'd like to thank our global workforce whose hard work and dedication allowed us to overcome challenges throughout the year.
Tim: I'm proud of the many accomplishments our teams were able to achieve, including exiting the year, our inventories were down 7%, and we are rapidly closing our temporary clearance locations.
Inventories are healthy, supporting our outlook for gross margin expansion.
Tim: Our Profit Improvement Program delivered $90 million in cost savings, and we're actively pursuing additional ways to lower our cost structure.
Tim: We also returned meaningful cash to shareholders with 318 million in share repurchases and around 70 million dollars in dividends paid.
Tim: We also maintained our Fortress balance sheet, exiting the year with $815 million in cash and equivalents, and no debt.
Tim: While we made progress in many areas, our 2024 financial performance was short of my personal growth and profitability goals.
Tim: Overall, 2024 net sales decreased 3%, 3.4 billion, reflecting challenging marketplace conditions in North America.
Tim: The net sales decline and ongoing cost pressures resulted in operating margin contraction and a decline in earnings.
Tim: On the last call, we introduced the Columbia Brand's Accelerate Growth Strategy. This strategy is intended to elevate the brand and attract younger and more active consumers while continuing to serve existing customers with accessible outdoor essentials.
Tim: During 2024, we laid the foundation for the Accelerate Growth Strategy, including a refreshed marketing direction, enhanced consumer segmentation, and a new product construct.
Tim: I'd like to provide some updates on the progress we're making.
Tim: Our product teams are focused on creating products and driving growth with our targeted consumers who value innovation and style.
Tim: For Fall 25, we're expanding our innovation-led offerings, like our premium titanium product line.
Tim: We are also bringing new collections to market with elevated style like the Amaze Puff Insulated Jacket and Rock Pant.
Tim: We are expanding our OmniMax footwear collection, which delivers consumers lightweight, ultra-comfortable performance.
Tim: The Columbia Brad is fun, irreverent, and authentic and our refreshed marketing strategy will bring this to life.
Tim: You will begin to see the new brand voice in our fall marketing campaigns.
Tim: To activate the brand and product strategies, we will be elevating the brand storytelling and consumer experience across the marketplace.
Tim: We're investing alongside our strategic retail partners to enhance in-store presentations.
in our direct-to-consumer business.
Tim: We've already begun to evolve Columbia.com to be the best expression of the brand.
Tim: In brick-and-mortar we're opening a small number of branded stores in high traffic centers in North America. These new branded stores feature elevated product assortments that showcase Columbia's apparel and footwear innovations.
Tim: These North American stores will join the hundreds of Columbia-branded stores that raise the image of the brand in important international markets.
Tim: Taken together, we're thoughtfully evolving how the Columbia brand is perceived by consumers and how we show up in the marketplace.
Tim: We're being thoughtful about how, when, and where we utilize promotions across all channels and consumer segments.
Tim: Overall it's great to see the energy and alignment around the Accelerate Growth Strategy across the organization.
Tim: I'm excited to bring it to life in the seasons ahead.
Tim: Our initial 2025 Net Sales Outlook contemplates modest growth. In addition to Columbia brand growth, our Outlook contemplates a return to growth for Prana and continued momentum at Mountain Hardware.
Tim: While we expect the Sorrel business to remain down in the spring, efforts to reinvigorate the brand will be more evident in the fall.
Tim: Our initial 2025 Operating Margin Outlook contemplates similar performance compared to 2024, with healthy inventories entering the year.
Tim: we anticipate less clearance activity that will contribute to gross margin expansion.
Tim: This is expected to be offset by SG&AD leverage resulting from demand creation investments and ongoing cost pressures.
Tim: This program has meaningfully slowed SG&A spending growth, but it has not been enough to align our cost structure with current sales levels.
Tim: With this in mind, we're expanding the review of our cost structure as we pursue additional savings and enhanced profitability.
Tim: It is too early to quantify the financial impact of this review and our outlook does not include additional cost savings or potential charges that may occur. We will update you on our efforts as our plans are formalized.
Tim: Turning to fourth quarter financial performance, we were able to overcome a slow start to the winter season with strong December performance resulting in fourth quarter results within our guidance range.
Tim: net sales increased 3% year-over-year to 1.1 billion driven by a 7% increase in wholesale net sales and 1% direct-to-consumer growth
Tim: gross margin expanded 50 basis points to 51.1% driven primarily by lower closeout sales at improved margins compared to elevated clearance activity in the prior year
Tim: SG&A expenses increased 6%, primarily reflecting higher incentive compensation and DTC expenses.
Tim: This performance resulted in an operating income and diluted earnings per share within our guidance range.
looking at net sales by geography.
U.S. net sales decreased one percent.
Tim: The U.S. wholesale business declined low single-digit percent reflecting our lower fall 24 order book and challenging outdoor category trends.
Tim: Even though sell-through is down year over year, our retail partners are exiting the season with clean inventory levels.
Tim: This is helping to fuel our positive order book for both spring and fall.
Tim: USDTC net sales declined low single-digit percent with lower e-commerce sales partially offset by modest brick-and-mortar growth.
Tim: U.S. e-commerce net sales were down mid-single-digit percent, reflecting challenging market conditions as well as lower planned promotional activity and a shift in digital marketing strategies on Columbia.com
Tim: December trends significantly improved as colder weather arrived and we invested in marketing to spur demand.
Tim: Brick-and-mortar net sales were up below single-digit percent driven by the contribution from new stores and temporary clearance locations.
Tim: With improved inventory health, we will be closing most of our clearance locations in the first half of the year.
Tim: a small number will remain open as we assess their potential as permanent stores.
Tim: For my review of fourth quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market.
Latin America Asia-Pacific region or LAAP net sales increased 7%
Tim: China net sales increased mid-teens percent with healthy growth across wholesale and DTC. For the year, China grew over 20% in constant currency.
Tim: The outdoor industry is experiencing a powerful growth trend in China fueled by growing consumer interest in outdoor activities and outdoor brands.
Tim: We are capitalizing on this trend by connecting with consumers through meaningful brand activations.
localized product collections, and a robust digital strategy.
Tim: eCommerce was China's fastest-growing channel in 2024. During the year we expanded Columbia's TikTok platform
adding new stores for women and footwear.
Tim: We had amazing brand activations during peak sales periods like Double Eleven and participated in successful Super Brand Day events with both Tmall and TikTok.
Tim: Columbia's premium transit product line designed specifically for Chinese consumers continues to perform incredibly well. To build on this momentum we will further expand our localized product assortments in China this year.
Tim: Across our product offerings, marketing activations, and marketplace strategies, we are working to create a more premium Columbia brand experience for Chinese consumers.
Tim: We expect China to once again be our fastest growing market in 2025.
Tim: Japan net sales increased mid-single-digit percent with continued strength in international tourism.
Tim: Despite high inflation and sluggish domestic spending, our team in Japan continues to deliver growth through compelling localized product offers, unique marketing activations, and strong digital and in-store execution.
Korean net sales decreased mid-single-digit percent in the quarter.
Tim: 2024 was a challenging year in Korea, including macroeconomic headwinds and political unrest. Despite these challenges, the team made meaningful progress, resetting the marketplace and laying the foundation for future growth.
Tim: In 2025 our team in Korea is focused on accelerating digital sales
revitalizing the DTC store fleet and optimizing marketing investments.
Tim: LIAP distributor markets were up low double digit percent, primarily reflecting spring 25 order growth.
Tim: Europe, Middle East and Africa region or EMEA, net sales increased 21%.
Tim: Europe direct net sales increased high teens percent led by robust DTC growth
Tim: Europe Direct was the top performing market in 2024. The European team is doing an exceptional job expanding our DTC businesses and growing wholesale sales with key strategic retail partners.
Tim: Our EMEA distributor business increased over 30% primarily reflecting Spring 2025 order growth.
looking at fourth quarter performance by brand.
Tim: Columbia net sales increased 6%. This fall our top innovation stories were OmniHeat Infinity and our newest cold weather innovation OmniHeat Arctic.
Tim: These differentiated innovations and technologies were prominently featured by numerous media outlets.
Tim: Columbia products were named in over 20 best-of lists from top media outlets including Esquire, Men's Journal, Travel and Leisure, and Ski Magazine.
Tim: Product awards and reviews from trusted editors validate and bring awareness to the innovation and value we deliver to consumers.
Tim: OmniHeat Infinity remain one of the fastest-growing parts of our business and our top marketing story globally.
Tim: OmniHeat Infinity will once again be featured on Intuitive Machines next lunar lander named Athena
Tim: In addition to Infinity, the lander will utilize a second Columbia technology, OmniShade SunDeflector.
Tim: This patented material, which is part of our Sun Protection Apparel line, uses titanium dioxide reflective dots to deflect sunlight and mitigate heat generation.
Tim: The launch window for Athena begins later this month, so stay tuned for more details.
Tim: On the collaboration front, we turn to the dark side with our largest Star Wars collab to date, the Vader Collection.
Tim: This was the first Star Wars launch where a Columbia Raider Reward member got early access to the product.
Tim: Early access is just one of the unique benefits of our new Enhanced Membership Program.
Tim: Since the relaunch of Columbia Greater Rewards this past June, our active membership continues to grow. I'm especially encouraged by the engagement of our Titanium members who spend more than $300 annually.
Tim: We will continue to expand our membership benefits and deepen our connections to this key customer base in 2025.
Tim: I'd like to congratulate two of Columbia's athlete ambassadors on their recent halfpipe skiing wins.
Tim: This past Sunday, Alex Ferreira won gold in the Free Ski World Cup in Aspen, continuing the success of his unprecedented perfect season last year.
Tim: Cassie Sharp won the X Games gold medal in the Super Pipe event.
Tim: in a triumphant return from a two-year break from competing following the birth of her daughter. Congratulations to Alex and Cassie.
Speaker Change: Shifting to our emerging brands, Mountain Hardware net sales increased 5% in the fourth quarter, led by e-commerce growth. Consumers responded well to Mountain Hardware's fall assortment, including new snow sports offerings and an expanded Ghost Whisperer collection.
Speaker Change: In November, Mountain Hardware released another highly sought-after collab with iconic streetwear brand Stussy. The collection featured expedition-quality gear including jackets, beanies, bibs, and shells.
Speaker Change: I'm confident in Mt. Hardware's product line and refreshed brand positioning.
Speaker Change: To further elevate Mountain Hardware in the marketplace and attract new consumers, we're investing in the brand. This includes demand creation investments to supercharge its e-commerce business, as well as partnering with outdoor retailers to elevate in-store presentations.
Speaker Change: I believe these investments will lay the foundation for growth acceleration in the years ahead. We expect Mountain Hardware to continue to grow in 2025, including strong Fall 2025 wholesale orders.
Speaker Change: Prana net sales decreased 2% in the quarter. In 2024 the Prana leadership team made amazing progress reinvigorating the brand. This will come to life in 2025 with exciting new product collections and creative brand activations.
Speaker Change: Krona is also expanding its wholesale account base with new brand ride specialty retail partners.
Speaker Change: We're very excited to get Prada's new product and marketing direction in front of consumers in the seasons ahead.
Speaker Change: Brown is expected to return to growth in 2025, including robust Fall 2025 wholesale order growth.
Speaker Change: Sorrell net sales decreased 16% driven by lower wholesale and DTC sales.
Speaker Change: During the quarter, Sorrell created brand heat with his first collab with streetwear brand Supreme.
Speaker Change: The limited-edition Caribou boot came in two colorways, introducing Sorel's iconic style to Supreme's fashion-conscious consumer base.
Speaker Change: 2024 was a challenging year for Sorrell, but the team made meaningful progress refining future season product assortments.
and building strategies to re-energize brand marketing.
Speaker Change: 2025 is expected to be a year of stabilization with modest growth in the second half of the year.
I remain confident Sorrell has meaningful long-term growth potential.
I will now discuss our 2025 financial outlook.
This outlook and commentary include forward-looking statements.
Speaker Change: Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements.
Speaker Change: This outlook and commentary does not include any potential impact on the company as a result of the recent US administration change.
Speaker Change: other than the direct cost of tariff actions announced on February 1st, 2025.
Speaker Change: For the full year, we expect net sales growth in the range of 1% to 3%. Based on current exchange rates, foreign currency is expected to be an approximate 140 basis point headwind. This outlook also assumes most of our temporary clearance locations are closed in the first half of the year.
Speaker Change: Combined, the FX headwinds and temp store closures resulted nearly a three-point headwind to reported sales growth.
Speaker Change: Bruce Marsden is expected to expand 80 basis points to approximately 51 percent.
Speaker Change: The improvement in gross margin is primarily driven by a healthier underlying inventory position and favorable input costs.
Speaker Change: I'd note that this range includes a 30 cent negative impact to earnings per share due to changes in foreign currency exchange rates.
Speaker Change: In summary, I'm confident we have the right strategies in place to unlock the significant growth opportunities we see across the business.
Speaker Change: We are investing in our strategic priorities to accelerate profitable growth.
create iconic products that are differentiated, functional, and innovative.
drive brand engagement with increased focused demand creation investments.
Speaker Change: Enhance consumer experiences by investing in capabilities to delight and retain consumers.
Speaker Change: Amplify marketplace excellence that is digitally led, omni-channel and global and empower talent that is driven by our core values.
Speaker Change: That concludes my prepared remarks. We welcome your questions for the remainder of the hour. Operator, can you help us with that?
Speaker Change: Absolutely. At this time we will be conducting a question and answer session. If you would like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: 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.
Speaker Change: Once again, please press star 1 if you have a question or comment.
Speaker Change: The first question comes from Bob Durbel with Guggenheim. Please proceed.
Thank you. Good afternoon, Tim.
Thank you.
Speaker Change: I was just wondering if you could expand some more. I think you said in your comments, you know, that your order book for spring and fall was both positive.
Speaker Change: I was just wondering if there's any difference between the two seasons, wonder if there's any geography.
Speaker Change: geographic commentary you can add and then just you know if you could spend some time on more time on China you know what you're seeing in China those numbers are you know are pretty impressive that would be helpful thank you
Speaker Change: Well, as we said earlier, our order book for spring and for fall will be up.
Very excited about that to return to growth
Speaker Change: I think the geographic component, we're going to be led by China.
Speaker Change: and Europe, those two markets will be our fastest growing markets.
Speaker Change: and we're very excited about that. We're also excited about the growth in the U.S.
Speaker Change: But specifically China, and really this applies to Europe as well, you know, we've been quite clear that in those markets historically we've underperformed.
Again, this is a people business, we have great leadership.
running both businesses there and so we've seen terrific results.
China specifically
Speaker Change: Once we encouraged our teams in China to be more focused from a product standpoint on items that can be important in their markets, we've seen much better results. Additionally, from a business standpoint,
we have a leader there that's very focused on
Speaker Change: highly productive stores. In the past, we had relied more on a sort of dual-season
Speaker Change: approach and the leadership there really is focused on monthly performance first door and that's been a real improvement and allowed us to have real great success then.
Speaker Change: Hey Bob, this is Jim. I just had a couple comments. One is it relates to spring 25 and we shared in October that our order book for the spring 25 season for our wholesale business globally supported mid-single-digit rate of growth. Nothing's meaningfully changed in that order book since that time.
Speaker Change: and then for fall 25 it is a bit lower of a rate of growth we're anticipating it's in the low single-digit percent terms and we've
Speaker Change: We're well into our order-taking season, or order-taking for the season, with about 90% of those orders in, so good visibility to the order book at this stage.
Speaker Change: Great. And then just one other question just on the demand creation commitment for 25. I think you said a lot of the newness is going to kick in in the fall.
Speaker Change: Will the spend be down in the first half and then magnified in the second half of the year? Just wondering if you can just talk about the plans there a little bit more. Thanks.
Speaker Change: I guess I would describe the first half spread to be more moderated.
Speaker Change: percent of sales but it'll be more moderated than fall. Fall we intend to be quite aggressive and that's where the bulk of the
The new material we'll be seeing after.
Speaker Change: Yeah, I think that's fair, Bob. We wouldn't expect it to be down in the first half, but certainly more amplified. When we get into the back half of the year, we're able to get certain of those accelerate marketing investments in front of the consumer.
Great. Thank you very much.
Speaker Change: Okay, the next question comes from Jim Duffy with Stiefel. Please proceed.
Jim Duffy: Well, thank you. Couple questions. First on the U.S.T. to seed business.
Jim Duffy: I wanted to ask, is there a change in tactic on a year-to-year basis, despite the increased number of stores, the US P2C business in the fourth quarter up just a modest amount, and then you're also expecting growth next year despite closing some of the temporary stores. If you could reconcile that, that'd be great.
Jim Duffy: Sure. Well, there's a bunch of things going on in D2C. I would say the primary delta
Jim Duffy: would be the closure of these temporary locations that we established in order to help liquidate inventory more profitably than we otherwise would have been able to.
Jim Duffy: we're using the value channel and etc. So we'll be closing a bunch of stores
during this year. Additionally, we've really focused on Columbia.com.
as being the really showcase of the brand.
Jim Duffy: and less promotionally driven than we had been in the past to give ourselves a more premium positioning in the marketplace. And then lastly, we are experimenting with and opening a number of
Jim Duffy: stores in full price high traffic malls which will allow us to showcase the brand fully fully blown out accelerate strategies and especially footwear
Jim Duffy: where we can have a real opportunity to show consumers the products that we're putting together.
Jim Duffy: Thanks, Tim. And then, Tim, I wanted to ask on the marketing. Are you seeing evidence of traction with the new marketing direction, bringing younger and active consumers to the brand?
Jim Duffy: I would say we're right on the cusp of the beginning of it. We've got digital presentations which will begin appearing this spring which I think will set a
Jim Duffy: a different tone, and we'll be excited to see how that works. But everything we've tested so far as it relates to fall is right on, and so we're excited that we're in the right position.
Thank you, Tim.
OK, the next question comes from Laurent.
Veselescu with BNP Paribas. Please proceed.
Jim Duffy: Good afternoon. Thank you very much for taking my question. Jim and Tim, I wanted to ask about revenues.
Speaker Change: With regards to the first quarter, why revenues would be down to one to 3%? Is there a dynamic in place like with regards to shift? Is there something that we should consider?
Speaker Change: on my channel, and then when it comes to, I think, to
Jim Duffy: Jim's question about DTC. I think you mentioned in the prepared remarks that the closures will be about 300 bases point headwind for this year. And I think you're guiding for DTC to grow up low single digits. So I think underlying it means like.
Jim Duffy: DTC should grow about mid-single digits. Can you maybe parse that out a little bit? Like what's the anticipation? Is it e-commerce? Is it new stores? Love to get your take on the revenue front. Thank you very much.
Yeah, I'll run
Jim Duffy: Thanks for the question. And to start off with the first quarter, while you're seeing the projection in terms of the revenue being down in Q1, a few contributing factors to that. One, keep in mind we're laughing very cold.
Jim Duffy: Winter in the January-February time frame of last year in which we had amplified demand and we're not anticipating a repeat of that here in Q1. We've updated our outlook for what we've seen through the month of January. That's an element of it. There's also a component of which
We had earlier shipment of Spring 24 wholesale orders.
Jim Duffy: a year ago in anticipation of our transition to PFAS free chemistry and we're seeking to get those orders out to our wholesale customers.
Jim Duffy: sooner than they would ordinarily shift. So you're seeing some of that come into Q1 last year and this year being a more normalized trend. And then finally, and Tim's touched on,
Jim Duffy: With Columbia.com being the best representation of the brand and reducing some of the promotions, there's some continued pressure that we're anticipating, at least through the beginning part of this year from that vantage point.
Jim Duffy: And then, with regard to your second part of your question, I didn't get it all, but as it relates to the 3%
Edwin: Edwin, if you will, that comment was specific to a combination of
Edwin: The Temp Store closures, about half of that is related to the ramp down of those Temp Stores and then the other half relates to the continued strength of the dollar and the impact on the rate of growth from a local currency standpoint. So, we are anticipating this Temp Test on, you know, continued strength internationally, particularly in China and Europe, but it's a bit dampened just given the strength of the dollar relative to foreign currencies.
Speaker Change: Super helpful. I wanted to ask then on the second question here, good to see that gross margins are expected to be up 80 bps for the year. Can you give us some color on how you're thinking gross margins should shake out between 1q and 1h?
Speaker Change: And then on the SG&A front, I saw that you're stepping up.
Speaker Change: to 6.5% of sales with the new marketing director, the new agency, Adam and Eve. But can you maybe unpack that?
Speaker Change: that pressure point on SG&A. Are there any other factors that we should consider on the SG&A front, whether it's incentive comp or any other factors to consider for FY25. Thank you.
Speaker Change: Yeah, sure as it relates to the gross margin in the front half of the year
Speaker Change: I think as it relates to the second quarter, it's going to be a stronger quarter in terms of gross margin from an expansion standpoint. Otherwise, when you look at the full year, we've provided...
Speaker Change: Full Year Gross Margin Expansion of 80 Basis Points. The second quarter is going to be naturally a bit higher because the proportion of full price revenue going into that quarter with the shifts in the wholesale business are naturally going to have a bit of an impact on that. And then conversely, Q1 won't be quite as strong as that full year guide.
Speaker Change: As it relates to the SG&A, so aside from the marketing in terms of what's contributing to the D leverage when you look at SG&A year-on-year,
Speaker Change: You pointed out incentive comp that continues to be among the pressure points that are in there.
Speaker Change: There are other strategic investments that we're making in the DTC business. Tim touched on part of it as it relates to the branded stores. I think what I would convey and what Tim touched on is
Speaker Change: You know, we're not satisfied with, you know, seeing our SG&A continue to deleverage and be in the upper 43, low 44% range, and that's why, you know, we're in the process of initiating.
Speaker Change: a continued review and assessment of our FG&A and seeking ways in which we can streamline the business to drive greater cost efficiency. So that's not in our outlook currently, but something that we'll be looking at over the coming weeks here and provide an update as we get deeper into the year.
Thank you.
This is the new marketing...
Speaker Change: We're being very focused on measuring and testing these messages to make sure we've got the right approach to these consumers that we want.
Speaker Change: on the track. So I'm looking forward to launching that stuff in fall.
Speaker Change: Okay, very helpful. Thank you very much and best of luck.
Thank you.
Speaker Change: The next question comes from Jonathan Komp with Baird. Please proceed.
Jonathan Komp: Yeah, hi, good afternoon. Thank you. If I could just follow up on that last point, as you think about the ramp and the incremental marketing that you're planning, could you just maybe...
Speaker Change: Go a little bit further on what you're hoping to accomplish and some of the key metrics that you'll be looking to show from those efforts.
Speaker Change: Certainly. Well, you know, as a company we've been highly democratic in terms of terms of how we've approached
Speaker Change: customer base, product orientation, etc. Even though we have among the most sophisticated products.
Speaker Change: of keeping people warm, cool, dry, and protected, we're often thought of as a highly valued mind. And that value allows us to be.
Speaker Change: Producing large quantities of merchandise which we can use then that leverage to build
more expensive, more targeted
Speaker Change: products for younger and more, again, consumers that are more professionally oriented. So the approach will be to to combine those new products and a marketing message, which is going to be compelling to that consumer.
to give us an additional boost of sales and consideration.
Speaker Change: So where we believe we have the strongest opportunity to do that is in the fall, and that's where we're going to be focusing our time and effort.
Speaker Change: And then John as it relates to KPIs, we don't get down into a lot of specifics around our D2C business, but
Speaker Change: where we certainly look for improvement is thinking about the conversion rate that we're achieving with our own online business. With the full-funnel marketing approach that we've taken in shifting more of that marketing out of performance marketing into mid-funnel and upper-funnel, we are seeing improvement in the traffic, but over time we need to see that improvement in the conversion. And in the other piece, we launched a new membership loyalty program.
Speaker Change: last year, which has had success. Tim touched on the titanium level member, but it's really about member retention, acquisition and retention as well.
Speaker Change: Yeah, that's really helpful. Thank you. And then just one separate follow-up on the profit recovery that you're projecting is we sort of step back and think, you know, you're well underway for your first profit improvement plan.
Speaker Change: You're talking about a normalized inventory environment and yet the margin profile of the business is well below historical. So just how are you thinking about the long-term view of the opportunity to get back to your much higher profitability levels? Thank you.
Speaker Change: Well, it's certainly why we're undertaking the work that we've described.
You know, our expectation is to get our operating margins.
Speaker Change: back to, you know, more appropriate levels. And certainly, you know, the first milestone will be getting back to double-digit, but then longer-term.
Speaker Change: You know, our expectation is to be in the upper quartile relative to our peer group, which would put you into the teens percent now. We've not defined the time frame that that would take place, but certainly there's some work that we collectively need to do in managing the cost base. To Tim's point, we need to grow. Part of the reason why you can see some of that deleverages, you know, we've had a few years here running now where that top line hasn't kept pace with inflationary pressure and other costs.
Speaker Change: Collectively, we need to shore that up, so that's what this year's about is building that plan to ensure that we've got a scalable business that can drive margin leverage going forward.
Yeah, this is the reason we really are making this.
Speaker Change: very measured investment in marketing to get our products in front of consumers. We believe we have the right stuff and we just need to be very conscious and specific about how we market and then we have to be very disciplined about our SG&A spend, which
Speaker Change: is something we know how to do and we want to take.
Okay, great. Thanks again.
Thanks, Jeff.
Up next is Mitch Kamitz with Seaport Research. Please proceed.
Thank you for tuning in. We'll see you next time.
Mitch Kamitz: Yes, thanks for taking my questions. I want to start with with the fourth quarter, you know, your sales were near the high end of your range, but the margin, I think, fell a little bit below.
The midpoint, I'm just trying to understand that disconnect
Mitch Kamitz: You know, did you guys, given the slow start to the quarter, Tim, did you guys end up maybe being a little bit more promotional?
Mitch Kamitz: than you were expecting, or did you ramp up, you know, the demand creation a little bit more than you were expecting once, you know, the weather turned and the sell-throughs improved? Is there a reason for why the margins weren't better on such a, you know, strong sales quarter?
Speaker Change: Yeah, Mitch, a couple of things related to that. From a gross margin standpoint and the way we would characterize promotions, we weren't any more promotional than we would have been a year ago. Having said that, and as we touched on, October and November, you know, they were softer months from an overall demand standpoint. Those are typically months in which you're doing more full-priced
sales in advance of the promotional
Speaker Change: during that time frame and really picked up and we had healthy demand from Black Friday, Cyber Monday through the holiday sales period, you see a higher concentration of revenue done during that period where we're a bit more promotional. So that did have some effects.
as you think about gross margin.
impact of the earnings per share.
Speaker Change: Thank you. And then on the guide, I know Laurent asked about...
Speaker Change: sales being a little bit light, and Jim, you kind of went through the factors there. I guess my follow-up to that is, on 2Q, you know, the implied sales growth rate, I think
Speaker Change: If my math is correct, like sales up 6% to 8%.
Speaker Change: and I know you talked about a more normal delivery schedule on the order book this year versus last year and I'm wondering how much that's contributing to the strong 2Q sales growth or if there are other factors to consider there.
Speaker Change: That's going to make up that difference where you get to that slightly higher rate of growth Relative to the slight decline that we're anticipating in q1 Setting that a piece aside Mitch. I don't think there's anything meaningfully different in How we're how we plan the business
Okay. Thanks. Good luck.
Yeah. Thanks, Mitch.
Speaker Change: The next question comes from Paul Lejuez with Citigroup. Please proceed.
Speaker Change: Thanks, it's Tracy Coggins filling in for Paul. I had two questions. I was wondering if you were seeing any difference in your order trends from your partners in the U.S. depending on whether it's a department store, specialty store, etc.
Speaker Change: And then secondly, I was hoping you could break your CapEx down into stores, IT, DC, whatever else might be in there. And then is $60 to $80 million a good run rate to use beyond 2025? Thanks.
Speaker Change: which you know we're still in a strong position with virtually all of our customers again just as a reminder we have a very established mature business in North America we have basically we're selling to every customer we want to sell to
Speaker Change: We have great relationships with all of them, but we are finding that we're selling.
traumatic and
quite exciting.
Jim Swanson: And then, Tracy, as it relates to your question on capital expenditures and the range that we provided, if you look back over the last few years,
Jim Swanson: breaking that down into a lot more detail. I'd be hesitant to do that. Having said that, I'd say that, you know, roughly a quarter of our capex is your traditional maintenance-based capital. Some of the reason why our capex has come down over the years, because if you look back over a longer horizon, you'd see it in the 80 to 100 billion dollar range. We don't have any major ERP, enterprise-level ERP projects going on at the moment, and as we've shifted more and more of the cloud, there's less
Thank you.
absolute hard capital expenditures that have made some of them.
Jim Swanson: The most significant element that's in there relates to stores and expansion of stores. And we've got a modest plan this year. I think we've got about a dozen stores that are planned in North America that are a combination of the branded stores Tim touched on, as well as a few outlets.
Great, thanks very much.
Speaker Change: Up next is Alex Perry with Bank of America. Please proceed.
Speaker Change: Hi, this is Lucas Hudson on for Alex Perry. The guidance assumes a stabilization in the Surwell business. Could you guys just give a little bit more color on what's driving that? I know you guys mentioned the Supreme collaboration, but any more color would be helpful.
Speaker Change: some of which are I can't really talk about but those those should drive meaningful progress and we have a an opportunity to go beyond winter footwear specifically in the Shirel business.
Speaker Change: with an improved women's offering and a relatively brand-new men's offering which is going to give us a lot of opportunity to show what we can do to typical customers who have been buying Cirilla over the years.
So I'm excited about the opportunities.
Thank you.
Speaker Change: Once again, if there are any remaining questions, please indicate so by pressing star one. The next question comes from Mauricio Serna with UBS. Please proceed.
Mauricio Serna: Great, good afternoon, and thanks for taking my questions. First, I would like to hear more about the rationality of why the Porter book
It's lighter than the spring.
Mauricio Serna: for 2025. And then I just wanted to clarify, was there any pull forward of demand in your Q4 results?
Mauricio Serna: And lastly, on free cash flow, you see the guidance is...
Mauricio Serna: operating cash flow of at least 250 million and you know that seems well below you know fiscal year 24 of a little bit of around 490 million dollars you wanted to understand what's the rationality behind that if like EBIT will likely be up this year. Thank you.
Speaker Change: Yeah, so let me touch on those. And Tim, if you want to jump in with color. So as it relates to the fall 25 order book being lower than the spring season, these are two very distinct and different seasons, right? And we just came through fall 24.
Speaker Change: We're encouraged, despite that lower level of sell-through, the work that we've done from an Accelerate perspective, that retailers are responding favorably to that, and we still anticipate that.
Speaker Change: modest growth in the fall season. So, we look at that as a positive despite the fact that it is a lower rate of growth in comparison to what you're seeing for the spring 25 season.
Speaker Change: From a Q4 perspective, you were asking a question about pull-forwards. There's no pull-forward of revenue out of the first half of 2025 into Q4 at all. It's all just...
Speaker Change: are orders for the fall 24 season. There was, however, I should mention, as a result of supply chain disruptions impacting the Red Sea and Bangladesh, there were some sales that shipped out of Q3 and into Q4, and that was to the tune of 60 million. I think I touched on an earlier question.
Speaker Change: And then finally, as it relates to operating cash flow and the lower projection that's there, you know, essentially looking at operating income, which is
Speaker Change: More or less flat, slightly up year over year. And then when you think about the working capital equation over the course of the last two years, of course, we've
Speaker Change: been encouraged and pleased with the work we've done in reducing our inventory levels that have had amplified effect on how you think about operating cash flow as we get into this year while we believe there's still continued opportunity to continue to drive.
Speaker Change: Inventory efficiency and working capital. It's certainly not at the level of magnitude that we would have achieved in each of the last couple years So that's that's the underlying rationale for what you see in that cash flow projection
Go ahead, go ahead. Thank you.
Speaker Change: I was going to talk a little bit about our fall word book and it's reflecting as I said
adoption by our customers of the new
Speaker Change: category of consumers that we're approaching and I guess I would emphasize that we've got products including the Amaze Puff which is a which is a very popular at least based on our customers adoption
down jacket for women as well as
Speaker Change: called The Rock Pant, which is a men's and women's bottoms collection. She's been
Incredibly well-received.
Speaker Change: So those are the areas where retailers are going to be trying our products and making sure that we've got the right connection to consumers. And then as it relates to inventory, I think we all agree here at the company that we can operate the business with less inventory, so you'll be seeing a keen focus on
Speaker Change: efforts to run the business with less inventory so you should expect that over time their cash flow that will significantly improve.
Speaker Change: All right, understood. And then just very lastly, as a follow-up, in the guidance for gross margin, talk about.
Speaker Change: lower product costs, just wanted to understand what was behind that and you kind of mentioned also like and looking at the
Speaker Change: The year, you're going to see the highest growth margin expansion in Q2, so should we think about the other three quarters being relatively expanding at a similar rate, excluding Q2, or how do we think about that? Thank you.
Speaker Change: and placing allocation, and that's nothing more than what we're seeing in terms of just input costs generally being a little bit lighter or lower this year relative to last, particularly in the case of the spring season.
Speaker Change: Or duty aside from what we've touched on as it relates to China specifically. And then as it relates to the gross margin, so that was touching on Q2. The margin is a little bit healthier just in light of the bull price.
Speaker Change: sales proportion relative to total. If you look at the balance of the quarters during the year, I think they're, you know, they're at around
Speaker Change: the 80 basis points of expansion that's included in our outlook. Keep in mind Q2 is an exceptionally, it's our smallest quarter from a revenue standpoint, so even though the gross margin might be greater than, it just doesn't have the same effect on the full year.
Understood. Thank you so much.
Thank you.
Speaker Change: Okay, we have no further questions in the queue. I would like to turn the floor back to management for any closing remarks.
Speaker Change: Thank you Albert. I just want to thank everyone for listening in.
Speaker Change: We're very excited to be returning to growth in 2025, and we're looking forward to the Accelerate Growth Strategy coming to life in the seasons ahead.
Look forward to talking to you next quarter.