Columbia Sportswear Company
Q4 2016 Earnings Call Transcript

Published: 10 Feb 2017

[Operator:]

Greetings and welcome to the Columbia Sportswear four quarter and fiscal year 2016 financial results conference call. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Ron Parham, Director of Investor Relations and Corporate Communications. Thank you, Mr. Parham. You may begin.

[Ron Parham:]

All right. Thanks, Bob. Good afternoon and thanks for joining us to discuss Columbia Sportswear Company's record fourth quarter and full year 2016 financial results and our initial 2017 outlook. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our historical results and the assumptions behind our outlook. The CFO commentary is available on our Investor Relations website. With me today on the call are Chairman of the Board, Gert Boyle; Chief Executive Officer, Tim Boyle; President and Chief Operating Officer, Bryan Timm; Executive Vice President of Finance and Chief Financial Officer, Tom Cusick; and Executive Vice President and Chief Administrative Officer, Peter Bragdon. And I will say at the start here, about half of the team is fighting a cold. So apologies in advance if some of the voices are a bit rough. But Gert will start us off covering the safe harbor reminder.

[Gertrude Boyle:]

Good afternoon. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation. 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 on subsequent filing 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 demands (2

[Ron Parham:]

All right. Thanks, Gert. I'd also like to point out that during the call we'll reference constant currency net sales growth which is a non GAAP financial measure. You'll find a reconciliation of constant currency net sales, the net sales as reported under U.S. GAAP, in the supplemental financial tables of the company, our earnings release along with an explanation of managements rationale for including this non-GAAP measure. Now, I'll turn the call over to Tim.

[Timothy P. Boyle:]

Thanks, Ron. Welcome, everyone and thanks for joining us this afternoon. 2016 marked Columbia Sportswear Company's third consecutive year of record sales and our second consecutive year of record operating income and record net income. These results were driven by record gross profit margins, up 60 basis points to 46.7% despite 100 basis points of headwinds from foreign currency. In addition, we improved our operating margin to 10.8% to 10.7% last year. Our third consecutive year of improved profitability during which we've expanded operating margin by a total of 300 basis points, despite significant foreign currency headwinds. Inventory levels are in good shape, ending the year up 3%, comparable to the sales growth implied in our full year 2017 outlook. In 2016, we generated record cash from operations of $275 million and returned key profitability measures to levels that are in line with our peers. We are especially proud of these accomplishments because they were achieved despite unique challenges in several of our largest markets, specifically Korea, Russia, and our North American wholesale business where wholesale customers' bankruptcies, and unreasonable whether added (4

[Operator:]

Thank you. Ladies and gentlemen, we'll now be conducting a question-and-answer session. Our first question comes from the line of Bob Drbul with Guggenheim. Please proceed with your question.

[Robert Drbul:]

Hi. Good afternoon, Tim and team.

[Timothy P. Boyle:]

Hey, Bob.

[Robert Drbul:]

I guess I got a couple questions for you. One, did you bring the Portland weather to the East Coast this weekend?

[Timothy P. Boyle:]

If we had that kind of power, I would have shown up in October.

[Robert Drbul:]

Better late than never though I guess, right. I guess two bigger picture questions for you, Tim. First one is on your outlook for 2017, how much of your order book do you have in hand or the visibility of your order book? And within that outlook, can you just talk about either door count contraction or square footage of your wholesale partners that won't be there in 2017 that were there in 2016. Can you just put a little bit of a framework on that for us?

[Timothy P. Boyle:]

Certainly. Well, as you know, we try diligently to guide with the best information we have. We have a high percentage of our order book today visible to us and that gives us confidence to give the guidance we gave today. So, it's in the way north of 85%. So we're confident as to where we're going for the year 2017. I think I've heard the quote something like 20 million square feet of sporting goods has left the retail landscape in the U.S. and we expect frankly a further contraction and further bankruptcies and consolidation. So the guidance we've given you today contemplates what we see and what we think is likely to happen.

[Robert Drbul:]

Okay. And then the off-price channel, can you just talk about how that materialized for your industry and for the category in the fourth quarter and sort of what you think it looks like in 2017?

[Timothy P. Boyle:]

Well, I can only really speak about our interaction with the off-price channel, which has been good but probably slightly lower than in years past. I think that the amount of insulated inventory that's in that channel or being made available to that channel is probably slightly less than prior periods. So the available inventory in that channel is definitely less and the availability from other vendors, I believe, is less as well.

[Robert Drbul:]

Okay.

[Thomas B. Cusick:]

Hey Bob, this is Tom. Part of our revenue miss in the fourth quarter was due to the fact that we shipped less to the – less of our excess inventory to the value channel than we've planned just because we couldn't get to our margin targets and we can carry that inventory over and sell it at a better margin though our own outlets this year.

[Robert Drbul:]

Okay. Okay. And then – thanks Tom. And I guess the other question that I have I guess is more on the geography piece of this is when you look at the trends in Korea and I'd say Russia in that wade (26

[Timothy P. Boyle:]

Well, yeah, just to add a very high level, again we've – just to reiterate, this is our best view of 2017 that we've given you. I think we've properly accorded for issues in those two markets. But Tom may have something...

[Thomas B. Cusick:]

Yeah. I would say as it relates to Russia, Bob, most of that business is all advance order. So that's a fairly predictable revenue equation for us. Korea, we're basically planning flat to last year and that revenue is at what – call it $75 million, $80 million, so not a huge part of our total business but we feel like we've – as we typically do, we've planned this down the middle; not aggressive or conservative, at least as we see the business today.

[Robert Drbul:]

Great. I guess, if I could just ask one last question. Can you just talk about with the square footage going away in sporting goods, can you talk about the business trends with Amazon as a partner and sort of how that's materializing and how big it is today in your outlook on that specific channel?

[Timothy P. Boyle:]

Certainly. Well – I mean, we have a good relationship with Amazon really globally. And frankly, it's a place that consumers are going to find merchandise. So our relationship there is good. We think that that channel appears to be growing more rapidly. Frankly, our eCommerce business is growing more rapidly than the rest of the business as well. And my expectation is, it will continue to be that way for some time.

[Robert Drbul:]

Great. Thank you very much.

[Timothy P. Boyle:]

Thanks Bob.

[Operator:]

Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question.

[Camilo Lyon:]

Thanks guys. Good afternoon. Tom, I think there was a shift in the quarter. I think there was a shift, actually both in the Latin America, Asia Pacific region as well as in EMEA. Could you just tell us if there was a net benefit or a net detriment to the quarter in the magnitude of those combined shifts?

[Thomas B. Cusick:]

In terms of the distributor shipments? Yeah, I don't have those numbers specifically in front of me, but there wasn't a material shift. I think one region went one way; one region went the other way. It wasn't significant to the overall quarter. I would say that the bigger shift was, we had planned about a $30 million shift in the U.S. wholesale business from Q3 to Q4. And about half of that $30 million shift materialized, and the – about half of it was ultimately canceled, given the slow start to winter. So that was a bigger part of really the top-line miss relative to our implied guidance for Q4.

[Camilo Lyon:]

Okay. That's what I was getting at. And was that concentrated in outerwear apparel or in footwear in Columbia or SOREL?

[Thomas B. Cusick:]

(29

[Camilo Lyon:]

Got it. Okay.

[Thomas B. Cusick:]

A little bit in the SOREL brand as well.

[Camilo Lyon:]

Okay, great. And then, as you think about, I think, Tim, you mentioned that the – your inventories are in good shape relative to where you expect your guidance to fall out for next year. Can you just comment on – I know you briefly touched about the off-price inventory in the channel, can you comment about just the overall channel inventory and how that fits in? And I guess what, if anything, that does to how retailers are viewing – in the discussions you're having with them right now – how they're viewing their order book, and are they shifting more of their order book to an at-once business, or are they maintaining the same percentages that they usually maintain from a pre-book to an at-once perspective?

[Timothy P. Boyle:]

Well, let me speak to the last part of the question, maybe Tom will get the first part. Basically, for our category of merchandise, which would be outerwear and winter footwear, those bets have to be placed early on. At-once business is virtually an impossibility in terms of producing it in time for delivery during a snow event. So, our goal is to take our orders from our customers and minimize the risks on weather not showing up, and all together make our guess as to what the weather is going to be. But there is no at-once opportunity, for all intents and purposes, on outerwear or winter footwear.

[Camilo Lyon:]

Okay. And then, I guess, how does the channel overall look from a full price perspective?

[Timothy P. Boyle:]

Yeah. I think as it relates to the merchandise – winter merchandise that's in stores today is probably lower levels than it has been in prior periods, certainly lower than at the same time last year.

[Camilo Lyon:]

Got it. And then, I guess just I'm curious about the – actually two more questions; curious about the move of taking some of your eCommerce regions in-house. If you could just talk about the timing of that move and any sort of profitability lift that we could expect from that?

[Timothy P. Boyle:]

Certainly. Well, in order to kick off our business in Europe on the eCommerce basis, we established a relationship with a third-party that basically managed the order and shipment from their facilities. So we're basically taking that in-house, which means we take back control of the customer. So we have a call center establishment in Europe where we're going to be speaking directly to customers, as opposed to through a third-party call center. We'll be able to utilize the existing infrastructure we have, of both – to house the call center and also to house the physical distribution of the products. Those exist in Europe today. And we'll basically be able to offer a larger offering than what we were able to offer through the third-party firm. So we've calculated the enhanced profitability in the announcement that we've given you today for 2017. But at the end of the day, it's going to mean a better, more brand-enhancing experience for consumers that want to buy products from the company electronically in Europe. And we're expecting that, in addition to the marketing results, that kind of an effort gives us will be superior as well.

[Camilo Lyon:]

Is there no fee as a percent of sales that you recover as a result of taking that business in-house? I mean, there's – I'm assuming there's some sort of profitability mix benefit to this, right?

[Thomas B. Cusick:]

Yeah. That's correct.

[Camilo Lyon:]

(34

[Thomas B. Cusick:]

That's correct, Camilo. We're basically – the current outsourced model is a variable cost model that's arguably fairly expensive. So we'll be able to leverage the fixed cost that's – without incremental fixed cost in our business, and operate this eCommerce business in Europe much more profitably under our ownership.

[Camilo Lyon:]

And that profitably improvement should hit the P&L back half of the year, or when does that turn on?

[Thomas B. Cusick:]

Predominantly, I would say the second half of the year, although we're anticipating to go live mid-first half of this year.

[Camilo Lyon:]

Got it. Perfect. Okay, perfect. And then just finally from me, I was interested in the commentary around the review of the business bringing outside consultants in. I guess, what prompted the review, the first place and then secondarily, what areas of the business are you – are they or are you focusing on? Is this a supply chain initiative or understanding what the optimal channel mix should be as time goes on over the next three to five-year period or an expense rationalization project? If you could just maybe dig a little deeper into what the expected outcome – (35

[Timothy P. Boyle:]

Sure. Well, we're kicking off this project here in the next 30 days. And we have a very successful business. We've seen constant improvements from the company and our operating models over the last several years and we're focused on continuing to improve the business. We know what our strategic plan shows for us in the future. We want to be a larger, more profitable business serving more customers and specifically, in the wholesale area. And we want to be able to generate more marketing dollars to create demand for the company's products. We have some processes in the company that I'm sure that are not as efficient as possible and we want to make sure that we have some help in analyzing those processes and making sure that we're using the assets of the company in the most efficient way. So that's how we plan to undertake this project and then we're looking forward to a healthy review of how we operate the business today with improvements in mind.

[Camilo Lyon:]

All right guys, thank you. All the best.

[Timothy P. Boyle:]

Thanks, Camilo (37

[Operator:]

Thank you. Our next question comes from the line of Mitch Kummetz with B. Riley. Please proceed with your question.

[Mitch Kummetz:]

Yeah. Thanks. I just want to drill down on the guidance a little bit, particularly your guidance around I think mid-single-digit growth on the U.S. side. So you're looking DTC up mid-teens. I guess my first question there is can you kind of talk about the combination of door growth versus comp? And then on the wholesale side low-single digits. Tim, you said that about 85% of your order book is in, (37

[Timothy P. Boyle:]

Yeah that last assumption would be correct. So it's a combination of – if we look at the growth in the U.S. business for 2017, low-single-digit growth for the wholesale channel and mid-teen growth to the direct-to-consumer channel. So when we look at DTC, which is going to drive a lot of our growth in 2017, it's a combination of new stores. We're planning 13 new stores in the new U.S. this year and I believe we've got leases signed for all of those stores as of today. We added what – seven stores in 2016. So we'll get some benefit in – or in 2016, we'll get benefit in 2017 for. And then we would expect our eCommerce business to continue to comp double-digit.

[Mitch Kummetz:]

And then on the wholesale side, I mean, can you say what the order book is looking like at this point since you got it largely complete. Again, it sounds like – I think you already confirmed that reorders should be up. Does that mean order book – orders are also up or are they more flattish?

[Timothy P. Boyle:]

Yeah. No, I wouldn't say that we expect reorders to be up frankly. We've guided based what we have in front of us in our likely scenarios as we walk through – over the last several years. So we believe we're taking share, but this is a reflection of our current growth with our good customers and expected changes in our customer base based on weak financial performance by some and we're just making sure that we've anticipated all possible financial outcomes for some of our customers.

[Thomas B. Cusick:]

And maybe just to clarify, Mitch, so when we look at reorders, we look at reorders net of cancels and we would expect that net reorder cancel rate to be more beneficial in 2017 than 2016 based on a normal weather pattern.

[Mitch Kummetz:]

Got it. And then, Tim, could you just speak to the kind of the environment of some struggling retailers right now. Because you did mention that's contemplated in the guidance. How are you dealing with some of these guys? I mean, there's obviously a lot of reports around Gander and EMS. I mean, are you shipping these guys, are you changing the payment terms? I mean, what are you doing to kind of protect yourselves if they were to go away?

[Thomas B. Cusick:]

Well, you know, Mitch, first of all, we wouldn't never want to comment on a specific customer. But if you look at our record and I might point to our record as it relate specifically to Sports Authority, in terms of how we manage the extension of credit to that particular customer even during their difficult times and what it end up costing us. I would say, we were in the best quartile of credit extenders. We've been doing this for a long time. We want our customers to thrive and survive and we want to be mindful that if that doesn't happen we need to protect the assets of the company with some significance. So again, we consider ourselves to be best in class in terms of credit extension and I think we've shown that. So we know how to deal with these various problems. And without getting into specifics, I think we'll do a good job.

[Mitch Kummetz:]

Got it. All right. Thanks guys. Good luck.

[Thomas B. Cusick:]

Yeah.

[Operator:]

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

[Jonathan R. Komp:]

Yeah, hi. Thank you. Tim, can I ask first just bigger picture question on the Columbia brand. I know it's planned in 2017 for mid-single-digit sales growth and the way you talk about some of the broader wholesale challenges, you talk about it more structurally than short-term in nature. So I just wanted to maybe kind of gauge your thoughts on the longer term growth rate for that brand if you think it's a mid-single-digit grower going forward or if you think there's other opportunities to accelerate, maybe beyond 2017?

[Timothy P. Boyle:]

No, I mean we've guided actually on a fairly narrow tactical basis as it relates 2017. Because for all intents and purposes in the – I don't say the – it's well known to us and we've seen this before. We think there is significant growth in the Columbia brand. And you have to remember that it's not only here in the U.S., but globally. There's significant opportunity for us. We believe and we've talked to investors in the past about the fact that we've been under investing in demand creation and we know that as we begin to develop more funds for marketing the company's products not only in the U.S. but also globally, and we've become more efficient at it through things like our connection with Disney and Manchester United, et cetera that the company's products will become better known and in higher demand. So I personally am always disappointed if we aren't growing at high-teens because I think the opportunity for us at that scale is certainly there. So that's my particular personal plan and I believe that if we're not at that level we're under performing.

[Jonathan R. Komp:]

Got it. Okay, maybe switching topics, but the gross margin guidance for 2017, I think it calls for 25 basis points of expansion. I just want to ask in the context, I know the last four years you've pretty meaningfully exceeded that level even despite currency and other pressures, I know it's mentioned a favorable sourcing environment is embedded for 2017. So any perspective on the factors leading to the outlook for this year?

[Timothy P. Boyle:]

Yeah, I would say, again a lot of factors go into the gross margin and the gross margin forecast. I would say the biggest driver of the expansion as we see it today is going to be channel mix. With additional benefit from a sourcing environment and we do expect currency to be a slight tailwind as well. So it's a tough environment. We run a multi-channel business so there's lots of moving parts within the gross margin outlook. And we're comfortable with that 25 basis points of expansion as we sit here today.

[Jonathan R. Komp:]

Is there anything going against to you like faster growth for the distributors as a mix impact or something just because I think you mentioned two or three positives and no negative offsets. I'm just wondering why – maybe only 25 basis points of expansion?

[Timothy P. Boyle:]

Yeah, we are planning for the distributor business to grow at a much faster clip in 2017 than 2016. So that is a net negative as it relates to margin expansion as that channel is the lowest gross margin channel for the business.

[Jonathan R. Komp:]

Okay, and my last question, if I could. Just curious to get an update as you look at the wholesale versus the direct business and the profitability of those two when you kind of fully allocate the cost structure. I'm curious to hear maybe what the relative profitability of those channels and maybe within the direct eCommerce versus the stores. Any color you could give on that would be helpful?

[Timothy P. Boyle:]

Yeah. So I would say, let's set aside allocations for a moment. As we look at those three channels with eComm, our own brick-and-mortar and our wholesale channels, I would say between the wholesale and the eCommerce businesses, they're relatively comparable from an operating margin standpoint and then followed by the stores. So we really look at those three channels of distribution separately because the dynamics between eComm and brick-and-mortar are quite different in their cost structures. So, at that, as eComm grows at a faster clip than the brick-and-mortar business that will drive operating margin expansion.

[Jonathan R. Komp:]

Okay, very helpful. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Lindsay Drucker Mann with Goldman Sachs. Please proceed with your question.

[Lindsay Drucker Mann:]

Thanks. Good afternoon, guys.

[Timothy P. Boyle:]

Hi.

[Lindsay Drucker Mann:]

Going back to the miss versus your revenue guidance in the fourth quarter, you talked about some of those cancellations, I guess it's about $15 million of shipments you would expected to be push in the first quarter that were ultimately canceled and then a decision not to push stuff out into the value channel, were there any other factors that drove the miss?

[Thomas B. Cusick:]

Well, that was one part of it. The other part was, the slow start to winter certainly impacted our direct to consumer business in a similar fashion to the wholesale business. So, but the U.S. was the majority of the miss, and fairly evenly split between those two channels of distribution.

[Lindsay Drucker Mann:]

Okay, got it. I wanted to ask a little bit more about the shop in shops; thanks for the detail in your script about the 200. I'm not sure if I missed it, but how many did you open in 2016 and for the openings in total that you have planned, can you talk about – can you give us any details on retailer or regions where the openings are happening?

[Timothy P. Boyle:]

Certainly. Well, I don't know how many we opened in total in 2016, but in the fourth quarter, we opened about 25. Some of those were in Canada, some in the U.S. And then our plan of a couple of hundred stores, approximately, for 2017, will include a healthy percentage in China, where we're remodeling some of our stores there, as well as here in the U.S. And there may be other parts of the world where there are some small percentage going. But, in general, the bulk will be China and North America.

[Lindsay Drucker Mann:]

Did you have any, based on the ones that you opened in Canada and the U.S., do you have any insight you can share on just what that ultimately does to your productivity in the same-store? How it might enhance it?

[Timothy P. Boyle:]

Yeah, historically, we've had a fairly significant lift. We don't know if we've got enough of an installed base today (48

[Lindsay Drucker Mann:]

Okay. And then beyond, in wholesale in North America, are there any other distribution wins, any other new doors or new accounts that you're adding in 2017?

[Timothy P. Boyle:]

No, not really in the Columbia brand. We're really everywhere we want to be and we just want to be stronger with the stronger players, and that's our plan for 2016 with the Columbia brand. Certainly in SOREL, there is a plan to add more specialty retail stores. Women's especially, to be able to improve that brand as the non-winter product becomes more important. And then prAna, where we'd like to increase the distribution of prAna products slightly in certain specific areas.

[Lindsay Drucker Mann:]

Okay. And then last one for me. You talked about pricing a bit in – I don't know if it was your script or the CFO comments. Can you talk about what kind of pricing, and maybe some examples of what you've planned for 2017? And how you think about price gaps and where you ultimately can take them, and maybe just how you're thinking about the pricing contribution to your revenue guidance. Thank you.

[Timothy P. Boyle:]

You are talking about costing, Lindsay? (50

[Lindsay Drucker Mann:]

No, maybe pricing to the retailers, or maybe even to consumers.

[Timothy P. Boyle:]

So, you're talking about price AUR maybe? Price increases?

[Lindsay Drucker Mann:]

AUR.

[Timothy P. Boyle:]

Okay. What we've done is again, as a point of differentiation, the company is focused on innovation, and where we have products that are made with components that no one else has, like Omni-Heat Reflective or the OutDry Extreme Eco. Those areas we've, and have, taken slightly higher prices to be able to drive AUR for our customers and for ourselves. So, it's been selective.

[Lindsay Drucker Mann:]

Okay. Thanks a lot guys.

[Operator:]

Thank you. Our next question comes from the line of Andrew Burns with D. A. Davidson. Please proceed with your question.

[Andrew S. Burns:]

Thanks. Good afternoon. Curious if I heard correctly there, I think you said 13 new stores in 2017? Just wondering if you could update us on your view, in terms of the potential for, long-term, the store base, whether it's outlet and full price and whether this ongoing retail traffic decline lends itself to shifting that brick-and-mortar strategy at all. Thanks.

[Timothy P. Boyle:]

Right. Well, we have a healthy approach to the brick-and-mortar business. We believe that there are certain areas where the company can get a significant marketing lift, as well as a revenue lift, by opening a retail store there. But we're mindful of the long-term impacts and requirements for long-term leases and how they could, at some point in time, impact the company. So, we're very judicious about how we're opening those stores, where we are opening them. And I would say investments of some scale, certainly, are being made into the company's eCommerce business because, while we have industry-average conversion rates on our eComm business, that means 95% or 97% of the people who come and visit leave with a great marketing message. So we're making investments of some scale in that business as well. And frankly, as the environment brick-and-mortar changes, it's just – it's important that we make sure that we always remind our customers and our investors that we're really primarily a wholesale business, and making sure that we make products that are in high demand in our wholesale partners' stores.

[Andrew S. Burns:]

Great. Thanks. And I was wondering if you could give us an update. You're in the late innings of a multi-year, company-wide ERP upgrade cycle. Are the efficiencies that you hoped for being realized? What's left to be seen in terms of margin improvement from that initiative? Thanks.

[Thomas B. Cusick:]

Yeah, Andrew. This is Tom. So, we are in the late innings. We're in China currently. And then we will be making our way to Europe. The intent is to go live in the first half of this year in China, and then we will make our way to Europe, and then ultimately to Japan. So, we have not given specific metrics relative to payback on this investment. But I think as you can see in our gross margin expansion over the last three, four years clearly this initiative is having a favorable impact on our gross margin and our inventory utilization. Our inventory turns aren't where we want them to be at 2.4 times. Our goal is to be north of 3 times and we've got some work to do there. But we're not going to do that and sacrifice gross margins. So net-net, this has been a good investment for the business.

[Andrew S. Burns:]

Great. Thanks and good luck.

[Operator:]

Thank you. The last question we have time for today's caller comes from Jim Duffy with Stifel. Please proceed with your question.

[Jim Duffy:]

Thanks. Good afternoon.

[Timothy P. Boyle:]

Hey, Jim.

[Jim Duffy:]

I have a question around channel inventories, you saw some cancellations. It sounds like you're holding back some on populating the off-price channel. Is there any way to put numbers around the relative level of channel inventories versus a year ago?

[Timothy P. Boyle:]

Well it's difficult, as you know we're trying to capture market data in this industry where it is very difficult. There's competing companies, we're trying to provide this information and they're not always comport with the right data. What I can say that certainly since the first of the year, the weather has been very significantly winter-ish including today, in the northeast. And so we believe that that channel started with lower inventories, ours and others at the first of the year and since then it's I'm sure done nothing but improved. So it's hard to put a number on it, but we're fairly strong and our belief that the inventory levels are lower this year than last.

[Jim Duffy:]

Okay. Is it fair to say you're seeing a behavioral change in your channel partners where they're asking you to hold more inventory? Or is it business as usual with the exception of external factors like cancellations in the bankruptcies and so forth?

[Timothy P. Boyle:]

Well, I would say that in general as the weaker retailers in this business go away, the remainder have a stronger point of leverage. And we've talked for years about who takes the risk on inventories. And that's certainly been a topic. So yes. But at the end of the day, we've been around this business long enough to know that you have to take a bet on the inventory. And the risks for us have always been outsized by buying too much and taking too much risk. So our customers know that they can't rely on us having inventory for them of any significance should the weather turn and they didn't prepare for it.

[Jim Duffy:]

Okay. My last question, Tim. I was surprised the SOREL numbers weren't stronger given the momentum it carried into the season and then given the spring launch surprised about the commentary for growth to be weighted to the second half. Can you speak in a little more detail about what you're seeing with the SOREL brand and why it's second half of the year before we'll see a larger gross contribution?

[Timothy P. Boyle:]

Certainly. Well, I mean we've been very focused on de-winterizing the brand. And I think we've made great strides, but – it's still a very strong winter brand with heavy emphasis on winter products which are also very expensive. So it's difficult to offset those expensive winter boots with a lightweight spring shoe, but we're working to get that done. I think frankly when I look at what happened in fourth quarter of this year, the miss as it relates our own DTC's business as well as our customers. They just didn't get the kind of sell-through early in the season that would give them a confidence to keep those orders in the last part. So we've got the right approach to it, in my opinion. We've got it well contained in terms of its inventory positions and I believe there's a big opportunity for us going forward with the brand. If you remember, it's really for all intents and purposes a North America brand and as we get more year-round businesses we think there's significant opportunities internationally.

[Thomas B. Cusick:]

And Jim, maybe just one additional point on that. The spring businesses is still relatively small, but we would expect the relative growth rate for the spring business in the first half to be significantly greater than the fall/winter growth rate just given differences in size of business and the anticipated growth that we've got planned for the spring business for the small brand.

[Jim Duffy:]

Okay. Thanks. That's helpful. Thanks for your perspective, guys.

[Timothy P. Boyle:]

Thanks Jim.

[Operator:]

Thank you. I'd like to turn the floor back to management for closing comments.

[Timothy P. Boyle:]

Well, I want to thank you all for listening today. And I really appreciate your attention and look forward to talking to you soon.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.