Q2 2019 Earnings Call

July 25, 2019

Greetings and welcome to Columbia, Sportswear company's second quarter fiscal year 2019 financial results.

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.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Andrew Burns director of Investor Relations. Thank you Mr. Burns you may now begin.

Andrew Burns: Good afternoon, thanks for joining us to discuss Columbia Sportswear Company's Q2 results and 2019 outlook. In addition to the earnings release, we furnished an 8K containing a detailed CFO commentary explaining our results and the assumptions behind our 2009 outlook. The CFO commentary is also available on our investor relations website, investor.columbia.com. With me today on the call are President and Chief Executive Officer Tim Boyle, Executive Vice President and Chief Operating Officer Tom Cusick, Senior Vice President and Chief Financial Officer Jim Swanson, and Executive Vice President and Chief Administrative Officer Peter Bragden. Gert is not available to join us today, I will start off by covering the Safe Harbor reminder. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operations.

Good afternoon, and thanks for joining us to discuss Columbia sportswear company's second quarter results from 2019 outlook. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary, explaining our results and the assumptions behind your 2009 outlook.

The CFO commentary is also available on our Investor Relations website, Investor Duck Columbia Dotcom.

With me today on the call, our President and Chief Executive Officer, Tim Boyle, Executive Vice President and Chief Operating Officer, Tom Cusick, Senior Vice President and Chief Financial Officer, Jim Swanson, Executive Vice President and Chief administrative Officer, Peter Bragdon.

Good is not available to join US today, So I will start off by covering the Safe Harbor reminder.

This conference call will contain forward looking statements regarding columbia's business opportunities and anticipated results of operations.

Andrew Burns: Please bear in mind that forward-looking information 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 annual report on Form 10-K and subsequent filings with the SEC. Forward-looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call we may reference certain non-GAAP financial measures, including non-GAAP results for 2018.

Please bear in mind that forward looking information 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 annual report on Form 10-K , and subsequent filings with the SEC.

Forward looking statements in this conference call are based on our current expectations and beliefs and we do not undertake any duty to update any of the forward looking statements. After the date of this conference call to conform the forward looking statements to actual results or to changes in our expectations.

I'd also like to point out that during the call. We may reference certain non-GAAP financial measures, including non-GAAP results for 2018.

Andrew Burns: 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, please refer to the supplemental financial information section and financial tables included in our Q2 2019 earnings release. Following our prepared remarks, we will host a Q&A period during which we will limit each caller to two questions so we can get everyone by the end of the hour. Now I'll turn the call over to Tim.

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. Please refer to the supplemental financial information section and financial tables included in our second quarter 2019 earnings release.

Following our prepared remarks, we will host a Q and a period during which we will limit each caller to two questions. So we can get everyone by the into our now I'll turn the call over to Tim.

Tim Boyle: Thanks, Andrew. Welcome, everyone, thanks for joining us this afternoon. 2019 is shaping up to be an excellent year for Columbia Sportswear Company with record Q2 and first-half financial performance. Based on strong first-half results, current business momentum, and one-time tax benefits, we are raising the low end of our net sales outlook and raising our operating margin and earnings per share outlook for the full year. Overall, our brand-led, consumer-focused strategy is delivering profitable growth, market share gains, and enabling continued investments in our strategic priorities. In Q2, net sales increased 9%, driven by strong spring 2019 sales performance and, to a lesser extent, early shipments of advanced fall 2019 orders, and increased closeout sales. Excluding the effect of exchange rates, net sales increased 11% with double-digit growth realized for Columbia, Sorel, and Mountain Hardwear brands.

Timothy Boyle: Thanks, Andrew. Welcome, everyone, thanks for joining us this afternoon. 2019 is shaping up to be an excellent year for Columbia Sportswear Company with record Q2 and first-half financial performance. Based on strong first-half results, current business momentum, and one-time tax benefits, we are raising the low end of our net sales outlook and raising our operating margin and earnings per share outlook for the full year. Overall, our brand-led, consumer-focused strategy is delivering profitable growth, market share gains, and enabling continued investments in our strategic priorities. In Q2, net sales increased 9%, driven by strong spring 2019 sales performance and, to a lesser extent, early shipments of advanced fall 2019 orders, and increased closeout sales. Excluding the effect of exchange rates, net sales increased 11% with double-digit growth realized for Columbia, Sorel, and Mountain Hardwear brands.

Thanks, Andrew welcome everyone and thanks for joining us this afternoon.

2019 is shaping up to be an excellent year for Columbia Sportswear company with record second quarter and first half financial performance.

Based on strong first half results current business momentum and onetime tax benefits, we are raising the low end of our net sales outlook and raising our operating margin and earnings per share outlook for the full year.

Overall, our brand led consumer focused strategy is delivering profitable growth.

Market share gains and enabling continued investments in our strategic priorities in the second quarter net sales increased 9% driven by strong spring 2019 sales performance and to a lesser extent early shipments of advanced fall 2019 orders and increased close out sales.

Excluding the effect of exchange rates net sales increased 11% with double digit growth realized for Columbia, Sorel and mountain Hardwear brands.

Tim Boyle: Project CONNECT financial benefits continued in Q2, helping to drive 70 basis points of gross margin expansion. Diluted earnings per share more than doubled to $0.34. It's also important to note that diluted earnings per share includes $0.11 of one-time tax benefits primarily related to the passage of the Swiss tax reform package. Because Q2 is our lowest volume sales quarter, I'm going to focus my remarks on our first-half results as they more accurately reflect underlying business trends. For the first half, net sales increased 8% or 10% excluding the effect of exchange rates. Diluted earnings per shares of $1.41 increased 83% compared to 2018 GAAP first-half results and increased 52% compared to 2018 non-GAAP first-half results. Regionally, US.

Timothy Boyle: Project CONNECT financial benefits continued in Q2, helping to drive 70 basis points of gross margin expansion. Diluted earnings per share more than doubled to $0.34. It's also important to note that diluted earnings per share includes $0.11 of one-time tax benefits primarily related to the passage of the Swiss tax reform package. Because Q2 is our lowest volume sales quarter, I'm going to focus my remarks on our first-half results as they more accurately reflect underlying business trends. For the first half, net sales increased 8% or 10% excluding the effect of exchange rates. Diluted earnings per shares of $1.41 increased 83% compared to 2018 GAAP first-half results and increased 52% compared to 2018 non-GAAP first-half results. Regionally, US.

Project connect financial benefits continued in the second quarter, helping to drive 70 basis points of gross margin expansion.

Diluted earnings per share more than doubled to 34 cents.

It's also important to note that diluted earnings per share includes 11 cents of onetime tax benefits primarily related to the passage of the Swiss tax reform package.

Because the second quarter is our lowest volume sales quarter I'm going to focus my remarks on our first half results as they more accurately reflect underlying business trends.

For the first half net sales increased 8% or 10%, excluding the effect of exchange rates.

Diluted earnings per share of $1.41 increased 83% compared to 2018, GAAP first half results and increased 52% compared to 2018 non-GAAP first half results.

Regionally us net sales increased 13% comprised of mid teens percent growth in wholesale and low double digit percent growth in DTC, driven by brick and mortar store performance and a low 20% increase in e-commerce .

Tim Boyle: Net sales increased 13%, comprised of mid-teens percent growth in wholesale and low double-digit percent growth in DTC, driven by brick-and-mortar store performance and a low 20% increase in e-commerce. Consumers responded well to our innovative spring 2019 assortment led by the Columbia and Sorel brands in the US wholesale and e-commerce channels. For my review of international markets and brand performance, I will reference constant currency growth rates, which we believe best reflect the underlying business trends. Net sales outside the US grew 6% in the first half, with the EMEA, LAAP, and Canada regions all reporting net sales growth. Looking more closely at growth trends in our international markets, our international distributor business was up high single-digit percent, with growth from the EMEA distributors partially offset by a modest decline in our LAAP distributor business.

Timothy Boyle: Net sales increased 13%, comprised of mid-teens percent growth in wholesale and low double-digit percent growth in DTC, driven by brick-and-mortar store performance and a low 20% increase in e-commerce. Consumers responded well to our innovative spring 2019 assortment led by the Columbia and Sorel brands in the US wholesale and e-commerce channels. For my review of international markets and brand performance, I will reference constant currency growth rates, which we believe best reflect the underlying business trends. Net sales outside the US grew 6% in the first half, with the EMEA, LAAP, and Canada regions all reporting net sales growth. Looking more closely at growth trends in our international markets, our international distributor business was up high single-digit percent, with growth from the EMEA distributors partially offset by a modest decline in our LAAP distributor business.

Consumers responded well to our innovative spring 2019 assortment led by the Columbia and Sorel brands in the us wholesale and e-commerce channels.

For my review of International markets and brand performance I will reference constant currency growth rates, which we believe best reflect the underlying business trends.

Net sales outside the US grew 6% in the first half with the EMEA L.A.P. and Canada regions, all reporting net sales growth.

Looking more closely at growth trends in our international markets, Our international distributor business was up high single digit percent.

With growth from the EMEA distributors, partially offset by a modest decline in our L.A. distributed business.

Tim Boyle: Japan's high single-digit percent growth in the first half reflects the Columbia brand's strong market position with healthy growth noted across both wholesale and DTC channels. Europe-direct was up mid-single-digit percent, driven by DTC and wholesale growth. Given economic pressures, the retail environment is challenging in several of our largest European markets, resulting in growth rates below what we've seen in recent years. That said, given our relatively low market share today, we continue to see tremendous long-term growth opportunities in Europe. Korea was up mid-single-digit percent in the first half as our business continues to stabilize despite a declining Korean outdoor market. China was up low single-digit percent in the first half. After a decline in the Q1, net sales returned to growth in the Q2, driven by our decision to work down excess inventory.

Timothy Boyle: Japan's high single-digit percent growth in the first half reflects the Columbia brand's strong market position with healthy growth noted across both wholesale and DTC channels. Europe-direct was up mid-single-digit percent, driven by DTC and wholesale growth. Given economic pressures, the retail environment is challenging in several of our largest European markets, resulting in growth rates below what we've seen in recent years. That said, given our relatively low market share today, we continue to see tremendous long-term growth opportunities in Europe. Korea was up mid-single-digit percent in the first half as our business continues to stabilize despite a declining Korean outdoor market. China was up low single-digit percent in the first half. After a decline in the Q1, net sales returned to growth in the Q2, driven by our decision to work down excess inventory.

Japan's high single digit percent grows in the first half reflects that clearly reflects the Columbia brand's strong market position with healthy growth noted across both wholesale and DTC channels.

Europe direct was up mid single digit percent driven by DTC and wholesale growth.

Given economic pressures the retail environment is challenging and several of our largest European markets, resulting in growth rates below what we've seen in recent years.

That said given our relatively low market share today, we continue to see tremendous long term growth opportunities in Europe .

Korea was up mid single digit percent in the first half as our business continues to stabilize despite a declining Korean outdoor market.

China was up low single digit percent in the first half.

After a decline in the first quarter net sales returned to growth in the second quarter driven by our decision to work down excess inventory in 2019, New General manager John show is focused on resetting the marketplace by optimizing distribution and investing in our consumer experience.

Tim Boyle: In 2019, new General Manager John Soh is focused on resetting the marketplace by optimizing distribution and investing in our consumer experience. The Columbia brand has a strong market position in China, and we believe new management and the investments we are making will reinvigorate growth in this market, which remains one of our largest geographic growth opportunities. In Canada, after a difficult Q1, the arrival of warmer weather in the Q2 helped boost spring 2019 product sell-through, resulting in mid-single-digit percent growth for the first half of the year. Turning to margin performance for the first half, gross margin was up 150 basis points to 50%, largely reflecting Project CONNECT benefits, including our design-to-value, assortment optimization, and manufacturing efficiency initiatives.

Timothy Boyle: In 2019, new General Manager John Soh is focused on resetting the marketplace by optimizing distribution and investing in our consumer experience. The Columbia brand has a strong market position in China, and we believe new management and the investments we are making will reinvigorate growth in this market, which remains one of our largest geographic growth opportunities. In Canada, after a difficult Q1, the arrival of warmer weather in the Q2 helped boost spring 2019 product sell-through, resulting in mid-single-digit percent growth for the first half of the year. Turning to margin performance for the first half, gross margin was up 150 basis points to 50%, largely reflecting Project CONNECT benefits, including our design-to-value, assortment optimization, and manufacturing efficiency initiatives.

The Columbia brand as a strong market position and in China.

And we believe new management and the investments, we're making will reinvigorate growth in this market, which remains one of our largest geographic growth opportunities.

In Canada after a difficult first quarter the arrival of warmer weather in the second quarter helped boost spring 2019 product sell through resulting in mid single digit percent growth for the first half of the year.

Turning to margin performance for the first half.

Gross margin was up 150 basis points to 50%.

Largely reflecting project connect benefits, including our design to value assortment optimization and manufacturing.

Efficiency initiatives.

Tim Boyle: SG&A expenses grew 9% compared to last year's non-GAAP SG&A expenses, resulting in SG&A as a percent of sales of 41.7% compared to non-GAAP SG&A as a percent of sales of 41.6% in the prior year. The biggest drivers of SG&A growth were planned investments to support our expanding global DTC operations, higher personnel and project-related expenses, and increased demand creation spending. Looking at the Columbia brand globally, sales increased 11% in the first half, led by our US DTC and wholesale businesses. We believe this growth is indicative of market share gains. Our spring 2019 sell-through has been quite positive across all categories as consumers responded to our innovative product lines. Once again, PFG was a top performer and is quickly approaching annualized sales of more than $200 million. We are committed to investing in PFG to unlock its full potential.

Timothy Boyle: SG&A expenses grew 9% compared to last year's non-GAAP SG&A expenses, resulting in SG&A as a percent of sales of 41.7% compared to non-GAAP SG&A as a percent of sales of 41.6% in the prior year. The biggest drivers of SG&A growth were planned investments to support our expanding global DTC operations, higher personnel and project-related expenses, and increased demand creation spending. Looking at the Columbia brand globally, sales increased 11% in the first half, led by our US DTC and wholesale businesses. We believe this growth is indicative of market share gains. Our spring 2019 sell-through has been quite positive across all categories as consumers responded to our innovative product lines. Once again, PFG was a top performer and is quickly approaching annualized sales of more than $200 million. We are committed to investing in PFG to unlock its full potential.

SGN a expenses grew 9% compared to last years non-GAAP SGN, a expenses, resulting in SGN as a percent of sales of 41.7% compared to non-GAAP SGN as a percent of sales of 41.6% in the prior year.

The biggest drivers of SGN a growth were planned investments to support our expanding global DTC operations higher personnel and project related expenses and increased demand creation spending.

Looking at the Columbia brand globally sales increased 11% in the first half led by our us DTC and wholesale businesses. We believe this growth is indicative of market share gains.

Our spring 2019 sell through has been quite positive across all categories as consumers responded to our innovative product lines.

Once again PSG was a top performer and is quickly approaching annualized sales of more than $200 million.

We are committed to investing in PSG to unlock its full potential.

Tim Boyle: In 2019, we've released several PFG digital stories as well as launched a new dedicated PFG Instagram channel. In June, country singer and brand ambassador Luke Combs was invited to be the newest member of the Grand Old Opry. Luke received this prestigious honor wearing his signature black PFG Bahama shirt. Congratulations, Luke. It's well deserved. On the product front, Columbia received several media callouts and awards during the quarter. In rainwear, the Evolution Valley jacket was included in Forbes Roundup of the Best Rain Coats for Stylish and Productive Men, and Digital Trends featured the OutDry Extreme Eco Jacket in their article on sustainable outdoor gear for Earth Day. Omni-Shade sun deflector products, including the PFG Tidal Deflector and Terminal Deflector, were featured in articles on sun-protective clothing from Outside Magazine, Gear Patrol, and Yahoo Lifestyle.

Timothy Boyle: In 2019, we've released several PFG digital stories as well as launched a new dedicated PFG Instagram channel. In June, country singer and brand ambassador Luke Combs was invited to be the newest member of the Grand Old Opry. Luke received this prestigious honor wearing his signature black PFG Bahama shirt. Congratulations, Luke. It's well deserved. On the product front, Columbia received several media callouts and awards during the quarter. In rainwear, the Evolution Valley jacket was included in Forbes Roundup of the Best Rain Coats for Stylish and Productive Men, and Digital Trends featured the OutDry Extreme Eco Jacket in their article on sustainable outdoor gear for Earth Day. Omni-Shade sun deflector products, including the PFG Tidal Deflector and Terminal Deflector, were featured in articles on sun-protective clothing from Outside Magazine, Gear Patrol, and Yahoo Lifestyle.

In 2019, we've released several PSG digital stories as well as launched a new dedicated PSG Instagram channel in June country singer and brand Ambassador loop Combs was invited to be the newest member of the Grand old operate.

Luke receive this prestigious honor wearing his signature black PSG Bahama shirt.

Congratulations Luke its well deserved.

On the product front Columbia received several media call outs at awards during the quarter.

And rainwear.

The evolution Valley jacket was included in Forbes round up of the best Raincoats for stylish and productive men and digital trends featured the Outdry extreme eco jacket in their article on sustainable outdoor gear for Us Dave.

Omni shade Sun deflector products, including the PSG title Deflector and terminal Deflector were featured in articles on Sun protective clothing from outside magazine year patrol and Yahoo lifestyle.

Tim Boyle: In footwear, Runner's World featured a strong review of our new lightweight trail running shoe, the Alpine FTG. Our newest collaboration with Opening Ceremony, which continues to resonate with younger consumers, was covered by several media outlets, including Esquire, Bustle, Complex, Hypebeast, and Nylon. We're excited to launch a new footwear platform innovation next month called SH/FT, which targets younger adults who are not willing to compromise city-inspired style and athletic comfort for outdoor function. SH/FT provides them with a modern aesthetic, athletic comfort, and is engineered with Columbia's technologies for uncompromising performance on the trail. We will be launching this product 9 August with a select number of retail partners around the world, including some very limited production styles with influential retailers. We will support this launch with a coordinated marketing campaign, including launch events, influencers, digital, in-store, and out-of-home advertisements.

Timothy Boyle: In footwear, Runner's World featured a strong review of our new lightweight trail running shoe, the Alpine FTG. Our newest collaboration with Opening Ceremony, which continues to resonate with younger consumers, was covered by several media outlets, including Esquire, Bustle, Complex, Hypebeast, and Nylon. We're excited to launch a new footwear platform innovation next month called SH/FT, which targets younger adults who are not willing to compromise city-inspired style and athletic comfort for outdoor function. SH/FT provides them with a modern aesthetic, athletic comfort, and is engineered with Columbia's technologies for uncompromising performance on the trail. We will be launching this product 9 August with a select number of retail partners around the world, including some very limited production styles with influential retailers. We will support this launch with a coordinated marketing campaign, including launch events, influencers, digital, in-store, and out-of-home advertisements.

In footwear Runner's World fixed featured a strong review of our new lightweight trail running shoe the alpine EFT TG.

Our newest collaboration with opening ceremony, which continues to resonate with younger consumers.

Was covered by several media outlets, including Esquire Bussell complex type based and nylon.

We're excited to launch a new footwear platform innovation next month cold shift, which targets younger adults, who are not willing to compromise city inspired style and athletic comfort for outdoor function.

Shift provides them with modern as with the modern aesthetic athletic comfort and as engineered with Columbia's technologies for uncompromising performance on the trail.

We will be launching this product August 9th with a select number of retail partners around the world, including some very limited production styles with influential retailers.

We will support this launch with a coordinated marketing campaign, including launch events Influencers digital in store and out of home advertisements.

Tim Boyle: This is just the first of many new Columbia footwear product introductions that you'll see in the coming years as we realize the brand's full potential in this important category. As part of Columbia's mission to unlock the outdoors for everyone, we recently announced a new campaign and donations to support the National Park Foundation's Open OutDoors for Kids initiative, which helps today's youth trade screen time for green time. This collection of T-shirts features nine limited-edition designs with images from our national parks. We also continue to support the UK National Park System as their official outfitter of park rangers and staff. During the quarter, we continue to enhance our consumer experience globally by investing in Columbia's in-store presence with key retail partners. This season, we've added additional shop-in-shops and fixtures at top sporting goods retailers, which resulted in improved sell-through performance of targeted categories at those doors.

Timothy Boyle: This is just the first of many new Columbia footwear product introductions that you'll see in the coming years as we realize the brand's full potential in this important category. As part of Columbia's mission to unlock the outdoors for everyone, we recently announced a new campaign and donations to support the National Park Foundation's Open OutDoors for Kids initiative, which helps today's youth trade screen time for green time. This collection of T-shirts features nine limited-edition designs with images from our national parks. We also continue to support the UK National Park System as their official outfitter of park rangers and staff. During the quarter, we continue to enhance our consumer experience globally by investing in Columbia's in-store presence with key retail partners. This season, we've added additional shop-in-shops and fixtures at top sporting goods retailers, which resulted in improved sell-through performance of targeted categories at those doors.

This is just the first of many new Columbia footwear product introductions that you'll see in the coming years as we realize the brand's full potential in this important category.

As part of Columbia's mission to unlock the outdoors for everyone. We recently announced a new campaign and donations to support the National Park foundations open outdoors for Kids initiative.

Bush helps today's youth trade screen time for Green time.

This collection of T shirts features nine limited edition designs with images from our National Parks.

We also continue to support the UK National Park system as their official Outfitter of Park Rangers and staff.

During the quarter, we continued to enhance our consumer experience globally by investing in Colombia's in store presence with key retail partners. This season, we have added additional shop in shops and fixtures at top sporting goods retailers, which resulted in improvement improved sell through performance of targeted categories at those doors.

Tim Boyle: In the second half of 2019, we will be executing Key City Attack plans in New York City and Denver. Evidenced by the success of our Houston and Chicago Key City Attack plans last year, this strategy has proven to be a valuable tool to boost brand awareness and drive increased sell-through across our wholesale partners, Columbia Stores, and Columbia.com. We look forward to sharing updates on these important activations in the coming quarters. Sorel net sales increased an impressive 31% in the first half of the year, led by growth in US wholesale and DTC. Spring 2019 product was well received, with strong performance noted across our Ella Sandals, Joanie collection, and Kinetic sneakers. Looking to the second half of the year, we're positioned to capitalize on this momentum during the higher volume fall and winter seasons.

Timothy Boyle: In the second half of 2019, we will be executing Key City Attack plans in New York City and Denver. Evidenced by the success of our Houston and Chicago Key City Attack plans last year, this strategy has proven to be a valuable tool to boost brand awareness and drive increased sell-through across our wholesale partners, Columbia Stores, and Columbia.com. We look forward to sharing updates on these important activations in the coming quarters. Sorel net sales increased an impressive 31% in the first half of the year, led by growth in US wholesale and DTC. Spring 2019 product was well received, with strong performance noted across our Ella Sandals, Joanie collection, and Kinetic sneakers. Looking to the second half of the year, we're positioned to capitalize on this momentum during the higher volume fall and winter seasons.

In the second half of 2019, we will be executing key city attack plans in New York City and Denver.

Evidenced by the success of our Houston and Chicago Key City attack plans last year. This strategy has proven to be a valuable tool to boot to boost brand awareness and drive increased sell through across our wholesale partners Columbia stores and Columbia Dotcom, we look forward to sharing updates on these important activations in the coming quarters.

So rail net sales increased an impressive 31% in the first half of the year led by growth in U.S wholesale and DTC.

Spring 2019 product was well received with strong performance noted across our Ela sandals.

Joni collection and kinetic sneakers.

Looking to the second half of the year, we're positioned to capitalize on this momentum during the higher volume fall and winter seasons.

Tim Boyle: In recent calls, we've highlighted that we are investing in Sorel demand creation in 2019, and I look forward to sharing some of the exciting marketing and product stories that will be unveiled this fall on our next conference call. prAna net sales declined 1% in the first half. In order to maintain the brand's premium position and raise brand awareness, we reduced promotional activity and made changes to marketing and catalog programs. While this impacted near-term sales growth, the prAna team is hyper-focused on the product assortment and market position in order to drive long-term growth. Mountain Hardwear sales declined 1% in the first half, but we're encouraged to see full-price sales up year-over-year during this time period. In Q2, Mountain Hardwear reported year-over-year growth for the first time since 2017 and is poised for continued growth in the second half of the year.

Timothy Boyle: In recent calls, we've highlighted that we are investing in Sorel demand creation in 2019, and I look forward to sharing some of the exciting marketing and product stories that will be unveiled this fall on our next conference call. prAna net sales declined 1% in the first half. In order to maintain the brand's premium position and raise brand awareness, we reduced promotional activity and made changes to marketing and catalog programs. While this impacted near-term sales growth, the prAna team is hyper-focused on the product assortment and market position in order to drive long-term growth. Mountain Hardwear sales declined 1% in the first half, but we're encouraged to see full-price sales up year-over-year during this time period. In Q2, Mountain Hardwear reported year-over-year growth for the first time since 2017 and is poised for continued growth in the second half of the year.

In recent calls we've highlighted that we are investing in cereal demand creation in 2019, and I look forward to sharing some of the exciting marketing and product stories that will be unveiled this fall on our next conference call.

Prana net sales declined 1% in the first half in order to maintain the brand's premium position and raise brand awareness, we reduced promotional activity and made changes to marketing and catalog programs.

While this impacted near term sales growth the product team is hyper focused on the product assortment and market position in order to drive long term growth.

Mountain Hardwear sales declined 1% in the first half, but were encouraged to see full price sales up year over year. During this time period.

In the second quarter Mountain Hardwear reported year over year growth for the first time since 2017 and is poised for continued growth in the second half of the year I congratulate the mountain Hardwear team for its tremendous work in building a foundation for long term growth and in reinvigorating The mountain Hardwear brand.

Tim Boyle: I congratulate the Mountain Hardwear team for its tremendous work in building a foundation for long-term growth and in reinvigorating the Mountain Hardwear brand. I'll now quickly review our balance sheet and cash flow. Total inventory exiting the year was up 33% to $756 million, primarily reflecting earlier receipts of fall 2019 product to improve manufacturing efficiencies and to a lesser extent to support our business growth. Our inventory is in line with our expectations and consistent with the commentary we provided on the last call. We remain confident in the quality and aging of our inventory position and expect inventory growth to moderate in the second half of the year, with projected mid-teens percent year-over-year inventory growth at the end of Q3.

Timothy Boyle: I congratulate the Mountain Hardwear team for its tremendous work in building a foundation for long-term growth and in reinvigorating the Mountain Hardwear brand. I'll now quickly review our balance sheet and cash flow. Total inventory exiting the year was up 33% to $756 million, primarily reflecting earlier receipts of fall 2019 product to improve manufacturing efficiencies and to a lesser extent to support our business growth. Our inventory is in line with our expectations and consistent with the commentary we provided on the last call. We remain confident in the quality and aging of our inventory position and expect inventory growth to moderate in the second half of the year, with projected mid-teens percent year-over-year inventory growth at the end of Q3.

I will now quickly review, our balance sheet and cash flow.

Total inventory exiting the year was up 33% to 756 million, primarily reflecting earlier receipts of fall 2019 product to improve manufacturing efficiencies and to a lesser extent to support our business growth.

Our inventory is in line with our expectations and consistent with the commentary we provided on the last call.

We remain confident in the quality and aging of our inventory position and expect inventory growth to moderate in the second half of the year with projected mid teens percent year over year inventory growth at the end of the third quarter.

Tim Boyle: We continue to view our diversified supplier base as a competitive strength. Looking at our spring 2020 assortment and beyond, the product sourced in China is expected to represent a low double-digit % of total imported value into the US. If the US seeks to impose additional tariffs on China products, the potential impact would be primarily felt in 2020 and beyond. Our balance sheet remains extremely strong, with cash balances of over $500 million exiting Q2. We continue to have no long-term debt. During the first half, the company repurchased over $1 million shares of common stock for approximately $100 million at an average price of $0.9722 per share and paid $33 million in shareholder dividends. Exiting the quarter, we had $236 million remaining under the current stock repurchase authorization.

Timothy Boyle: We continue to view our diversified supplier base as a competitive strength. Looking at our spring 2020 assortment and beyond, the product sourced in China is expected to represent a low double-digit % of total imported value into the US. If the US seeks to impose additional tariffs on China products, the potential impact would be primarily felt in 2020 and beyond. Our balance sheet remains extremely strong, with cash balances of over $500 million exiting Q2. We continue to have no long-term debt. During the first half, the company repurchased over $1 million shares of common stock for approximately $100 million at an average price of $0.9722 per share and paid $33 million in shareholder dividends. Exiting the quarter, we had $236 million remaining under the current stock repurchase authorization.

We continue to view, our diversified supplier base as a competitive strength and looking at our spring 20 assortment and beyond the product sourced in China is expected to represent a low double digit percent of total imported value into the U.S.

With us seeks to impose additional tariffs on China products, the potential impact will be primarily felt in 2020 and beyond.

Our balance sheet remains extremely strong with cash balances of over $500 million exiting the second quarter.

We continue to have no long term debt.

During the first half the company repurchased over 1 million shares of common stock for approximately $100 million at an average price of 97 point 22 cents.

For share and paid $33 million in shareholder dividends.

Exiting the quarter, we had 236 million remaining under the current stock repurchase authorization.

Before reviewing our 2000 Nineteens financial outlook I'd like to provide an update on current areas of investment.

Tim Boyle: Before reviewing our 2019 financial outlook, I'd like to provide an update on current areas of investment. On the technology front, we have begun implementation of our new retail platform, Consumer-First, or C1, in North America. Currently, we're in the pilot phase of this implementation with a limited number of stores and plan to roll out C1 across the North America store fleet in the second half of this year. During the quarter, we also implemented our new mobile platform, Experience First, or X1, in our Europe-direct and prAna e-commerce businesses. We're pleased with the performance of these systems to date. We still expect the remainder of the X1 North America implementation to occur in 2020. We are also continuing to make strategic investments across our supply chain to enable growth, improve productivity, enhance service levels, and add capacity throughout our distribution and fulfillment networks.

Timothy Boyle: Before reviewing our 2019 financial outlook, I'd like to provide an update on current areas of investment. On the technology front, we have begun implementation of our new retail platform, Consumer-First, or C1, in North America. Currently, we're in the pilot phase of this implementation with a limited number of stores and plan to roll out C1 across the North America store fleet in the second half of this year. During the quarter, we also implemented our new mobile platform, Experience First, or X1, in our Europe-direct and prAna e-commerce businesses. We're pleased with the performance of these systems to date. We still expect the remainder of the X1 North America implementation to occur in 2020. We are also continuing to make strategic investments across our supply chain to enable growth, improve productivity, enhance service levels, and add capacity throughout our distribution and fulfillment networks.

On the technology front, we have begun implementation of our new retail platform consumer onest or see one in North America.

Currently we're in the pilot plays of the pilot phase of this implementation with a limited number of stores and plan to rollout see one across the North America store fleet in the second half of this year.

During the quarter, we also implemented our new mobile platform experienced first or X one in our Europe direct and Pramac ecommerce businesses. We're pleased with the performance of these systems to date.

We still expect the remainder of the X one North America implementation to occur in 2020.

We are also continuing to make strategic investments across our supply chain to enable growth improved productivity enhanced service levels and add capacity throughout our distribution and fulfillment networks.

Tim Boyle: I'd now like to provide some detail on our updated 2019 financial outlook. Based on first-half performance, we now anticipate 7% to 8.5% full-year net sales growth. Compared to 2018 results, we continue to expect gross margin to improve by approximately 80 basis points, with the largest driver of year-over-year improvement coming from Project CONNECT benefits. We expect operating margin to be between 12.9% and 13% compared to 2018 non-GAAP operating margin of 12.9%. Our full-year financial outlook now contemplates a full-year tax rate of approximately 20% due to one-time tax benefits and a reduced share count. Together with the benefit of full ownership of our China business, we expect diluted earnings per share of $4.65 to $4.75, up 16% to 18% from 2018 non-GAAP results.

Timothy Boyle: I'd now like to provide some detail on our updated 2019 financial outlook. Based on first-half performance, we now anticipate 7% to 8.5% full-year net sales growth. Compared to 2018 results, we continue to expect gross margin to improve by approximately 80 basis points, with the largest driver of year-over-year improvement coming from Project CONNECT benefits. We expect operating margin to be between 12.9% and 13% compared to 2018 non-GAAP operating margin of 12.9%. Our full-year financial outlook now contemplates a full-year tax rate of approximately 20% due to one-time tax benefits and a reduced share count. Together with the benefit of full ownership of our China business, we expect diluted earnings per share of $4.65 to $4.75, up 16% to 18% from 2018 non-GAAP results.

I'd now like to provide some detail on our updated 2019 financial outlook.

Based on first half performance, we now anticipate 7% to 8.5% full year net sales growth.

Compared to 2018 results, we continue to expect gross margin to improve by approximately 80 basis points with the largest driver of year over year improvement coming from project connect benefits.

We expect operating margin to be between 12.9, and 13% compared to 2018 non-GAAP operating margin of 12.9%.

Our full year financial outlook now contemplates a full year tax rate of approximately 20% due to the onetime tax benefits and a reduced share count.

Together with the benefit of full ownership of our China business, we expect diluted earnings per share of $4.65 to $4.75.

Up 16% to 18% from 2018 non-GAAP results.

Tim Boyle: Our capital expenditures outlook has also increased to $145 million, reflecting the opportunistic purchase of property close to our corporate headquarters as well as larger technology investments. For Q3, we anticipate low double-digit percent net sales growth and mid to high single-digit earnings per share growth compared to 2018 non-GAAP Q3 diluted earnings per share of $1.41. Please note that our Q3 earnings release and conference call will be on Wednesday, 30 October. In summary, our record first half performance is evidence that our brand-led, consumer-focused strategy is working.

Timothy Boyle: Our capital expenditures outlook has also increased to $145 million, reflecting the opportunistic purchase of property close to our corporate headquarters as well as larger technology investments. For Q3, we anticipate low double-digit percent net sales growth and mid to high single-digit earnings per share growth compared to 2018 non-GAAP Q3 diluted earnings per share of $1.41. Please note that our Q3 earnings release and conference call will be on Wednesday, 30 October. In summary, our record first half performance is evidence that our brand-led, consumer-focused strategy is working.

Our capital expenditures outlook has also increased to 145 million.

Reflecting the opportunistic purchases of property close to our corporate headquarters as well as larger technology investments.

For the third quarter, we anticipate low double digit percent net sales growth and mid to high single digit earnings per share growth compared to 2018, non-GAAP third quarter diluted earnings per share of $1.41.

Please note that our third quarter earnings release and conference call will be on Wednesday October Thirtyth.

In summary, our record for first half performance is evidence that our brand led consumer focused strategy is working.

Tim Boyle: Our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to drive global brand awareness and sales growth through increased focused demand creation investments, enhance consumer experience and digital capabilities in all of our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems, and invest in our people and optimize our organization across our portfolio of brands. You can find more detail on our Q2 results and our 2019 financial outlook in Jim's CFO commentary available on our website. That concludes my prepared remarks. We are welcome to answer your questions for the remainder of the hour. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press star 1 on your telephone keypad.

Timothy Boyle: Our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to drive global brand awareness and sales growth through increased focused demand creation investments, enhance consumer experience and digital capabilities in all of our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems, and invest in our people and optimize our organization across our portfolio of brands. You can find more detail on our Q2 results and our 2019 financial outlook in Jim's CFO commentary available on our website. That concludes my prepared remarks. We are welcome to answer your questions for the remainder of the hour.

Our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities too.

Dr. global brand awareness and sales growth through increased focus demand creation investments.

Enhance consumer experience and digital capabilities in all of our channels and geographies.

Expand an improved global direct to consumer operations was supporting processes and systems.

And invest in our people and optimize our organization across our portfolio of brands.

You can find more details on our Q2 results and our 2019 financial outlook in gems CFO commentary available on our website that concludes my prepared remarks, we're welcome to answer your questions for the remainder of the hour.

Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, you may press star 1 on your telephone keypad.

Thank you we will now be conducting a question and answer session.

If youd like to ask a question you May press star one on your telephone keypad a confirmation total indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

Tim Boyle: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key. Our first question comes from the line of Bob Drbul with Guggenheim. Please proceed with your question. Thanks, Sam. Good afternoon, guys. Hey, Bob. Hey, Bob. Tim, on the sales outlook for the remainder of the year, you talked a lot about the SH/FT footwear, you look at the performance of footwear versus apparel first half of the year. Can you just give us an idea in terms of the expectations on the footwear business in the back half of the year? Certainly. Well, as you know, we've got new leadership in our footwear department division with Peter Ruppe starting here.

Operator: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 key. Our first question comes from the line of Bob Drbul with Guggenheim. Please proceed with your question.

Our first question comes from the line of Bob durable with Guggenheim. Please proceed with your question.

Robert S. Drbul: Thanks, Sam. Good afternoon, guys.

Thanks, Good afternoon guys.

Andrew Burns: Hey, Bob.

Timothy Boyle: Hey, Bob.

Hey, Bob for them.

Robert S. Drbul: Tim, on the sales outlook for the remainder of the year, you talked a lot about the SH/FT footwear, you look at the performance of footwear versus apparel first half of the year. Can you just give us an idea in terms of the expectations on the footwear business in the back half of the year?

Tim on the on the sales outlook for the remainder of the year.

You talked a lot about the shift footwear and you look at the performance of footwear versus apparel first half of the year can you just give us an idea in terms of the expectations on the footwear business in the back half of the year.

Timothy Boyle: Certainly. Well, as you know, we've got new leadership in our footwear department division with Peter Ruppe starting here.

Certainly well as you know we've got new leadership in our footwear Department and division with Peter Rubthree, starting here. He he didnt have the opportunity to impact bunch of spring 2019, and we're just beginning to see the fruits of his work and.

Tim Boyle: He didn't have the opportunity to impact much of spring 2019, and we're just beginning to see the fruits of his work. We've been very pleased so far with the reception of the product by retailers and consumers. The expectation is that we're finally going to end up resolving the question about whether or not footwear can be the largest product category of the company, which I've been talking about for some time. I'm very pleased with what we're seeing so far. The SH/FT product is only narrowly winter-related, so we'll be a smaller % of the total business that we expect in winter. As you know, the winter product that the company has been so famous for, especially in Columbia product, has been really winter-related footwear. We should have a good result in 2019 winter.

Timothy Boyle: He didn't have the opportunity to impact much of spring 2019, and we're just beginning to see the fruits of his work. We've been very pleased so far with the reception of the product by retailers and consumers. The expectation is that we're finally going to end up resolving the question about whether or not footwear can be the largest product category of the company, which I've been talking about for some time. I'm very pleased with what we're seeing so far. The SH/FT product is only narrowly winter-related, so we'll be a smaller % of the total business that we expect in winter. As you know, the winter product that the company has been so famous for, especially in Columbia product, has been really winter-related footwear. We should have a good result in 2019 winter.

We've been very pleased so far with the with the reception of the product by retailers and consumers and so the expectation is that we're finally going to have.

We're kind of finally going to.

End up resolving the question about whether or not.

Footwear can be the largest product category, the company, which I've been talking about for some time so.

I'm very pleased with what we're seeing so far.

The shift product is only.

Narrowly winter related so we will be.

A smaller percent of the total business that we expect in winter.

But as you know the winter product that the company has been so famous for especially in the Columbia product has been.

Really winter related footwear. So we should have a good result in in 2019 winter.

Tim Boyle: Then you add on the SH/FT opportunity and further the continuation of our PFG footwear, and the expectations are high. Bob, this is Jim. I would just add, with regard to the cadence between first half and second half, we'd anticipate an acceleration in the footwear business as we get into the second half of this year. That comment is a combined between the Columbia brand footwear and with Sorel. We should see nice growth there in the latter part of the year. Got it. Okay. Then just the second question is on the inventory levels. I think you've been talking about this for a little bit, but can you break that down a little bit more in terms of within that increase, is there a speculative position in that number?

Timothy Boyle: Then you add on the SH/FT opportunity and further the continuation of our PFG footwear, and the expectations are high.

And then you add on the the shift opportunity and further the continuation of our PSG footwear and the expectations are high and Bob. This is Jim I would just add with regard to the cadence between first half and second half we'd anticipate an acceleration in the footwear business is we get into the second half of this year and that comment is the combined.

Jim Swanson: Bob, this is Jim. I would just add, with regard to the cadence between first half and second half, we'd anticipate an acceleration in the footwear business as we get into the second half of this year. That comment is a combined between the Columbia brand footwear and with Sorel. We should see nice growth there in the latter part of the year. Got it.

Between the Columbia brand footwear and with thrill. So we should see nice growth growth there in the latter part of the year.

Robert S. Drbul: Okay. Then just the second question is on the inventory levels. I think you've been talking about this for a little bit, but can you break that down a little bit more in terms of within that increase, is there a speculative position in that number?

Got it Okay and then just the second question is on the inventory levels I think you've been talking about this for a little bit but.

Can you break that down a little bit more in terms of within that increase is there a speculative position in that number and I guess just curious if on terms of the regional breakdown the inventory and in China, you Mark you went through some.

Tim Boyle: I guess just curious if in terms of the regional breakdown of the inventory and in China, you went through some clearance sales? Is the supply-demand part in China for the brand at a healthy level at this point? Hey, Bob, from an overall standpoint, I would indicate that our inventory, we're very comfortable with the position that we have. When you step back and look at the underlying aging of the inventory, by and large, the inventory is comprised of current and future season inventory, comprised of our spring '19 and fall '19. When we step back and look at the aged inventory, our older season inventory, it's up modestly. It's up a single digit millions of dollars. When you look at that coupled with the growth that we've got planned in the latter part of the year, we feel comfortable with where we'll be.

Robert S. Drbul: I guess just curious if in terms of the regional breakdown of the inventory and in China, you went through some clearance sales? Is the supply-demand part in China for the brand at a healthy level at this point?

Clearance sales.

Is the supply demand part in China for the brand at a healthy level at this point.

Jim Swanson: Hey, Bob, from an overall standpoint, I would indicate that our inventory, we're very comfortable with the position that we have. When you step back and look at the underlying aging of the inventory, by and large, the inventory is comprised of current and future season inventory, comprised of our spring '19 and fall '19. When we step back and look at the aged inventory, our older season inventory, it's up modestly. It's up a single digit millions of dollars. When you look at that coupled with the growth that we've got planned in the latter part of the year, we feel comfortable with where we'll be.

Hey, Bob from from an overall standpoint.

I would.

Indicate that our inventory, we're very comfortable with the position that we have when you step back and look at the underlying aging of the inventory by and large.

The inventory is comprised of current.

In future season inventory on comprise of our spring 19, and Paul 19, when we step back and look at the aged inventory or older season inventory it doesn't.

Modestly it's up a single digit millions of dollars so and when you look at that coupled with the growth that we've got planned in latter part of the year, we feel comfortable where we'll be in a timid indicated as we exit the third quarter, we'd anticipate.

Tim Boyle: As Tim had indicated, as we exit Q3, we'd anticipate inventory growth coming back down into the mid-teens level. Certainly within there, do we have some pockets of excess inventory in the case of China? We have. We've liquidated some of that through the first half of the year, and we'll continue to manage that situation for the balance of the year. Then I think finally, as it relates to your question on a speculative purchase, I think last year we'd made an opportunistic purchase. Should we see incremental demand? We've done that to a lesser extent this year. Keep in mind, we've got a relatively significant replenishment business as a part of our wholesale business that that inventory is intended to fulfill as well. Great. Thank you very much. Our next question comes from the line of John Kernan with Cowen.

Jim Swanson: As Tim had indicated, as we exit Q3, we'd anticipate inventory growth coming back down into the mid-teens level. Certainly within there, do we have some pockets of excess inventory in the case of China? We have. We've liquidated some of that through the first half of the year, and we'll continue to manage that situation for the balance of the year. Then I think finally, as it relates to your question on a speculative purchase, I think last year we'd made an opportunistic purchase. Should we see incremental demand? We've done that to a lesser extent this year. Keep in mind, we've got a relatively significant replenishment business as a part of our wholesale business that that inventory is intended to fulfill as well.

Inventory growth coming back down into the mid teens level now certainly within their you know do we have some pockets.

Of excess inventory in the case of China, we have weve liquidated some of that through the first half of the year and we'll continue to manage that situation for the balance of the year and I think finally as it relates to your question on a speculative purchase I think last year, we have made an opportunistic purchase.

Should we see.

Incremental demand, we've done that to a lesser extent this year and keep in mind that we've got a relatively significant.

Replenishment business as a part of our wholesale business that that inventory is intended to fulfill as well.

Robert S. Drbul: Great. Thank you very much.

Great. Thank you very much.

Operator: Our next question comes from the line of John Kernan with Cowen.

Our next question comes from the line of John came in with Cowen. Please proceed with your question.

Tim Boyle: Please proceed with your question. Hey, good afternoon, everybody. Thanks for taking my question and congrats on all the momentum. Just, Jim, could you talk about the benefits of Project CONNECT from a margin standpoint in Q2 and what your expectations are going into the back half of the year that are embedded in the gross margin guidance? Yeah, certainly. If you look at the first half of the year in which we've delivered 150 basis points of gross margin expansion, the lion's share of that 150 basis points of margin expansion is effectively Project CONNECT. As it relates to Q2, we continue to see well over 100 basis point improvement related to Project CONNECT. There are some offsets, however.

Operator: Please proceed with your question.

John Kernan: Hey, good afternoon, everybody. Thanks for taking my question and congrats on all the momentum. Just, Jim, could you talk about the benefits of Project CONNECT from a margin standpoint in Q2 and what your expectations are going into the back half of the year that are embedded in the gross margin guidance?

Hey, good afternoon, everybody. Thanks for taking my question and congrats on the momentum.

So just.

Jim could you talk about the benefits of project connect.

From a margin standpoint in the second quarter and what your patients are in going into the back half of the year that are embedded in the gross margin guidance.

Jim Swanson: Yeah, certainly. If you look at the first half of the year in which we've delivered 150 basis points of gross margin expansion, the lion's share of that 150 basis points of margin expansion is effectively Project CONNECT. As it relates to Q2, we continue to see well over 100 basis point improvement related to Project CONNECT. There are some offsets, however.

Yes, certainly so if you look at the first half of the year in which we have delivered 150 basis points of gross margin expansion.

The lions share of that 150 basis points of margin expansion is effectively project connect and so as it relates to the second quarter. We continued to see well over 100 basis point improvement related to project connect there are some offsets however, and the two offsets in the quarter one of them was the the channel sales mix with the wholesale business outpacing the growth of the DTC business and in the other component as Weve liquidated some access the whole full price closed up mix had an impact as well.

Tim Boyle: The two offsets in the quarter, one of them was the channel sales mix with the wholesale business outpacing the growth of the D2C business. The other component is we've liquidated some excess. The whole full-price closeout mix had an impact as well. As it relates to balance of year, we would continue to anticipate nice improvement from Project CONNECT similar to what we have through the first half of the year. There are some offsets, however, in the back half of the year as well as we've previously noted, just given the favorable selling environment that we had in Q4 of last year, that's a part of that offset. There's other smaller components that would include everything from freight costs and mix with the footwear business outpacing the apparel business in the back half of the year.

Jim Swanson: The two offsets in the quarter, one of them was the channel sales mix with the wholesale business outpacing the growth of the D2C business. The other component is we've liquidated some excess. The whole full-price closeout mix had an impact as well. As it relates to balance of year, we would continue to anticipate nice improvement from Project CONNECT similar to what we have through the first half of the year. There are some offsets, however, in the back half of the year as well as we've previously noted, just given the favorable selling environment that we had in Q4 of last year, that's a part of that offset. There's other smaller components that would include everything from freight costs and mix with the footwear business outpacing the apparel business in the back half of the year.

And then as it relates to balance of year, we would continue to anticipate.

Nice improvement.

From project connect.

Similar to what we have through the first half of the year. There are some offsets however in the back half of the year as well as we've previously noted just given the favorable selling environment that we had in the fourth quarter of last year. That's a part of that offset and then there's.

There is other smaller components that would include everything from.

Freight cost and mix.

The footwear business outpacing the apparel business in the back half of the year. So there are some other components like that but we certainly have confidence in the hard work that the teams have put into delivering the project connect benefits.

Tim Boyle: There's some other components like that, but we certainly have confidence in the hard work that the teams have put in to delivering the Project CONNECT benefits. Excellent. That's helpful. I guess my follow-up question is just on the back half top-line outlook. It feels like inventory levels in the wholesale channel are very clean. Seltzers are high. We can see that in your numbers for the first half of the year. You called out advanced fall 2019 orders as being a benefit to Q2. Can you go back to a time where the last time inventory levels were this clean and the product cycle was this strong? It just feels like you've called out advanced fall orders. There were some shipments that pulled through.

Jim Swanson: There's some other components like that, but we certainly have confidence in the hard work that the teams have put in to delivering the Project CONNECT benefits.

John Kernan: Excellent. That's helpful. I guess my follow-up question is just on the back half top-line outlook. It feels like inventory levels in the wholesale channel are very clean. Seltzers are high. We can see that in your numbers for the first half of the year. You called out advanced fall 2019 orders as being a benefit to Q2. Can you go back to a time where the last time inventory levels were this clean and the product cycle was this strong? It just feels like you've called out advanced fall orders. There were some shipments that pulled through.

Excellent that's helpful. I guess my follow up question is just on.

In the back half.

Topline.

Outlook it it feels like inventory levels in the wholesale channel are very clean sell throughs are high.

We can see that in your numbers for the first half of the year.

You called out advanced fall 2019 orders as being a benefit to the second quarter and just yeah.

Can you go back to a time, where.

In the last time inventory levels, where this clean in the product cycle was this strong it just feels like you've called out advanced fall orders.

There were some shipments at the pull through.

Tim Boyle: I'm just wondering how that affects your overall top-line outlook, particularly in the US as we go into the back half of the year. Thank you. Yeah. I think we've reflected all those factors into the outlook that we provided for the back half. The first half, we grew 8.5%. The back half also contemplated to grow 8.5%. As you look at the cadence and flow between Q3 and Q4, given the strength of the fall 2019 wholesale order book, we are anticipating low double-digit growth and have the confidence in the order book and be able to deliver that in Q3. Obviously, Q4's growing at a slightly lower rate, and that in part reflecting that we've planned the business on more of a normalized basis relative to the favorable environment that we saw in Q4 last year. Got it.

John Kernan: I'm just wondering how that affects your overall top-line outlook, particularly in the US as we go into the back half of the year. Thank you.

I was just wondering how that affects your overall topline outlook and in particularly in the US as we go into the back half of the year. Thank you.

Jim Swanson: Yeah. I think we've reflected all those factors into the outlook that we provided for the back half. The first half, we grew 8.5%. The back half also contemplated to grow 8.5%. As you look at the cadence and flow between Q3 and Q4, given the strength of the fall 2019 wholesale order book, we are anticipating low double-digit growth and have the confidence in the order book and be able to deliver that in Q3. Obviously, Q4's growing at a slightly lower rate, and that in part reflecting that we've planned the business on more of a normalized basis relative to the favorable environment that we saw in Q4 last year.

Yes.

Yes, I think we've reflected all those factors into the outlook that we provided for the back half than the first half. We grew up we grew 8.5% the back half also contemplated to grow eight and 5% in as you look at the cadence in flow between Q3 and Q4, given the strength of the fall 19 wholesale order book, we are anticipating low double digit growth and have the confidence in the order book and be able to deliver that in the third quarter and then obviously the fourth quarter's grown at a slightly lower rate in and that in part reflecting.

That we've planned the business on more of a normalized basis relative to the favorable environment that we saw in the fourth quarter last year.

John Kernan: Got it. Still planning on a more normalized basis for the back half. Got it. All right. Thanks, guys. Best of luck.

Tim Boyle: Still planning on a more normalized basis for the back half. Got it. All right. Thanks, guys. Best of luck. Our next question comes from the line of Laurent Vasilescu with Macquarie Group. Please proceed with your question. Good afternoon. Thanks for taking my question. I wanted to follow up on Project CONNECT. It sounds like it's actually becoming a bigger benefit in Q2 to the gross margin. Without getting into specifics for FY20 guidance, Jim, is this Project CONNECT benefit only for these 4 quarters, or should we kind of think about it continuing into FY20? Well, I think the way I would look at it is certainly the step function improvement that we've seen at our gross margin.

Got it still plan on a more normalized basis for the back half got it all right. Thanks, guys best of luck.

Operator: Our next question comes from the line of Laurent Vasilescu with Macquarie Group. Please proceed with your question.

Our next question comes from the line of Laurent Vasilescu with Macquarie Group. Please proceed with your question.

Laurent Vasilescu: Good afternoon. Thanks for taking my question. I wanted to follow up on Project CONNECT. It sounds like it's actually becoming a bigger benefit in Q2 to the gross margin. Without getting into specifics for FY20 guidance, Jim, is this Project CONNECT benefit only for these 4 quarters, or should we kind of think about it continuing into FY20?

Good afternoon, and thanks for taking my question I wanted to follow up on project connect.

It sounds like it's actually becoming a bigger benefit.

In the second quarter to the gross margin.

Without getting into specifics for flight 20 guidance.

Jim is is this project cannot benefit only further for these four quarters or should we kind of think about it continuing into slide 20.

Jim Swanson: Well, I think the way I would look at it is certainly the step function improvement that we've seen at our gross margin.

Well I think the way I would look at it is certainly the step function improvement that we've seen in our gross margin when you look at.

Tim Boyle: When you look at the 170 basis points of gross margin expansion that we achieved in 2018 and then the incremental 80 basis points of gross margin lift that we'll see in 2019, that's where you're going to see the substantial step function lift from a Project CONNECT standpoint. That said, as a part of that project, we put a lot of time and effort into ensuring that we developed sustainable processes. The margin achievements that we've accomplished the past couple of years that we're able to sustain that. Certainly, our product creation teams and others throughout the business are very focused on continuing to drive gross margin improvement and other elements of the business that are ultimately going to drive even a margin expansion as well. Okay. Very helpful. I wanted to follow up on SH/FT.

Jim Swanson: When you look at the 170 basis points of gross margin expansion that we achieved in 2018 and then the incremental 80 basis points of gross margin lift that we'll see in 2019, that's where you're going to see the substantial step function lift from a Project CONNECT standpoint. That said, as a part of that project, we put a lot of time and effort into ensuring that we developed sustainable processes. The margin achievements that we've accomplished the past couple of years that we're able to sustain that. Certainly, our product creation teams and others throughout the business are very focused on continuing to drive gross margin improvement and other elements of the business that are ultimately going to drive even a margin expansion as well.

The 170 basis points of gross margin expansion that we achieved in 2018, and then the incremental 80 basis points of gross margin lift that we'll see in 2019, that's where you're going to see the substantial step function lift from a project next standpoint that said as a part of the product but.

A lot of time and effort into ensuring that we developed sustainable processes. So the margin.

Achievements that we've accomplished the past couple of years that we're able to sustain that and certainly.

Our product creation teams and others throughout the business, we are very focused on continuing to drive.

Gross margin improvement and other elements of the business that are ultimately to drive EBITDA margin expansion as well.

Laurent Vasilescu: Okay. Very helpful. I wanted to follow up on SH/FT.

Okay very helpful. And then I wanted to follow up on on Tom.

On the shift.

Tim Boyle: Can you possibly talk about the price point ranges you're targeting? Are you working with key national retail partners, or are they more specialty stores? Any comment or additional color would be very helpful. Sure. You bet. Yeah. We've talked about the company having a focus on footwear for quite some time. Most of our largest customers are big sellers of footwear. We know there's an opportunity from a channel perspective. As it relates to the SH/FT launch, we launched with our most important large customers who have footwear businesses, and that would include the sporting goods guys such as Dick's Sporting Goods. We layered in energy accounts, which would include sneaker-specific accounts that in the past typically have not purchased Columbia's footwear, but also even at a mature state will not likely impact the total volume very significantly.

Laurent Vasilescu: Can you possibly talk about the price point ranges you're targeting? Are you working with key national retail partners, or are they more specialty stores? Any comment or additional color would be very helpful.

Can you, possibly talk about the price point ranges you're targeting.

And are you working with key like National retail partners or are they more specialty stores any any any commentary I'd give additional color will be very helpful.

Timothy Boyle: Sure. You bet. Yeah. We've talked about the company having a focus on footwear for quite some time. Most of our largest customers are big sellers of footwear. We know there's an opportunity from a channel perspective. As it relates to the SH/FT launch, we launched with our most important large customers who have footwear businesses, and that would include the sporting goods guys such as The sporting goods retailer. We layered in energy accounts, which would include sneaker-specific accounts that in the past typically have not purchased Columbia's footwear, but also even at a mature state will not likely impact the total volume very significantly.

Sure you bet, yes, so we've talked about the company having.

A focus on on footwear for quite some time and most of our largest customers are big sellers of footwear. So we know there is an opportunity from a channel perspective as it relates to the shift launch we launched with our most important large customers.

Who have footwear businesses and that would include sporting goods guys, such as Dick's Sporting goods and then we we layered in energy accounts, which would include sneaker.

Specific accounts that.

That in the past typically have not purchased Columbia's footwear, but also.

Even at the at a mature state world will not likely impact the total volume very significantly so.

Tim Boyle: We've had a strategic view of how we're going to launch it both here in the US and in Europe. The expectations are that this will be a momentum-building event which can help us really hit our true cadence in footwear. Fantastic. Best of luck. Thanks. Thanks, Ron. Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question. Hey, guys. Congrats on a great quarter. Just first for Tim, can you just talk through what drove the overall momentum in the US wholesale business? Just as a follow-up on that, can you help us think through how much of the growth was driven by advanced fall 2019 order shipment? Sure. Well, let me talk about the momentum items. First of all, the biggest single category was probably PFG.

Timothy Boyle: We've had a strategic view of how we're going to launch it both here in the US and in Europe. The expectations are that this will be a momentum-building event which can help us really hit our true cadence in footwear.

We've had a strategic view of how we're going to launch of both here in the us and in Europe .

And the expectations are that this will be a momentum building event, which can help us really.

Hit our true cadence in footwear.

Laurent Vasilescu: Fantastic. Best of luck. Thanks. Thanks, Ron.

Fantastic best of luck.

Thanks, Tom.

Our next question comes from the line of Alex Parry with Bank of America. Please proceed with your question.

Operator: Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Hey, guys.

Alex Perry: Hey, guys. Congrats on a great quarter. Just first for Tim, can you just talk through what drove the overall momentum in the US wholesale business? Just as a follow-up on that, can you help us think through how much of the growth was driven by advanced fall 2019 order shipment?

Congrats on a great quarter.

Just first for Tim can you just talk through what drove the overall momentum in the US wholesale business and then just as a follow up on that can you help us think through.

How much of the growth was driven by advance fall 2019 order shipments.

Timothy Boyle: Sure. Well, let me talk about the momentum items. First of all, the biggest single category was probably PFG.

Sure.

Well, let me talk about the the momentum.

Items first of all.

The biggest single category was probably PMFG in scenario, where.

Tim Boyle: It's an area where we don't have a lot of competition from our traditional brands that we traditionally compete with. The area of fishing apparel is enormously strong in the southern part of the United States. It's the single biggest outdoor activity and an area where we've worked diligently over the last 30 years to build a business that can help us to counteract our heavy involvement in outerwear. I would say that's probably the leader. Additionally, we had great footwear sales. We have a really strong footwear product which is now getting stride called the Newton Ridge, which is a heritage product for the company, as well as very solid rainwear, which just based on the amount of rain that the United States had. Those were the primary drivers of the good results in Q4, excuse me, in the first half.

Timothy Boyle: It's an area where we don't have a lot of competition from our traditional brands that we traditionally compete with. The area of fishing apparel is enormously strong in the southern part of the United States. It's the single biggest outdoor activity and an area where we've worked diligently over the last 30 years to build a business that can help us to counteract our heavy involvement in outerwear. I would say that's probably the leader. Additionally, we had great footwear sales. We have a really strong footwear product which is now getting stride called the Newton Ridge, which is a heritage product for the company, as well as very solid rainwear, which just based on the amount of rain that the United States had. Those were the primary drivers of the good results in Q4, excuse me, in the first half.

We don't have a lot of competition from the our traditional.

From brands that we traditionally compete with.

The area of of.

Fishing apparel.

As normally strong in the southern part of United States. It's the single biggest outdoor activity and an area, where we've worked diligently over the last 30 years to build a business that can help us to.

Counteract our heavy involvement in outerwear, so I would say that's probably the leader.

Additionally, we had great footwear sales, we have a really strong.

Footwear product.

Which is now getting stride called the new ridge, which gives them a heritage products for the company as well as very solid rainwear.

Which just based on the amount of rain that the United States had so those those were the primary drivers of the good results.

In in fourth excuse me in the first half and maybe last year to talk a bit about the specifics of numerically as it relates to advance orders on tool.

Tim Boyle: Maybe I'll ask Jim to talk a little bit about the specifics numerically as it relates to advanced orders on fall. I think in terms of timing, and certainly to Tim's point, the lion's share or a good chunk of the US wholesale revenue growth on the quarter related to spring 2019 and the order conversion. There is, however, a shift there as well as you're referring to. For fall 2019, earlier deliveries from Q3 into the first or latter part of June, it's a mid to high single-digit millions of dollars number. If you neutralize for the effect of that, the wholesale business was up a low double-digit, high single-digit percent on the quarter, which by and large reflects the spring 2019 order conversion. Thanks, Rod.

Timothy Boyle: Maybe I'll ask Jim to talk a little bit about the specifics numerically as it relates to advanced orders on fall.

Jim Swanson: I think in terms of timing, and certainly to Tim's point, the lion's share or a good chunk of the US wholesale revenue growth on the quarter related to spring 2019 and the order conversion. There is, however, a shift there as well as you're referring to. For fall 2019, earlier deliveries from Q3 into the first or latter part of June, it's a mid to high single-digit millions of dollars number. If you neutralize for the effect of that, the wholesale business was up a low double-digit, high single-digit percent on the quarter, which by and large reflects the spring 2019 order conversion.

Yes, I think in terms of timing Im certainly to pinpoint the lion share or a good chunk of the U.S wholesale revenue growth on the quarter related to spring 19, and the order conversion.

There is however, a shift there as well as your you're referring to and so for fall 19.

Earlier deliveries from Q3 into into the first or latter part of June it's a mid to high single digit millions of dollars number and so if you neutralize for the effect be effective that the wholesale business was up a low double digit high single digit percent.

On the quarter, which by and large reflux.

The spring 19 order conversion.

Alex Perry: Thanks, Rod.

Thanks, a lot and then just a follow up.

Tim Boyle: Just a follow-up, can you talk through the Sorel growth is really strong this quarter on top of strong growth last year? Can you talk about the momentum you're seeing there, specifically in the sort of spring/summer styles? Thanks. Certainly. Well, the Sorel management team has been highly focused on pivoting the business to be winter-plus. For us to be successful in that product category, in that brand internationally as well as really in the US, we need to have product year-round so our retailers can keep the brand on the floor year-round. That's going to mean emphasizing spring product and unique, differentiated merchandise for spring. That's what the Sorel team has delivered, and the results have been really gratifying.

Alex Perry: Just a follow-up, can you talk through the Sorel growth is really strong this quarter on top of strong growth last year? Can you talk about the momentum you're seeing there, specifically in the sort of spring/summer styles? Thanks.

Can you talk to the moment the throw growth was really strong this quarter on top of strong growth last year can you talk to them about the momentum you're seeing there specifically in the sort of spring summer style. Thanks.

Timothy Boyle: Certainly. Well, the Sorel management team has been highly focused on pivoting the business to be winter-plus. For us to be successful in that product category, in that brand internationally as well as really in the US, we need to have product year-round so our retailers can keep the brand on the floor year-round. That's going to mean emphasizing spring product and unique, differentiated merchandise for spring. That's what the Sorel team has delivered, and the results have been really gratifying.

Certainly well.

We did see some rail management team has been highly focused on pivoting the business.

To be winter plus so for us to be successful in that product category in that brand internationally as well as really in the US we need to have product year round, our retailers can keep them keep the brand on the floor year round and then that's going to mean emphasizing spring product.

And unique differentiated merchandise for spring and Thats, what with the sales team has delivered and the results have been really gratifying now I'll bet, it's a smaller base, but we really believe that the opportunity to make.

Tim Boyle: I'll bet it's a smaller base, but we really believe that the opportunity to make Sorel a billion-dollar brand at some point in time is really there. It's going to have to be a year-round brand. If we're able to pull off this winter-plus strategy, which we're certainly playing that forward now, we have a great opportunity with that brand. Thank you. That's really helpful. Best of luck. Thanks. Our next question comes on the line of Paul Lejuez with Citigroup. Please proceed with your question. Thanks. It's Tracy Kogan filling in for Paul. I had a question on your DTC business in the US. I guess, can you first just clarify? Were you saying in your release that the bricks-and-mortar comp was positive, and maybe you could quantify that?

Timothy Boyle: I'll bet it's a smaller base, but we really believe that the opportunity to make Sorel a billion-dollar brand at some point in time is really there. It's going to have to be a year-round brand. If we're able to pull off this winter-plus strategy, which we're certainly playing that forward now, we have a great opportunity with that brand.

Surreal a billion dollar brand at some point in time is really there, but it's going to have to be.

A year round brand and so if we if we are able to to pull off this.

Winter, plus strategy, which which we're certainly play that forward now.

We have a great opportunity with that brand.

Alex Perry: Thank you. That's really helpful. Best of luck.

Thank you Thats very helpful Best of luck.

Timothy Boyle: Thanks.

Operator: Our next question comes on the line of Paul Lejuez with Citigroup. Please proceed with your question.

Thanks.

Our next question comes from the line of Paul Li Yu with Citigroup. Please proceed with your question.

Tracy Kogan: Thanks. It's Tracy Kogan filling in for Paul. I had a question on your DTC business in the US. I guess, can you first just clarify? Were you saying in your release that the bricks-and-mortar comp was positive, and maybe you could quantify that?

Thanks, It's Tracy Kogan filling in for Paul I had a question on your DTC business in the US I guess can you first just clarify did you were you saying in your.

Let me set the brick and mortar comp was positive and maybe you could quantify that and then secondly, if you could just talk about the performance of your outlet stores versus your full price stores. Thank you.

Tim Boyle: Secondly, if you could just talk about the performance of your outlet stores versus your full-price stores. Thank you. Yeah. As we said in the past, we really consider ourselves to be a wholesale company. We don't really report on typical retail comps or any of those specific metrics. I can tell you that we're pleased with the results of the business, and we believe that there's a large opportunity for us just based on the brand strength. Yeah. I'd just add as part of Tim's prepared remarks, through the first half of the year, the US DTC business grew a low double-digit %. It was up a high single-digit % when you look at just the Q2 alone.

Tracy Kogan: Secondly, if you could just talk about the performance of your outlet stores versus your full-price stores. Thank you.

Timothy Boyle: Yeah. As we said in the past, we really consider ourselves to be a wholesale company. We don't really report on typical retail comps or any of those specific metrics. I can tell you that we're pleased with the results of the business, and we believe that there's a large opportunity for us just based on the brand strength.

Yes, we have as we said in the past, we really consider ourselves to be a wholesale company. We we don't really report on typical retail comps or.

Or any of those specific metrics, but I can tell you that we're pleased with the results of the business.

And we believe this is a large opportunity for us just based on the brand strength.

So yeah, and I'd, just add as part of Tim's as part of Tim's prepared remarks through the first half of the year. The U.S. DTC business grew at a low double digit percent. It was up a high single digit percent. When you look at just the second quarter alone and.

Jim Swanson: Yeah. I'd just add as part of Tim's prepared remarks, through the first half of the year, the US DTC business grew a low double-digit %. It was up a high single-digit % when you look at just the Q2 alone.

Tim Boyle: Certainly, similar to other retailers that have reported with some of the warmer or colder weather, rather, in April and May, we saw some slowness through those two months and returned to nice growth as weather turned to our favor in the month of June. That's specific to the outlet stores. Got it. Thank you. Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question. Hi. Good evening. Thanks for taking my question. Nice job on the quarter. I guess I wanted to maybe touch on Mountain Hardwear a little bit. Nice to see the increased sales there. I guess, what's the feedback you're getting from your wholesale customers? Are they getting more excited about the product as it improves? I guess, any chance that they're willing to take on more product?

Jim Swanson: Certainly, similar to other retailers that have reported with some of the warmer or colder weather, rather, in April and May, we saw some slowness through those two months and returned to nice growth as weather turned to our favor in the month of June. That's specific to the outlet stores.

Certainly similar to other retailers that have that have reported with with some of the warmer or colder weather rather in April and May we saw.

Some slowness through those two months and return to nice growth as weather turned to our favor in the month of June and Thats specific to.

The outlet stores.

Tracy Kogan: Got it. Thank you.

Got it thank you.

Operator: Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question.

Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question.

Hi, Good evening, Thanks for taking my question nice job on the quarter.

Susan Anderson: Hi. Good evening. Thanks for taking my question. Nice job on the quarter. I guess I wanted to maybe touch on Mountain Hardwear a little bit. Nice to see the increased sales there. I guess, what's the feedback you're getting from your wholesale customers? Are they getting more excited about the product as it improves? I guess, any chance that they're willing to take on more product?

I guess I wanted to maybe touch on mountain Hardwear little bit nice to see the increase sales there and I guess, what's the feedback you're getting from your wholesale customers are they getting more excited about the product as it improves and I guess you know any chance that they are willing to take on more product and you know do you guys see maybe potentially some space gains for the brand over the next year or two thanks.

Tim Boyle: Do you guys see maybe potentially some space gains for the brand over the next year or two? Thanks. Well, thank you. Yeah. It's gratifying to see that brand finally starting to grow again. It's really a function of the improvement in the product. The business there will really rise and be fulfilled based on our wholesale business. The traditional specialty stores that have been buying Mountain Hardwear and hope that it will continue to perform well are really happy to see the improvements that we've made in the product category in the products with the best is yet to come in winter. The new team there was really only 18 or 20 seconds. There we go. All right. Hello? We're okay. Next question. Operator. I believe that came from their line. One moment. Okay.

Susan Anderson: Do you guys see maybe potentially some space gains for the brand over the next year or two? Thanks.

Timothy Boyle: Well, thank you. Yeah. It's gratifying to see that brand finally starting to grow again. It's really a function of the improvement in the product. The business there will really rise and be fulfilled based on our wholesale business. The traditional specialty stores that have been buying Mountain Hardwear and hope that it will continue to perform well are really happy to see the improvements that we've made in the product category in the products with the best is yet to come in winter. The new team there was really only 18 or 20 seconds.

Well. Thank you, yes, it's it's gratifying to see that brand finally, starting to grow again, and it's really a function of the improvement in the product and so the.

The business, there will really rise and and be fulfilled based on our wholesale business. So the traditional specialty stores that have been buying not hardware and hope that it will continue to perform well are really happy to see the improvements that we've made in that product category.

In the products.

With the best.

Is yet to come in winter.

The new team there was really only 18 to 40.

Jim Swanson: There we go. All right.

[noise].

Okay.

Timothy Boyle: Hello?

Jim Swanson: We're okay.

Yes.

Timothy Boyle: Next question. Operator.

Well okay.

Next question I believe operator.

Jim Swanson: I believe that came from their line. One moment.

I believe that came from their line one moment.

Timothy Boyle: Okay.

Okay.

Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Tim Boyle: Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question. Yeah. Hi. Thank you. I wanted just to start off following up on the beat for the quarter. It was a pretty sizable beat versus where you had projected. It looks like maybe you're flowing maybe about two-thirds of that through to the full year. Just wanted to ask kind of what the offsets you see are when you look out to the balance of the year. Yeah, John. This is Jim. Just to talk through the components of the beat on the quarter, so it effectively boils down to three things. One, the top line came in a bit better than our internal outlook to the tune of, call it, $15 million.

Operator: Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Jonathan Komp: Yeah. Hi. Thank you. I wanted just to start off following up on the beat for the quarter. It was a pretty sizable beat versus where you had projected. It looks like maybe you're flowing maybe about two-thirds of that through to the full year. Just wanted to ask kind of what the offsets you see are when you look out to the balance of the year.

Yes, hi, thank you.

I wanted just to start off.

Following up on the the beat for the quarter. It was a pretty sizable beat versus where you had projected.

And it looks like maybe your flow and maybe about two thirds of that through to the full year. So just wanted to.

Asked kind of what the offsets you see our when you look out to the balance of the year.

Jim Swanson: Yeah, John. This is Jim. Just to talk through the components of the beat on the quarter, so it effectively boils down to three things. One, the top line came in a bit better than our internal outlook to the tune of, call it, $15 million.

Yes, John this is Jim So just to talk through the components of the beat on the quarter.

Effectively boil down to three things one the top line came in a bit better than our internal outlook to the tune of $15 million a good chunk of that as I was describing earlier as it relates to our wholesale business with the fall 19 in the earlier delivery.

Tim Boyle: A good chunk of that, as I was describing earlier, as it relates to our wholesale business with the fall 2019 and the earlier delivery, is really what's driving that. By and large, that's a timing effect, and that's why you're not seeing an increase in our full-year revenue outlook. The other two components are the SG&A underspend in the quarter relative to our outlook and the income tax. Of course, in the case of the income tax, we've lowered the full-year tax rate to 20% from 22%. Really, the delta in here is on the SG&A. We underspent by somewhere north of $10 million, half of which we've improved the outlook on the full year, the other half of which is effectively project-related spend and other phasing of expenses planned for the latter part of the year.

Jim Swanson: A good chunk of that, as I was describing earlier, as it relates to our wholesale business with the fall 2019 and the earlier delivery, is really what's driving that. By and large, that's a timing effect, and that's why you're not seeing an increase in our full-year revenue outlook. The other two components are the SG&A underspend in the quarter relative to our outlook and the income tax. Of course, in the case of the income tax, we've lowered the full-year tax rate to 20% from 22%. Really, the delta in here is on the SG&A. We underspent by somewhere north of $10 million, half of which we've improved the outlook on the full year, the other half of which is effectively project-related spend and other phasing of expenses planned for the latter part of the year.

Is really what's driving that.

And so by and large that's a timing effect and that's why you're not seeing an increase in our full year revenue outlook. The other two components are the S. DNA.

I understand in the quarter relative to our outlook in the income tax and of course in the case of income tax we've lowered the full year tax rate to 20% from 22.

And so that really the delta in here is on the SGN a until we under spent by somewhere north of north of $10 million.

Half of which we've improved the outlook on the full year, the other half of which is effectively.

Project related spend in other phasing of expenses planned for the latter part of the year. So when you look at take when you look at it taken all together 34 cents beat and we passed 20 cents of that.

Tim Boyle: When you look at it taken all together, $0.34 beat, we passed $0.20 of that onto the full year, a good chunk of that being tax, SG&A, and then to a lesser degree, given some of the sheer purchases that we executed on in the quarter, is the other component. Okay. Maybe as a follow-up, I think you touched on some of the factors. Looking at the cadence of your guidance for the year, the first half, at least, operating profit that you delivered would represent a pretty high portion of the full year, maybe higher than it's been in recent history. Do you think that's all the shifts going on? Do you think it's a change in the seasonality of your business, or is it conservatism appropriately in the back half? How would you characterize that?

Jim Swanson: When you look at it taken all together, $0.34 beat, we passed $0.20 of that onto the full year, a good chunk of that being tax, SG&A, and then to a lesser degree, given some of the sheer purchases that we executed on in the quarter, is the other component.

On to the full year, a good chunk of that be in tax SGN, a and then to a lesser degree.

Given some of the share repurchases that we executed on the quarter is the other the other.

Jonathan Komp: Okay. Maybe as a follow-up, I think you touched on some of the factors. Looking at the cadence of your guidance for the year, the first half, at least, operating profit that you delivered would represent a pretty high portion of the full year, maybe higher than it's been in recent history. Do you think that's all the shifts going on? Do you think it's a change in the seasonality of your business, or is it conservatism appropriately in the back half? How would you characterize that?

Component.

Okay, and maybe as a follow up I think you touched on some of the factors all right.

Looking at your cadence of your guidance for the year.

The first half at least operating profit that you delivered.

Would represent a pretty high portion another full year or maybe higher than it's been in recent history shows. It's about do you think thats all the shifts going on do you think gets.

Change in the seasonality of your business or is it.

Conservatism appropriately in the back half how would you how would you characterize that.

Tim Boyle: Well, I mean, certainly, as we've planned that more normalized effect in the Q4, I mean, that could be some of what you're seeing. That is all dependent upon a lot of factors, whether you're talking weather, macroeconomic, and whatnot. We've planned that as best we can based upon our historical norms, if you will. If you set that piece aside and look at how we've planned the year, now, certainly, we anticipate the Q3 growing at a faster rate just given the wholesale order book that we have and being able to ship that in. I think the reason you're not seeing the operating margin expansion in the back half of the year, because certainly, we're anticipating continued gross margin expansion with the Connect benefits in the latter part of the year.

Jim Swanson: Well, I mean, certainly, as we've planned that more normalized effect in the Q4, I mean, that could be some of what you're seeing. That is all dependent upon a lot of factors, whether you're talking weather, macroeconomic, and whatnot. We've planned that as best we can based upon our historical norms, if you will. If you set that piece aside and look at how we've planned the year, now, certainly, we anticipate the Q3 growing at a faster rate just given the wholesale order book that we have and being able to ship that in. I think the reason you're not seeing the operating margin expansion in the back half of the year, because certainly, we're anticipating continued gross margin expansion with the Connect benefits in the latter part of the year.

Well I mean, certainly as we've planned that more normalized effect in the fourth quarter I mean that could be some of what you're seeing and so thats all dependent upon.

Yes, a lot of factors, whether you're talking whether macro economic and whatnot. So we plan that as best we can based upon our historical norms. If you will if you set that aside and look at how we planned the year certainly we anticipate the third quarter grown at a faster rate just given the wholesale order book that we have and be unable to ship that in I think the the reason you're not seeing the operating margin expansion in the back half of the year 'cause certainly we're anticipating continued gross margin expansion with the connect benefits in the latter part of the year. Our SGN a rate. However, we are testing a grew call it 9% in the first half.

Tim Boyle: Our SG&A rate, however, our SG&A grew, call it, 9% in the first half. I think as you look at our outlook for the back half, you'll find that it's in the 11% to 12% range. That's partially related to project spend. There's nothing new in the way of new initiatives or projects, but just the phasing of that. In particular, as we've recently gone live with the C1 and X1 projects, there's a cost as we've taken those online, coupled with some of the strategic hires that we've made to get after the Sorel business as we want to continue driving sustainable profitable growth there. Likewise, as Tim has discussed in terms of the Columbia brand footwear opportunity and really making sure that we're investing in the talent to continue to drive that business forward. Okay. Great. Maybe last one from me.

Jim Swanson: Our SG&A rate, however, our SG&A grew, call it, 9% in the first half. I think as you look at our outlook for the back half, you'll find that it's in the 11% to 12% range. That's partially related to project spend. There's nothing new in the way of new initiatives or projects, but just the phasing of that. In particular, as we've recently gone live with the C1 and X1 projects, there's a cost as we've taken those online, coupled with some of the strategic hires that we've made to get after the Sorel business as we want to continue driving sustainable profitable growth there. Likewise, as Tim has discussed in terms of the Columbia brand footwear opportunity and really making sure that we're investing in the talent to continue to drive that business forward.

I think as you look at our outlook for the back half you'll find that it's in the 11% to 12% range and that partially related to.

Project spend theres nothing new in the way of new initiatives or projects, but just the phasing of that and in particular as we have recently gone live with the C. One the next one projects. There's there's a there's a cost as we've taken those online coupled with some of the strategic hires that we've made to get after the surgical business as we want to continue driving sustainable profitable growth. There and then likewise as Tim discussed in terms of the Columbia brand footwear opportunity and really making sure that we're investing in talent and continue to drive that business forward.

Jonathan Komp: Okay. Great. Maybe last one from me.

Okay. Great then maybe last one for me.

Tim Boyle: In terms of the gross margin drivers for the year, I think you took out DTC mix, which had been a positive callout. I think you removed that now from the current outlook. I just wanted to maybe clarify the drivers there. Maybe you could just remind us on the e-commerce side what the main drivers you see of sustaining some of the momentum there. I think on the full year as it relates to gross margin, it really boils down to a couple of factors. 1, there's obviously going to be the favorable impacts of Project CONNECT that'll carry through the year. Then the most significant offset to that is just us planning on a more normalized basis relative to last year in which we were a lot less promotional and the effects of a positive environment.

Jonathan Komp: In terms of the gross margin drivers for the year, I think you took out DTC mix, which had been a positive callout. I think you removed that now from the current outlook. I just wanted to maybe clarify the drivers there. Maybe you could just remind us on the e-commerce side what the main drivers you see of sustaining some of the momentum there.

In terms of the gross margin drivers for the year I think you took out D to C backs, which had been a positive.

Call out I think you remove that now from the current outlook. So just wanted to maybe clarify the drivers there and maybe you could just remind us on the ecommerce side, what the main drivers you see of.

Sustaining some of the momentum there.

Jim Swanson: I think on the full year as it relates to gross margin, it really boils down to a couple of factors. 1, there's obviously going to be the favorable impacts of Project CONNECT that'll carry through the year. Then the most significant offset to that is just us planning on a more normalized basis relative to last year in which we were a lot less promotional and the effects of a positive environment.

Yes on the full year as it relates to gross margin it really boils down to a couple of factors. One there's obviously going to be the favorable impacts of project connect that will carry through the year and then the most significant offset to that is just us planning on a more normalized basis relative to last year in which we were a lot less promotional and.

The effects of a positive environment.

Tim Boyle: On the channel mix question that you've got, I mean, the channel mix is probably slightly favorable, but it's not that meaningful in that really being a function of the growth that we're seeing in the wholesale business. Our fall 2019 order book is strong, so that's a net positive in our minds. John, your latter part of your question? It was just as you start to cycle better e-commerce performance, what you see as the ongoing drivers for that business? Well, it's going to be us continuing to increase our sophisticated use of digital channels to increase the business size and efficiency. Again, we want to reiterate that we're a wholesale company primarily and that the e-com business is used as really an additional marketing tool. We end up having great results really as a function of the brand's strength.

Jim Swanson: On the channel mix question that you've got, I mean, the channel mix is probably slightly favorable, but it's not that meaningful in that really being a function of the growth that we're seeing in the wholesale business. Our fall 2019 order book is strong, so that's a net positive in our minds. John, your latter part of your question?

On the channel mix question that you've got.

In the channel mix is probably slightly favorable, but it's not that meaningful in that really began.

A function of the growth that we're seeing in the wholesale business our fall 19 order book.

Is strong so thats a net positive in our in our.

Online and then John your latter part of your question.

Jonathan Komp: It was just as you start to cycle better e-commerce performance, what you see as the ongoing drivers for that business?

It was just as you start to cycle better E Commerce performance, what you see as the ongoing drivers for that business.

Timothy Boyle: Well, it's going to be us continuing to increase our sophisticated use of digital channels to increase the business size and efficiency. Again, we want to reiterate that we're a wholesale company primarily and that the e-com business is used as really an additional marketing tool. We end up having great results really as a function of the brand's strength.

Well, it's going to be.

Continuing to increase our sophisticated use of digital.

Channels to increase the business size and efficiencies.

Again, we we want to reiterate that we're a wholesale.

Company primarily in.

The.

Econ business is used as it is really an additional marketing tool we end up.

Having great results.

It really is a function of the brand strength so.

Tim Boyle: We're really focused on a wholesale distribution of our company's products. Yeah, John, I'd just add we went live with the X1 platform in Europe in our prAna business here in the US during the quarter. Certainly, our expectation over time is that's a mobile-first platform. With consumers increasingly shipping or transitioning over to more mobile device shopping, that ought to improve conversion and improve performance within the e-commerce business. We're making the right investments really to drive that business going forward. Understood. Thanks for taking all the questions. Thanks. Our next question comes on the line of Jim Duffy with Stifel. Please proceed with your question. Thanks. Hi, everyone. Hope you guys are doing well. I wanted to ask a couple of questions specific to the overseas markets.

Timothy Boyle: We're really focused on a wholesale distribution of our company's products.

We're really really focused on the wholesale distribution of our company's products Yeah. John I'd just add we went live with the X one platform in Europe in our product business here in the U.S. during the quarter and certainly our expectation over time is that the mobile first platform and with consumers increasingly shipping ER.

Jim Swanson: Yeah, John, I'd just add we went live with the X1 platform in Europe in our prAna business here in the US during the quarter. Certainly, our expectation over time is that's a mobile-first platform. With consumers increasingly shipping or transitioning over to more mobile device shopping, that ought to improve conversion and improve performance within the e-commerce business. We're making the right investments really to drive that business going forward.

Trent transitioning over to more mobile device shopping that that ought to improve.

Conversion and improved performance within the ecommerce business. So we're making the right investments really to drive that business going forward.

Understood. Thanks for taking all my questions.

Jonathan Komp: Understood. Thanks for taking all the questions.

Timothy Boyle: Thanks.

Operator: Our next question comes on the line of Jim Duffy with Stifel. Please proceed with your question.

Thanks.

Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question.

Jim Duffy: Thanks. Hi, everyone. Hope you guys are doing well. I wanted to ask a couple of questions specific to the overseas markets.

Thanks, Hi, everyone Hope you guys are doing well.

I wanted to ask couple of questions.

I wanted to ask a question specific to the overseas markets.

Tim Boyle: Tim, can you give us an update on the European marketplace, that guided mid-single-digit constant currency growth? I know that's not new, but that's lower than we've been accustomed to. The prepared remarks, you spoke to challenges broadly across markets. Are there any markets that are worse than others, any that might be bright spots, anywhere you're seeing prospects for return? Certainly. Well, overall, I'd like to make sure everybody understands how important Europe is for the company and basically how small our business is by comparison to others and the fact that there's big opportunity for us in Europe. I think we've probably been most impacted in France and in the UK between the Yellow Vest movement and the Brexit discussions. Although we do have very strong performance in Spain and great connections with our customer there, I'll quote Inglés, as well as strong business in Germany.

Jim Duffy: Tim, can you give us an update on the European marketplace, that guided mid-single-digit constant currency growth? I know that's not new, but that's lower than we've been accustomed to. The prepared remarks, you spoke to challenges broadly across markets. Are there any markets that are worse than others, any that might be bright spots, anywhere you're seeing prospects for return?

Tim can you give us an update on the European marketplace that guided mid single digit constant currency growth I know thats, not new but that's lower than weve been accustomed to the prepared remarks, you spoke to challenges broadly across markets.

Are there any markets that are worse than others any that might be bright spots.

You know anywhere you're seeing prospects for return.

Timothy Boyle: Certainly. Well, overall, I'd like to make sure everybody understands how important Europe is for the company and basically how small our business is by comparison to others and the fact that there's big opportunity for us in Europe. I think we've probably been most impacted in France and in the UK between the Yellow Vest movement and the Brexit discussions. Although we do have very strong performance in Spain and great connections with our customer there, I'll quote Inglés, as well as strong business in Germany.

Certainly well overall I'd like to make sure everybody understands how important Europe is for the company and basically how smaller businesses by comparison to others and the fact that Theres big opportunity for us in Europe , I think we've probably most been most impacted in France and in the UK between the yellow vest movement and the Brexit discussions, although we have we do have very strong performance in Spain.

And great connections with our customer their code in place as well as a strong business in Germany. So we were underperforming what my personal expectations are and.

Tim Boyle: We're underperforming what my personal expectations are. The plan is to continue to reinvest there, increase the brand awareness, and to take advantage of what the opportunities of the European market. Great. In China, you cleared through some inventory this quarter, and that certainly feels like part of the reset operation. What are some things that we in the investment community should be watching for in China to kind of benchmark your progress on the turn? Certainly. Well, it's, again, probably the single largest geographic opportunity for the company. We have very strong footwear business there and a new management team. The focus is going to be for us on refreshing our stores, continuing to improve the merchandise offering, and continuing the expansion of our e-com business. I believe that we've got the right people in place to make sure the business grows.

Timothy Boyle: We're underperforming what my personal expectations are. The plan is to continue to reinvest there, increase the brand awareness, and to take advantage of what the opportunities of the European market.

The plan is to continue to reinvest their increased the brand awareness.

And to take advantage of what the opportunities the European market.

Jim Duffy: Great. In China, you cleared through some inventory this quarter, and that certainly feels like part of the reset operation. What are some things that we in the investment community should be watching for in China to kind of benchmark your progress on the turn?

Great.

And then in China, you could through some inventory this quarter and it certainly feels like part of the reset.

Operation what are some things that we in the investment community should be watching for in China kind of venture benchmark your progress on the turn.

Timothy Boyle: Certainly. Well, it's, again, probably the single largest geographic opportunity for the company. We have very strong footwear business there and a new management team. The focus is going to be for us on refreshing our stores, continuing to improve the merchandise offering, and continuing the expansion of our e-com business. I believe that we've got the right people in place to make sure the business grows.

Certainly well, it's again, probably the single largest geographic opportunity for the company.

We have very strong footwear business there.

With that in a new management team and the focus is going to be for us on refreshing our stores.

Continue to improve the the merchandise offering and and continuing the expansion of our E com business.

So I believe that we've got the right people in place to make sure. The business grows we just need to make sure that we set.

Tim Boyle: We just need to make sure that we've got the proper investments in brand, in the demand creation, and the brand focus to allow us to take advantage of that. I would expect that we're going to have modest growth there this year, but next year, we should have more significant growth and in the future. Sounds good. Thanks for those thoughts. Thanks. Our next question comes on the line of Chris Svezia with Wedbush. Please proceed with your question. Good evening, gentlemen. Great job on the quarter. I guess the first question I have is just on the direct business versus global direct versus global wholesale. Any color or context you can provide as we go into the back half of the year, I guess specifically Q3, Q4.

Timothy Boyle: We just need to make sure that we've got the proper investments in brand, in the demand creation, and the brand focus to allow us to take advantage of that. I would expect that we're going to have modest growth there this year, but next year, we should have more significant growth and in the future.

The proper investments in brand.

In the.

Demand creation and the brand focus.

To allow us to take advantage of that so I would expect that we're going to have modest growth. There. This year, but next year, we should have more significant growth and in the future.

Jim Duffy: Sounds good. Thanks for those thoughts.

Sounds good thanks for the thoughts.

Timothy Boyle: Thanks.

Operator: Our next question comes on the line of Chris Svezia with Wedbush. Please proceed with your question.

Thanks.

Our next question comes from the line of Chris Stevia with Wedbush. Please proceed with your question.

Chris Svezia: Good evening, gentlemen. Great job on the quarter. I guess the first question I have is just on the direct business versus global direct versus global wholesale. Any color or context you can provide as we go into the back half of the year, I guess specifically Q3, Q4.

Hi, good evening gentlemen, great job on the quarter.

I guess first question I have is just on the.

On the direct business versus global direct versus global wholesale.

Any color or context, you provide as we go into the back half.

Of the year I guess this is a Q3 Q4, I guess Q4 on direct consumer I guess would be a little more maybe modest in the fourth quarter just given the comparison and then Q3, maybe a little bit stronger on global wholesale night am I thinking about that right.

Tim Boyle: I guess Q4 on direct consumer would be a little more maybe modest in Q4 just given the comparison. Q3 may be a little bit stronger on global wholesale. Am I thinking about that right? Yeah, that's right, Chris. I think on an annual basis, we provide an update in terms of percent of total business that DTC and e-com represent of our total. As you're thinking through the cadence and flow, as we look at the fall 2019 order book that we've taken across our wholesale and distributor businesses, we'll definitely see a stronger growth rate in Q3 for that portion of the business. With DTC, certainly given the more challenging comps that we've got in Q4, we've normalized for that.

Chris Svezia: I guess Q4 on direct consumer would be a little more maybe modest in Q4 just given the comparison. Q3 may be a little bit stronger on global wholesale. Am I thinking about that right?

Jim Swanson: Yeah, that's right, Chris. I think on an annual basis, we provide an update in terms of percent of total business that DTC and e-com represent of our total. As you're thinking through the cadence and flow, as we look at the fall 2019 order book that we've taken across our wholesale and distributor businesses, we'll definitely see a stronger growth rate in Q3 for that portion of the business. With DTC, certainly given the more challenging comps that we've got in Q4, we've normalized for that.

Yes, Thats right, Chris I think on an annual basis, we provide an update in terms of percent of total business that DTC and E com represent of our total but as you're thinking through the cadence inflow.

As we look at the fall 19 order book that was taken across our wholesale and distributor businesses, you will definitely see a stronger growth rate in the third quarter.

For that portion of the business and then would be to see certainly given the more challenging.

Comps.

We've got in the fourth quarter, we've normalized for that.

Tim Boyle: I would anticipate that just in terms of thinking through cadence, that we'd see a lighter growth rate there relative to normal run rate. Okay. Just so I'm clear about something, if by any chance there was favorability in weather maybe similar to something last year. I know last year, you had some speculative inventory that you sold through at better price. Just as you think about it this year, you still have that ability to maybe fulfill that demand, whether it's in DTC, outlet, online, if whatever reason that came to fruition in Q4? Yeah. I mean, I think there's certainly, we'll have the inventory up to a certain level to deliver a better top line and a profit figure.

Jim Swanson: I would anticipate that just in terms of thinking through cadence, that we'd see a lighter growth rate there relative to normal run rate.

I would anticipate that.

Just in terms of thinking through cadence that we see a lighter a lighter growth rate there relative to.

Normal run rate.

Chris Svezia: Okay. Just so I'm clear about something, if by any chance there was favorability in weather maybe similar to something last year. I know last year, you had some speculative inventory that you sold through at better price. Just as you think about it this year, you still have that ability to maybe fulfill that demand, whether it's in DTC, outlet, online, if whatever reason that came to fruition in Q4?

Okay, and just so I'm clear about something if by any chance.

There was favorability in weather may be similar to something last year I know last year, you had some speculative inventory that you sell through it at better price just as you think about it. This year you still have that ability to maybe to fulfill that demand whether it's in DTC outlet online if whatever reason that that came to fruition in the fourth quarter.

Jim Swanson: Yeah. I mean, I think there's certainly, we'll have the inventory up to a certain level to deliver a better top line and a profit figure.

Yes, I think they are certainly theres, we'll have the inventory up to a certain level.

To to to deliver a better top line in a minute.

Tim Boyle: As we sit here today, we've provided the best outlook that we can in light of all the factors and the order book that we've got in hand and the trends that we're seeing in the business. We really haven't materially changed our focus that we've had for the last 25, 30 years, which is modest approach to inventory purchases on a speculative basis. We have some, but they're by no means extravagant or significantly different from prior periods. Okay. Understood. In the context of the 7 to 8.5% revenue growth on the year, just any color between the core brands, Sorel, Columbia, prAna, I know Mountain Hardwear, just how it falls in the context of that 7 to 8.5% by some of those brands, if you could provide that?

Profit figure, but as we sit here today, we've provided the best outlook that we can.

Jim Swanson: As we sit here today, we've provided the best outlook that we can in light of all the factors and the order book that we've got in hand and the trends that we're seeing in the business.

In light of all the factors and the order book that Weve got in hand, and the trends that we're seeing the business.

Timothy Boyle: We really haven't materially changed our focus that we've had for the last 25, 30 years, which is modest approach to inventory purchases on a speculative basis. We have some, but they're by no means extravagant or significantly different from prior periods.

Yeah, we really havent materially changed our our focus that we've had for the last 20 530 years, which is.

Modest.

Approach to inventory purchases and expect good basis. So we have some but they are by no means extravagant or or significantly different from prior periods.

Chris Svezia: Okay. Understood. In the context of the 7 to 8.5% revenue growth on the year, just any color between the core brands, Sorel, Columbia, prAna, I know Mountain Hardwear, just how it falls in the context of that 7 to 8.5% by some of those brands, if you could provide that?

Okay understood and in that context.

7% to 8.5%.

Revenue growth on the year, just any color between the core brands.

So Ral Columbia product I know mountain Hardwear kit, how it falls in the context of that 7% to 8.5% by by some of the brands. If you can provide that yes.

Tim Boyle: I mean, yeah, from an overall standpoint, the positive, we anticipate growth from all 4 brands. We saw Mountain Hardwear return to growth in Q2, and anticipate that to continue to accelerate into the back half of the year. In terms of where we'd see the lion's share of the growth, I mean, it's certainly going to be with the Columbia brand and with Sorel in particular when you look at that from a percentage standpoint. prAna, as Tim pointed out in the prepared remarks, we intend to grow, but it'll be a lower rate of growth. I'd probably leave it at that. Okay. Fair enough. Last 2 things I had real quick just on the gross margin cadence. Is there anything you expecting improvement both in Q3 and in Q4?

Jim Swanson: I mean, yeah, from an overall standpoint, the positive, we anticipate growth from all 4 brands. We saw Mountain Hardwear return to growth in Q2, and anticipate that to continue to accelerate into the back half of the year. In terms of where we'd see the lion's share of the growth, I mean, it's certainly going to be with the Columbia brand and with Sorel in particular when you look at that from a percentage standpoint. prAna, as Tim pointed out in the prepared remarks, we intend to grow, but it'll be a lower rate of growth. I'd probably leave it at that.

From an overall standpoint.

The positive we anticipate growth from all four brands and so we saw mountain Hardwear returned to growth in the second quarter and anticipate that to continue to accelerate into the back half of the year in terms of where where we see the lion's share of the growth is certainly going to be with the Columbia brand and with cerebral thrill in particular, when you look at that from a from a percentage standpoint and then.

Chronos 10 point out in the prepared remarks, we're going to we intend to grow but it will be it will be a lower lower rate of growth, so probably probably leave it at that.

Chris Svezia: Okay. Fair enough. Last 2 things I had real quick just on the gross margin cadence. Is there anything you expecting improvement both in Q3 and in Q4?

Okay fair enough.

Last two things have real quick just on the gross margin cadence is there anything.

You expecting improvement both in Q3 and in Q4, I mean, obviously Q4 significantly less than you've seen throughout the year, but is it fair to say in both quarters or is it more heavily skewed to the third quarter at this point.

Tim Boyle: I mean, obviously, Q4 is significantly less than you've seen throughout the year. Is it fair to say in both 2 quarters, or is it more heavily skewed to Q3 at this point? It's in 2 quarters. Certainly, Q3 will be stronger than Q4 just given those comps that we've talked about with regard to Q4. We are anticipating gross margin expansion in each of the 2 quarters. Okay. Finally, just on C1, I'm just curious, just what are you anticipating in terms of maybe some of the benefit with a better POS system? Maybe talk about loyalty opportunities and just maybe anything that we could provide as you go sort of into the back half. Any further thoughts about the development and maybe the benefit potentially this year, or is that more really reading about 2020?

Chris Svezia: I mean, obviously, Q4 is significantly less than you've seen throughout the year. Is it fair to say in both 2 quarters, or is it more heavily skewed to Q3 at this point?

Jim Swanson: It's in 2 quarters. Certainly, Q3 will be stronger than Q4 just given those comps that we've talked about with regard to Q4. We are anticipating gross margin expansion in each of the 2 quarters.

It's in both quarters, certainly the third quarter will be stronger than the Fourq just given those comps that we've talked about with regard to the fourth quarter.

So, but but we are anticipating.

Gross margin expansion in each of the each of the two quarters.

Chris Svezia: Okay. Finally, just on C1, I'm just curious, just what are you anticipating in terms of maybe some of the benefit with a better POS system? Maybe talk about loyalty opportunities and just maybe anything that we could provide as you go sort of into the back half. Any further thoughts about the development and maybe the benefit potentially this year, or is that more really reading about 2020?

Okay, and finally, just on C. one.

Im just curious just.

What are you anticipating in terms of maybe some of the benefit with a better Pos system, maybe talk about loyalty opportunities and just.

Maybe anything that.

We can provide as you go forward into the back half any any further thoughts about the development and maybe the benefit potentially this year or is that more really getting about 2020.

Tim Boyle: Yeah, it's probably more 2020, Chris, as it's Tom. We're using a 20-year-old system, so this is really modernizing the ERP across the application base. Okay. Understood. All right. Thank you, gentlemen. All the best. Thanks. As a reminder, ladies and gentlemen, it is star one to ask your question. Our next question comes from the line of Michael Kawamoto with D.A. Davidson. Please proceed with your question. Yeah. Hey, guys. Thanks for taking my questions. Just first off, you anniversary of the city attack plan with PFG Footwear in Houston. How are you thinking about the longevity of the benefits of those attack plans? It sounds like you're maintaining momentum within those markets. Do you expect it to normalize a little bit going forward? Yeah.

Timothy Boyle: Yeah, it's probably more 2020, Chris, as it's Tom. We're using a 20-year-old system, so this is really modernizing the ERP across the application base.

Yes, it's probably more 2020, Chris it's Tom we are using a 20 year old system. So this is Roy.

Modernizing the ERP across the application base.

Chris Svezia: Okay. Understood. All right. Thank you, gentlemen. All the best. Thanks.

Okay understood alright, Thank you gentlemen.

Okay.

Operator: As a reminder, ladies and gentlemen, it is star one to ask your question. Our next question comes from the line of Michael Kawamoto with D.A. Davidson. Please proceed with your question.

As a reminder, ladies and gentlemen, it is star one to ask a question.

Our next question comes from the line of Michael Kellen Moto with D.A. Davidson. Please proceed with your question.

Michael Kawamoto: Yeah. Hey, guys. Thanks for taking my questions. Just first off, you anniversary of the city attack plan with PFG Footwear in Houston. How are you thinking about the longevity of the benefits of those attack plans? It sounds like you're maintaining momentum within those markets. Do you expect it to normalize a little bit going forward?

Hey, guys. Thanks for taking my questions.

Just first off you anniversary the city attack plan with KFC footwear in Houston, how are you thinking about the longevity of the benefits of those attack plans it sounds like you're maintaining momentum within those markets.

But do you expect it to normalize a little bit going forward.

Timothy Boyle: Yeah. we didn't reinvest in Houston to the level we did last year, although we had some modest residual impact on the business. We're continuing to roll them out. As you might just a reminder, we had a fairly sizable Key City Attack plan in Chicago last year. Then we'll be using that plan both in New York City and the surrounding area as well as Denver for 2019 fall. We're pleased with how those strategies work and the fact that there is residual momentum after the heavy up in those markets. We'll be continuing to do that, and we'll be rolling them out probably internationally as well.

Yes, so we didnt, we didnt reinvest in Houston to the level, we did last year, although we had some modest.

Tim Boyle: We didn't reinvest in Houston to the level we did last year, although we had some modest residual impact on the business. We're continuing to roll them out. As you might just a reminder, we had a fairly sizable Key City Attack plan in Chicago last year. Then we'll be using that plan both in New York City and the surrounding area as well as Denver for 2019 fall. We're pleased with how those strategies work and the fact that there is residual momentum after the heavy up in those markets. We'll be continuing to do that, and we'll be rolling them out probably internationally as well. Yeah, that was my follow-up question. Do you have some cities in mind internationally that you're looking at, or is that still kind of more further down the line?

Residual impact on the business. So we are continuing to roll them out as you might just to reminder, we had a fairly sizable city attack Clinton Chicago last year, and then we'll we'll be using that plan.

Both in New York City.

And the surrounding area as well as Denver for 2019 fall.

So we're pleased with how those strategies work and the fact that there is residual.

Momentum after after the heavy up in those markets. So.

We'll be continuing to do that and we'll be rolling them out probably internationally as well.

Michael Kawamoto: Yeah, that was my follow-up question. Do you have some cities in mind internationally that you're looking at, or is that still kind of more further down the line?

Yes that was my follow up question do you have some cities in mind internationally. They are looking at or is that still kind of more further down the line.

Tim Boyle: Yeah, it's still under negotiation right now for European markets, although we've had some focus in China on specific markets including Shanghai and Shenzhen. Got it. Thanks, guys, and good luck for the rest of the year. Thank you. Thanks. There are no further questions in the queue. I'd like to hand the call back over to Tim Boyle for closing remarks. Well, thank you very much for your attention today. We look forward to talking to you again in October. Again, I might note that we have moved the date for our conference call in October to the 30th. I look forward to talking to you about our Q3 results then. Thank you. Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Timothy Boyle: Yeah, it's still under negotiation right now for European markets, although we've had some focus in China on specific markets including Shanghai and Shenzhen.

Yes, still under under negotiation right now for a European markets although.

We've we've had some focus in China on specific markets, including.

Shanghai and.

In Shenzhen.

Got it thanks, guys and good luck for the rest of the year.

Michael Kawamoto: Got it. Thanks, guys, and good luck for the rest of the year.

Andrew Burns: Thank you.

Jim Swanson: Thanks.

Operator: There are no further questions in the queue. I'd like to hand the call back over to Tim Boyle for closing remarks. Well, thank you very much for your attention today. We look forward to talking to you again in October. Again, I might note that we have moved the date for our conference call in October to the 30th. I look forward to talking to you about our Q3 results then. Thank you.

Thank you.

There are no further questions in the queue I'd like to hand, the call back over to Tim Boyle for closing remarks.

Well. Thank you very much for your attention today, we look forward to talking to you again in October and again I might note that.

We have moved the date for our conference call in October to the Thirtyth.

So look forward to hearing to talking to you about our third quarter results then thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Q2 2019 Earnings Call

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Columbia Sportswear Co

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