Columbia Sportswear Company (COLM) Q1 2015 Earnings Report, Transcript and Summary

Greetings. And welcome to the Columbia Sportswear Company First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Ron Parham, Senior Director of Investor Relations and Corporate Communications. Thank you, Mr. Parham, you may begin.

All right. Thanks, Benny, good afternoon. And thanks everyone for joining us to discuss Columbia Sportswear Company's record first quarter financial results and up revised 2015 financial outlook that we announced earlier this afternoon. Shortly after our earnings press release crossed the wire, we furnished an 8-K, containing a detailed CFO commentary, covering the quarterly results and the assumptions behind our 2015 outlook. The CFO commentary is also available on our Investor Relations website, and we encourage investors to review it, if you have not already done so. With me today on the call are our Chief Executive Officer, Tim Boyle; Chairman of the Board, Gert Boyle; President and Chief Operating Officer, Bryan Timm; Executive Vice President and Chief Financial Officer, Tom Cusick; and Executive Vice President and General Counsel, Peter Bragdon. I'll ask Gert to cover the safe harbor.

Good afternoon. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operations. 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 for the year ending December 31, 2014, 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.

Thank you, Gert. And I'll turn the call over to Tim.

Thanks, Ron. Welcome everyone and thanks for joining us this afternoon. 2015 is off to a strong start, setting the momentum we created in 2014 behind the Columbia's Sorel and prAna brands in North America showing encouraging progress in Europe and returning to growth in Latin American distributor markets. Our strong brand portfolio drove several first quarter records. Record net sales of $479 million, up 13% over last year's first quarter including a four percentage negative effect of the stronger US dollar. First quarter net sales increased in all four regions on a constant dollar basis. Record gross margins of 47.8%, up 130 basis points over Q1, 2014. Record operating profit of $44.1 million, up 24% over Q1, 2014. Record net income of $26.5 million, up 19% over Q1, 2014. And record earnings per share of $0.37 compared to $0.32 in Q1, 2014. Favorable weather across the Eastern half of North America helps to extend to sell- through momentum that began in the fourth quarter. However, I am even more encouraged by the strong sell - through of the large volume in spring season Columbia brand products we delivered to the market during the first quarter despite the lingering cold weather. The vast majority of North America wholesale customers are reporting double digit sale through increases in our sportswear, performance fishing gear outerwear, footwear and accessories. This strength is evident across all North American wholesale channels including specialty sporting goods, hunt fish camp and department stores. We believe this reflects our progress and gradually reducing the company's dependence on winter weather. Another area of first quarter strength was our North America direct-to-consumer business. Our direct-to-consumer platform represents much more than just a profitable segment of our business. It also represents a very effective marketing medium through which consumers can connect with and learn about the broad assortment of products our brands offer to help them and enjoy the outdoors longer in any season in any climate. Our retail teams have leveraged our improved product assortment and their increased retailing experience to deliver sales growth, enhance productivity and improve profitability across our North American store base. In addition, our North American e-commerce business extended the rapid growth pace it achieved during 2014 and continues to exceed our expectations of sales growth and profitability. Similar to US wholesale sale through I described earlier, while outerwear and cold weather footwear benefited from cold weather, we also saw strong sales of our springs sportswear PFG and trail footwear. Last year, we opened 16 new stores and added five existing prAna stores to our North American fleet. We also upgraded our global e-commerce platform. In 2015, we plan to open a several number of new stores in North America and anticipate continued growth from our existing store base combined with global e-commerce growth. We are very encouraged by the momentum of our business in North America. And the further strengthening of fall advance wholesale orders since we last spoke in February. The increased inventory level you will see on the balance sheet at March 31 and that you can expect to see again at the end of June are commensurate with the higher demand and early deliveries requested by our wholesale customers as well as the needs of our expanded direct-to-consumer business. In Europe, the new leadership we've assembled over the last 18 months has been focused on improving our product offerings and rebuilding our relationships with the largest retailer in each of Europe's key market. We believe our first quarter results reflect early progress on that strategy. Our European wholesale and direct-to-consumer business grew low 20% as reported, including $2 million of incremental prAna sales and 40% in constant dollar terms. European sales of Columbia brand apparel grew 10% in US dollars and nearly 30% in constant dollars while sales of Columbia footwear Europe grew nearly 60% in US dollar and more than 80% in constant dollars. A portion of this increases reflect progress on our initiative to accelerate delivery of our seasonal offerings to better meet the needs of our wholesale customers and ensure that our new products reach retail floors in a timely manner to meet consumer demand. Columbia footwear accounted for more than half of European sales growth during the quarter reflecting our increasing strength of the sales category which is the largest segment of the global outdoor footwear business. We are encouraged by this momentum and committed to competing for a significantly greater share of this important global category over the coming years. Our Latin American distributor business grew by more than 60% during the first quarter, driven primarily by our distribution partners in Argentina, Chili and Panama. We are planning significant growth for our LAP distributor business in 2015, constant traded in the Columbia brand which is very encouraging after encountering geopolitical challenges in this region over the last two years. Before I open the call to your questions, I want to comment on Sorel and prAna, two brands in our portfolio we expect to contribute significant sales and organic growth in the second half of 2015 and for many years to come. When we bought the Sorel trademark for $8 million in 2000, Sorel was a heavily male oriented brand that offered rugged utility and work boots for extreme cold weather. And in 2009 when the brand generated approximately $60 million in annual sales, Mark Nenow and his team saw the potential of repositioning the brand and re-envisioning the products to appeal to fashion forward women. Since the Sorel consumer base has transformed to be more than 70% female while sales have nearly tripled growing 29% in 2014 to $166 million. To continue driving this momentum, we recently appointed Mark Nenow as President of the Sorel brand to create a focus product and marketing team to aggressively capitalize on Sorel's global potential. Based on rapidly expanding consumer demand and very strong advance wholesale orders for 2015 fall, we expect Sorel to surpass $200 million in sales this year which would make it the first of our acquired brands to surpass that milestone. We believe we are only at the beginning to tap Sorel's global potential. By gradually expanding Sorel's product assortment and categories to increase its year-round relevance we intend to create new growth opportunities in North America and in Europe and to make Sorel a viable brand for international distributors. Finally, we continued to be extremely excited about prAna. The newest addition to our brand portfolio. prAna contributed more than $37 million of incremental net sales in the first quarter on pace to grow in excess of 20% on an annualized basis and to surpass a $120 million for the full year. With a long runway of opportunity in North America and virtually untapped potential internationally, we believe prAna will continue to be a significant growth driver. Looking ahead to the balance of the year, we believe we are in a position to capitalize on the momentum we've established behind the Columbia Sorel and prAna brands. Despite challenges in Russia and Korea, a slowing growth environment in China and brand specific challenges in our Mountain hardwear, our revised outlook reflects our expectations that 2015 will be a year of record revenues, record net income and our return to double digit operating margins. In Russia, we continue to have confidence in our long-term distributor and our confident that our business there will return to growth as the Russian economy recovers from the dual shocks of lower oil prices and a weaken currency. For Mountain Hardwear, the 23% first quarter decline in net sales was a result of significantly lower closeout sales in North America coupled with the effects of the very challenging Korean market. Despite their slow start, we continue to expect Mountain Hardwear's full year 2015 net sales to be comparable to 2014 as its North American business returns to growth from the second half. We are also actively addressing the challenges in Korea in part by hiring a new general manager who rejoining us in mid May. In the meantime, we are working aggressively to bring Korea's inventory levels back into balance as quickly as possible. Our confidence in raising our financial outlook for 2015 is based on the record first quarter result we posted today, exceptional retail sale through of our spring lines in North America, advanced wholesale demand for Columbia and Sorel across North America that has strengthened since our February outlook. And continued growth and improved productivity in our direct-to-consumer platforms. We now expect to return to double digit operating margins in 2015, and to achieve record net income. As we've indicated previously, we are committed to increasing our demand creation investments. Since 2012 those investments have grown at a compounded rate of 18%, outpacing compounded net sales growth of 11% over the same time period. While operating income has growth at a compounded rate of 21%, this year we are planning demand creations spend to expand 14% increasing to 5.4% of net sales from 5.2% last year. Our international distributor businesses are schedule to go live on our ERP system next week, which will bring our North American wholesale business, our international distributor business in the majority of our global supply chain operations under the new platform. The implementation is scheduled to occur after the heavy ship increase our spring season and prior to the start of our larger fall wholesale and direct-to-consumer season. To reiterate 2015 is off to a great start. Columbia Sorel and prAna each have strong momentum behind them. Our business in North America is demonstrating year around momentum with lean inventories exceeding winter, very strong sale through midway through the spring selling season and strengthened fall demand. Our European business is improving, led by Columbia footwear. Sorel exited 2014 with strong momentum that's propelling it towards the high growth second half and projected annual sales of more than $200 million. prAna is continuing to execute its plan become the next great lifestyle brand and our strong balance sheet continues to enable us to invest with confidence in our brands and in our global operations that support their growth and profitability. You can find more details on our Q1 results and our 2015 outlook in Tom CFO commentary available on our website. So that concludes my prepared remarks. Operator, could you help us get questions from the audience.

[Operator Instructions] Our first question is from Camilo Lyon of Canaccord Genuity. Please go ahead.

Hi, guys, great quarter. I was hoping you could talk a little bit about the North American business by brand. How you're thinking about distribution growth opportunities, and product category extensions, and new technologies that you're introducing as the year unfolds.

Certainly. Well, we are currently really in every point of distribution that we want to be in North America. And that would include certainly-- that would be true for the Columbia brand, for Sorel brand we love to have our largest penetration in what we call here sit and fit boutique footwear stores where we think there is an opportunity and also we think that's where female consumers are shopping for the latest in fashion footwear. With a prAna obviously, we wanted to be expand our distribution in certain product categories as an example Swim which our product category that prAna is focused on. And I think we could do well some additional department stores especially for distribution in the prAna line. As it relates to product innovations, we do we will launch in fall 2015 a type of reflective insulin-- not insulation, reflecting lining that would be similar to Omni-Heat but really focused on the mid department - mid range department stores such as Kohl's and Penny's. We are calling this Thermal Coil and it is a technology that will allow us to be differentiated from other brands in those -- in that distribution. We are thinking about also offer the opportunity for our strong customers in the department store channel to differentiate themselves from other players of outerwear and so just -- we are very excited about the progress we've made and it looks -- the future looks quite bright actually.

That sounds great. Just a question on the guidance. How to think about what you said about the first half and the EBIT margins looking like last year's EBIT margins. Could you just give a little bit more granular of your color on the components? Is it more on the sales side or more on the gross margin side in Q2 that should be the driving force behind that? I think there were some comparisons from earlier shipments last year in that, that fell into the first quarter sale. If you could provide some color on that. That would be helpful.

Yes, it is really sales margin hit to the top line. We are actually expecting gross margin to expand between 50 and 100 basis points in Q2. And really that's a function of a much lower mix of distributor business. We are seeing a push out in distributor business from Q2 to Q3. And sums that the result the softness in the Russian business.

Got it. And then just finally on that gross margin discussion point. Q1 was very strong gross margins. A lot of full-price selling, DPC helping, e-commerce is growing nicely. How much of this do you think is sustainable going forward? How do you think about the long-term opportunities in gross margin? Because I think it was pretty much of a perfect storm from no pun intended, from weather being favorable but also helping drive the lower markdown rates. How do you view that opportunity on gross margin?

Well, you know as I said in the comments that our focus from a very high level has been to increase our demand creations spend, increase our operating margins which means we have to have higher top line and a bigger gross profit margin. That's how that equation works. We think there is more room to expand our gross margin by -- through a number of different avenues all of which we are working on simultaneously but that the number one area is to have better product to have -- they can carry our higher gross margin that are more differentiated so. I don't feel like 2015 Q1 was an aberration in terms of gross margin expectation for the future.

And Camilo just one other point. We have been negatively impacted by hedge rates and currency 40 basis points last year and we are planning for 40 to 50 basis this year. So that has been a headwind both in 2014 and 2015.

Thank you. The next question is from Susan Anderson of FBR Capital. Please go ahead.

Good evening. Thanks for taking my question. I was wondering I wanted to kind of drill down on the US business too and just the raised guidance there. Is it mainly space gains in new doors and new products that you just mentioned for fall or is it existing doors or like what's the primary products too that's kind of driving that increase?

Certainly. Well, again there is really for the Columbia brand there is now new doors and no really new customers. It's really about additional penetration taking some market share I would say in our sporting goods operations, specialty stores, e-commerce businesses; those people are definitely enjoying the fruits of our TurboDown launch from last year as well as new products that we launched including TurboDown Wave in 2015 fall. And then we have focused significant amount of time and effort on segmentation of the product line so we can offer some innovations to mid tier and high tier department stores to allow them to share some of the benefits these innovations have shown us.

Got it. That's helpful. Yes, the product looks really great lately. And then on the margins, so I wanted to maybe try to get a better understanding. Obviously a good surprise getting back to double-digit operating margins so soon. I guess what's driving that faster than you guys originally expected? Is it the new ERP system, just the better product execution, more innovation in the product or how should we think about that? And then also maybe if you could just touch on where can this go longer term now too.

Certainly, well again talked little bit about in the prepared comments about Sorel and how important that the transformation of that business has been from a top line perspective as well as from a gross margin perspective to bring our margins up. Fashionable footwear for women is a business that they can provide higher gross margins. And again just to reiterate we've been focused on improving our gross margins significantly. We can also look to the direct-to-consumer business that's been helpful which carries higher gross margins and the ability for us to really in many ways have a marketing effort that's sort of self funding. As an example we have very high unique visitors, quantities of unique visitors coming to our e-com site, they get a terrific marketing message, they get industry average conversion which means a lot of consumers go away with the really good understanding of all the brands, and then lastly prAna has been providing us great gross margins as well. Tom, you have some other comments.

No. I think you got it, Tim is really been a combination of performance in the North American wholesale business. Our direct-to-consumer business and then really outlook for Sorel in the back half is really what has driven that upside to our outlook for the year.

Yes. Also I just might point to the continued improvement in our European business which has been one of the most challenging geographies for the company over the last several years.

Thank you. Our next question is from Bob Drbul of Nomura. Please go ahead.

Hi, good afternoon. Keep pushing, Tim, so we get that operating margin up to 15%. Don't be satisfied with that double digit, Gert. Keep pushing them, okay.

I am pushing

Tim, I guess in the press release, one of the comments that you made was essentially that the strengthening of the order book both in North America and in Europe, so is the order book now complete? And what did you see over the last several months in terms of where you were at the beginning of the year in terms of like the response by retailers for the fall product line?

Well, thanks, Bob. The order book is never complete until all the inventories have been sold. But all intensive purposes we've gotten our advanced order. We were pleasantly surprised obviously with the strong winter weather that happened in North America. Retailers they thought they had fully bought based on their expected carry over were obviously short and so we got additional orders late in the season on Columbia apparel and footwear. We also really founded the Sorel product really resonated. I think we had much higher selling there than we thought we would. And those retailers thought they would. So we got larger orders later for fall products from Sorel. And then in just general the bullishness of the product line, the ability I think that we have to take some share from other competitors, I think all that stuff bundled together helped us. And then in Europe, the order book there build later than it does here in the US and our team in Europe was confident in their expectations for growth and not that we were in anyway doubting it but it is good to see the order book fill to the way they really expected. That's a later billed.

Okay. And I guess as you think about the last several months and I guess the winter season when you think about the direct-to-consumer business, how are you planning the inventories and in your sales expectations and the revenue guidance that you gave us today, on the direct-to-consumer business, given I think it's going to be two very solid years of direct-to-consumer, the last two winter seasons. How should we think about how you're approaching that, Tim, from like an inventory and planning perspective?

Yes, certainly. Well, as you know, the direct-to-consumer business is for Columbia relatively new. And we basically home grew this business for many, many years. I want to say Shawn Cox who is running the North American business is really long been on Board for two years. And the continuing impact that a seasoned retailer has on the business in terms of its productivity just continues to bring significant earnings to the business. So in terms of how we look at our opportunity for fall 2015 and how much we should fund that with inventory. We have expected growth in the stores and again we don't release these retail metrics because we are not retail operation but I can tell you that we are approaching average industry performance as it relates to new conversion and other metrics that we would called ourselves too. And then we are going to be opening some additional stores. And we will have better penetration in e-com and the expectation is that we will continue. So we believe that we prudently purchased inventory for the direct-to-consumer business. And again lastly the company's balance sheet allows us to make investments in this business that where we have a high degree of confidence. So we are able to do it.

Got it, all right. And then I just had one more question. On the West Coast port situation and you took some inventory earlier. Do you feel like we're getting back to more normalized progression there? And how much more in anticipation have you done in terms of like making sure you get all the product early, especially if you now had some later orders than you've typically experienced.

Yes. I think we are in good shape. The port situation was well known and we've been focused on for many, many month in advance and then during the strike itself or the slowdown whatever you want to call it. So I think we can pat ourselves on the back in terms of how we approached it from utilization and balance sheet basis to improve the deliveries even when we didn't really need to have the inventory sitting here. But I think that the port situation is improving. And we found that our -- that the way we handle it was really appropriate as it relates to getting stuff here on time or possibly early.

Thank you. The next question is from Eric Tracy of Janney Capital Markets. Please go ahead.

Good afternoon, everyone. Congrats as well. Just a quick follow-up as it relates to Q2 guide. Tom, so got the gross margin guidance. Just a little bit maybe more color. I mean it could --, are we looking kind of flattish, upwards single digits and then just greater fixed cost de-leverage in that quarter. I know it's the lowest volume. But just a little bit more.

Yes. So really the shift in the distributor shipments from Q2 to Q3 that's our highest operating margin channel of distribution. So that is causing some fixed cost de-leverage. And just given the channel mix of revenue we will have an additional call it 100 basis points of marketing investment year-over-year in Q2. So that's really the big driver and then I think the gross margin will see some expansion there as a function of purely channel mix with a higher percentage of wholesale and direct-to-consumer relative to the lower gross margin distributor business.

Okay, perfect. And then in terms of the ERP coming online, should we start to see some manifestation of those benefits in the back half of this year? Obviously should be more of a 2016 event. Maybe just talk to the cadence of how you expect that to play out and maybe a little bit of kind of quantification to the gross margin benefits we should be thinking about.

Yes. So if we implemented our Canadian business on the new platform back in the first half of 2012, the US came on board last April. So if you look back at the North American gross margin and inventory prove -- inventory turn improvement over the last nine quarter, it has been pretty meaningful and I think you are seeing that in a consolidated results.

Okay. And then lastly, Tim, for you. Maybe Bryan if he's on. In terms of the TPP emerging legislation, it's kind of gearing up here more topical in terms of the potential for this getting passed. A piece of that you all have really decent exposure from a production standpoint there. I know it's not a 2015 event. We don't have absolute certainty that it's going to get passed. But seems like an opportunity if those tariffs go away for some pretty decent margin opportunity. How should we think about that?

Well, this is Tim. So for a company that's -- we are like -- I want to say approximately a number of 58 duty payer in the United States and for a company our size to be in that range, it just shows that the impact the duties in the US, additionally our business is over 40% outside the US, so trade is an important part of our business. The really best person of the company to speak is Peter Bragdon so may be asking Peter to comment on it.

Yes, I'd just add a little bit to that. That's where I currently engaged in supporting that and discussion around that. I think in terms of investors there is not too much you can think about it yet because there are so many variables involved with the tariff codes and there is a lot that depends on exactly how the -- even if it passes how this tariff codes are affected and the timeline for implementation and some of those could be pretty long. So we are eager to see those tariff reductions but if they are phased in over a long period of time, it will be a while before anybody sees a benefit but we are actively engaged in and supporting that and very tuned into it.

Thank you. The next question is from Jay Sole of Morgan Stanley. Please go ahead.

Hi, good afternoon. Tim, an interesting comment about the slowing growth environment in China. Can you talk a little bit more about what you meant there? Is that like a category-specific thing? Is it a macro trend that you're seeing? If you could add some more color, that would be really helpful.

Sure. Well, there have been numerous articles over the last year about the conservatism of the current Chinese ruler and his approach to what might be considered extravagant behavior such as playing golf et cetera. And so just retail sales of higher end products at Columbia's very high end product in China have slowed and it is not endemic just to Columbia or just to the outdoor businesses. It is sort of across the retail landscape in China. Now, we've as you know a long time partner in China in this wire group, we've been in business China since the 1700 so we have a high degree of confidence in our team in China and the relationship with our partner there is very strong. And frankly we will be positively impactful in terms of how we go forward. But there is a sort of malaise in the marketplace there which we describe as slowing. Now for Columbia we've really not went in the e-commerce business in China prior to last year. So we had kind of percentage rate explosive growth in our e-commerce business in China last year and expected to continue this year. And we expected the combination of the slower brick-and-motor malls/department store sales growth in China against the improvement in our e-com business is going to allow us to be relatively flat. Again that market will be very large -- will continue to be very large for the company. And we will return growth I think in another short period of time.

Okay. Got it. And then maybe if we can switch to a different part of the world. In the Europe region, it seems like sales are accelerating. I know there is a lot of FX there and some timing shipments and all that. But it seems like you've made some changes and things are getting better. Can you talk in a little bit more detail about what changes are working and exactly what you are doing different that is helping you see that accelerating sales growth rate?

Certainly, well, it is all about having the right people in place in these businesses. And we made a change about 18 months ago, installed a new general manager in Europe. His name is Franco Fogliato. He is a very focused guy; he has been in our business, the apparel business for probably 20 years in Europe. And he has taken a very pragmatic approach to the investments that the company is continue to make, focusing on narrow range of market, kind of narrow range of high volume retail customers. So those investments in time and people in those various markets have started to yield results and our expectation is that, we will start reaping rewards of all the work that we have put into Europe over the last call 20 years quite soon. So it is just another example of having a balance sheet where you can really approach problem geography with confidence that we can invest with the right people and place and make it work. So our European footwear business is growing much faster than our apparel business. We think there is a bigger opportunity in apparel. We just have to again reap rewards of the good people we added there.

Got it. And then maybe if I can get one last in. Talking about using the balance sheet and being able to invest. DTC in the US has been a great driver. Can you kind of break down the growth by what new stores contributed versus kind of same stores versus e-commerce and then talk about like where you see the store count going by the end of this year?

Yes, again, we are really focused on being a wholesale company and so we don't really sending those metrics as it relates to how typical retail it would be measured. I think we have talked a bit about our store growth plans and --

Yes. So we will add about -- we will add 14 new stores in North America this year including a couple in Canada one branded store and one outlet.

Thank you. The next question is from Andrew Burns of D.A. Davidson. Please go ahead.

Thanks. Good afternoon. In terms of just following question on the Europe strength, is it possible to quantify the benefit in first quarter from that timing of shipments? Was it half the growth or more or less?

I mean you are talking about accelerating the shipments out of Q2 and Q1.

So, Andrew, just to make sure I understand your question the timing shipments we got few of those scenarios happening here so that was the $14 million of shipments that went in Q1 of last year to get in front of the ERP. And the timing of shipment issue this year is really talking about the distributor business from Q2 shifting into Q3. So I wanted to be clear on the question you are asking.

I think you -- I was referring to the distributor shipment 2Q. I thought there was a Q1 benefit. So I think I just misheard there. The follow-up question --

So maybe so just let me jump in here real quick. So there was -- we did ship a higher percentage of -- between December and January, we did have a Q1 benefit to some degree as well as it relates to spring this year. And that was really -- and we pull very small amount from Q2 into Q1 of the distributor business to get in front of the ERP implementation but that was very minor.

Very small. Okay, thanks. And then in terms of the strength in footwear in Europe, are there any takeaways that are quickly applicable to the US market where I know the trends are improving there. But to accelerate footwear growth in the US.

Well, obviously Sorel at this point is virtually 100% footwear. So that the big improvement in US Americas, it is a function just a real business. But we also had a very important winter footwear women's products into the Columbia brand called the Mix which was very successful in North America this last year. And then lastly the footwear product that selling so well in Europe called the Redman, we've also had good placement in the US as well. So these high volume footwear products tend to be much more global than maybe the apparel products.

Great. Thanks. And then the strength in spring product sell-through in the US set up double digit. It sounded like it was very broad strength across a channel and product category. But any additional color in terms of standout product categories or innovation platforms that really are driving that sell-through would be helpful. Thanks.

It is -- it was very broad in terms of its impact across channels. Yes, we can point it to the PFG product the performance fishing gear which is for us strong spring performance and it is highly differentiating, so our competitive, it is typically known for outerwear, don't have spring businesses of any scale. And this allows us to have a real point of differentiations and in fact many places in South people think we are a Florida company. So that's a good thing.

Thank you. The next question is from Lindsay Drucker Mann of Goldman Sachs. Please go ahead.

Thanks. Good afternoon, guys. Just following up on the warm weather product, whether it's PFG or sort of spring product for Columbia. Can you help us understand how meaningful that is in terms of contribution to either revenue or profit for the US in the quarter?

Well, you know, we don't really breakdown the business that granularly. I guess what I would say is spring is roughly a third of the business and fall is two thirds and maybe we've seen a little bit of acceleration in shipping and sale through between the first quarter and the second quarter.

Yes. I think really at the end of the day, I mean it is -- we love having a strong spring business but at the end of the day it makes a year on brand. So retail can bring our products and feel comfortably at least going to have performance from that square footage in our space throughout the year. It may not be as large from a revenue standpoint and June so would be January, November but it is a very strong part of our customers businesses and just keeping the square footage is a big return for us as well.

Got it. On to the -- maybe a little bit more detail on ERP benefits for this year. First of all, I'm just curious. Just given the comments on Canada and how that's a smaller market for you relative to the US and my understanding is that ERP implementation with the US also was deeper in your sort of vender network. So there's potentially more savings to be harvested from it being deeper in the supply chain. I'm just curious if you can help us quantify how much of that ERP benefit is maybe already reflected in your guidance, if there's opportunity to do a little bit better based on the strong reads you got from what happened in Canada.

Yes. So as I mentioned earlier if you look at our Canadian business, our inventory returns have improved since going live on the new ERP back in 2012 by almost a four point. Our gross margins up single digit, low single digit number of points and some of that are function of a growing direct-to-consumer business as well. We've been hit pretty hard by currency which we can't control is got further upside in our Canadian gross margin as a result of our ERP implementation I think so, are we able to quantify that at this point, probably not but clearly there is upside in the margin there. Especially if you look at the regional gross margin in Canada versus say the US.

I guess what I'm trying to get at, and that's very helpful, what I'm also trying to get at, is there upside in your US gross margin relative to the guidance you've laid out just considering there's no currency head winds, your revenue, revenue expectations are very strong. And you've got this very robust ERP implementation that we haven't yet seen the benefit of yet.

Yes. So I'd say our best outlook for the US this year is baked into our guidance as we look forward. Can we improve our gross margin with our ERP? Certainly, we can better utilize inventory across channels, across customers not only within the US but geographically. So there is clearly upside to our US gross margin looking forward beyond 2015. But I wouldn't commit to that for 2015.

Got it. Okay. One last one, Tim. Now that we have crossed the double digit mark in terms of up margins, how should we be thinking about the long-term target for your business operating margins?

Well, you know we talked a lot about this internally. So the average for our peer group is call 13%-14% operating margin right. We are still -- even though we are well-- even so we are improving we will borrow that and who wants to be average. So we wanted to be exceptional and frankly, historically we've been in a very high-teen at the 20% operating margin. So I personally won't feel like we are doing everything we should be doing so we can get back up to those lofty levels. Now, how long we are going to take us, I don't know. But we are looking to improve the business metrics and spend more money on marketing. So there is a lots of stuff that we kind of get done and we have been focused on it, and we talked earlier in the prepared remarks about how over the last several years we've really made strides towards that but yeah we don't want to be average. So we wanted to be above average.

Thank you. The next question is from Chris Svezia of Susquehanna Financial Group. Please go ahead.

Good afternoon, everyone. So I guess first question. Just in the US market, I'm just curious. When you guys talked to roughly 20% growth. Can you maybe just talk between the organic growths rates of the business? I think it was up 5% in Q1. Maybe how that looks for the balance of the year.

Well, so in terms by quarter look, when you say organic, from a wholesale perspective the lion share of our business is organic when we separate prAna, if you take prAna out of that number we are between the US direct-to-consumer and wholesale business, we are up high teens and we historically haven't broken out of direct-to-consumer business in the US separately.

That's helpful, Tom. Thanks.

But what that being said I would say both the wholesale and direct-to-consumer businesses are growing at relatively equal rates this year.

Okay. When you -- can you just talk pricing for a moment. I know a couple of years ago, a year and a half or two years ago you improved or changed the value messaging on the product bringing pricing down. Are you at a point where there's some opportunity on pricing with some of these new product initiatives, just kind of maybe how we think about that?

Yes. We think that there is opportunity for us to increase our price especially in these differentiated products. So you will see in our spring 2016 launch, I know we are talking much about any kind of financial results for 2016 but we are preparing products for 2016 and we think that there is -- we have some disruptive technologies which will be launching into 2015, in spring 2016 which will allow us to be -- to lever the brand's current strength and raise our margins. So the goal really is to -- at its very highest point is to grow our gross margin and top line to provide us with more demand creation funds and higher operating margin. And we can see the path to the Promised Land and so we are on the path.

Okay. And last question here. Just, Tom, for you. When I think about the gross margin I mean nice performance in the first quarter almost 48%. You're looking for a decent improvement in second quarter; I think some of that is just timing with distributorship volume in the third quarter. But sort of the back half based on the guidance implies 20ish basis point improvement.

Yes. That's correct.

Okay. Where -- is it a little bit on currency, a little bit mixed? Is it just wanted to see how the DTC performs? Because it's highly dependent in the fourth quarter? Just some of your thoughts about why so low the improvement.

Remember, last year was kind of the perfect storm. We had excellent Q4 gross margin so we are going up again some pretty tough comps for starters. In addition, we had a large Korean inventory provision so we will get some help on that. The big factors affecting gross margin in the second half really are that the headwind is currency and the benefit really is a function of channel mix with the soft Russian business really wholesale and direct-to-consumer outpacing our international distributor growth. So that's going to help from a channel mix standpoint. And then we will have the benefit of -- we are expecting a lower inventory provision. So that's really those are the big impacts for full year and also applying to the second half.

Thank you. [Operator Instructions] Our next question is from Rafe Jadrosich of BofA Merrill Lynch. Please go ahead.

Hi, thanks for taking my question. Can you guys just give a little color on the challenges in Korea? And how far away you think that is for maybe turning positive. And then do you expect any changes in the strategy there, kind of given the new general manager comment.

Yes. So the Korean outdoor market has I think approximately tripled in the last five years. Grown rapidly along with the Korean economy in general and has attracted the attention and investments from not only other international brands but other local brands. So it is become quite crowded there. We had a team in place there that wasn't focused on what we considered to be the right metrics and we allowed our inventories to become loaded there and so long story short, we believe that we have the right folks in place led by heavy involvement from Portland as well as focused management by our Japanese management team which is much closer to the market there. And where we have a high degree of confidence in their abilities. Our new manager will be really assessing the situation from some significant experience; he has been in this sporting goods business for many years. And we will be good for the business. But it may take some period of time before we really understand the focus there that's going to be required. It is a profitable market for us. We know we can improve our opportunities there and our returns there. But it is really yet to know so how long it will take us. But we are focused on that market.

Thanks. And then can you just give some color on where the incremental marketing investments will be focused. Is it going to be like more point of sale investment with your retail partners and TV?

Yes. I would say that the investments from a wholesale perspective will be improving the appearance of our products. So as you might remember we added a new chief marketing officer in the company somewhere in the last six months. And my charge to him was to have the appearance of our products in our wholesale partners reflect the part of merchandize that we manufacture. And I think we allowed ourselves to not invest as highly as we should have been in those efforts and that would be a certain significant percentage of the marketing spend. Additionally, we found very significant returns when we take certain markets US and Canada to heavy up on TV. And so we expanding that group of specifically targeted markets in the US and then applying some of the same research in Europe. So I'd expect it to be a combination of heavy investment in TV in North America in-store and then more focused marketing efforts in certain markets in Europe as well. No TV in Europe.

Great, thank you. And just last question. In terms of the North America wholesale momentum, can you talk about maybe performance by channel? Is there any channel that outperformed or was it pretty balanced?

No. We had good performance across all the channels. And some are larger than other and but we certainly had great performance in across really every channel.

Thank you. The next question is from Jim Duffy of Stifel. Please go ahead.

Hi, guys. This is Molly on for Jim. And congrats on the quarter. Just quick one, pretty most of my questions has been asked. Wondering if you could talk a little bit about prAna expansion outside of North America this quarter? What are your channel partner saying about the brand and can you quantify the contribution to growth from these regions this year and going forward?

Certainly. Well, I think we just recently had the one year anniversary of product I think we announced on this call last year that we require the brand. So we are very excited about what's happen so far that their growth is continued. We had hoped to be further along on our international expansion at this point. They have organically or relatively small percentage of their business outside of the US and that is continued to grow. And the partners that we have been speaking to about prAna expansion internationally are very thrilled with the product. They think it is enormous opportunity but they want to take the time to really establish look and feel and stores that they plan to open, and it took little bit longer than we had thought. But we still expect that the first jump start if you will we can give the prAna brand that's going to be international expansion especially in markets where we have strong independent distributors and that with good several South America and in the Middle East.

And is prime -- is the gross primarily there coming from wholesale or do you intend to open some retail stores internationally?

Well, I think that the plan for our international distributors would be to open stores and then help back to enhance the brand's awareness and cache in those markets and then carved out some additional wholesale revenues from local multi brand stores.

Okay. And how many stores here in the US will you open for prAna this year?

Two to three stores this year on top of the five existing stores that they currently have.

Yes. We will establish catalogue and e-com platform.

Okay, all right. And then lastly on Sorel, what is the exposure of the brand outside of North America? And is there opportunity here for growth going forward given how well the brand is received here in the US and Canada?

Yes. So the brand is not as international frankly as the Columbia brand. And we think there is an opportunity. One of the ke focuses is for Mark Nenow and his team will be to enlarge the seasonality now it is more fall and summer product in that brand. So our international distributors can take positions in the their -- either their multi brand stores or established individual stores for Sorel that can be open year around and have an opportunity for significant sales volume in seasons that are not winter. So that's a significant portion of Mark's efforts have been to add spring product to Sorel and to make the brand more important outside of pure winter seasons. We are making great progress on that front here in North America. And we expect it that will -- once we can prove that exists and we can be much more international in terms of how we approach that.

So more 2016 and beyond? Okay, all right, great. Thanks, guys.

Thank you. We have no further questions at this time. I'd like to turn the floor back to management for any closing remarks.

Well, thanks everyone. We are thrilled with the performance so far. But there are lots of works for us to do in order to get to average and beyond. So stay tuned. Thank you.