Columbia Sportswear Company (COLM) Q3 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Columbia Sportswear Third Quarter 2017 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Peter Bragdon, Executive Vice President and Chief Administrative Officer. Thank you, Mr. Bragdon. You may begin.

Thank you. Good afternoon and thanks for joining us to discuss Columbia Sportswear Company's Third Quarter Results and Updated 2017 Outlook. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our results and the assumptions behind our full year outlook. The CFO commentary is also available on our Investor Relations website. With me on the call today are Chairman of the Board, Gert Boyle; President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Operating Officer, Tom Cusick; and Senior Vice President and Chief Financial Officer, Jim Swanson; Ron Parham was not able to join the call today. Gert is going to start us off by covering the Safe Harbor reminder.

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 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 statement after the date of this conference call to confirm the forward-looking statement to actual results or the change in our expectation.

Thanks very much Gert. And I'd also like to point out that during the call, we may reference constant currency net sales growth, which is a non-GAAP financial measure. A reconciliation of constant currency net sales to net sales as reported under U.S. GAAP is included in the supplemental financial tables accompanying our earnings release, along with management's rationale for referencing this non-GAAP measure. Following our prepared remarks, we're going to host a Q&A period, during which we're going to limit each caller to two questions, so that we can try to get to everyone by the end of the hour. Now, I am going to turn the call over to Tim. Tim?

Thank you Peter. I just want to ask for some indulgence today, it looks like everybody in the Company here has a cold including myself. So it is going around and if I pause from time to time I apologize. We are pleased to report better than expected third quarter and year to-date results and to essentially reiterate my full-year earnings outlook, which now incorporates anticipated full year costs of Project CONNECT. We believe our sustained performance, illustrates the strength of our team and of the global multi-brand, multi-channel business model that we’ve built. Utilizing our powerful balance sheet to make investments that enable us to adapt as the major markets evolve. The structural shifts that continue to alter the U.S. wholesale landscape are a meaningful headwind that drove a low double-digit decline in our U.S. wholesale sales for the first quarter and a high single-digit decline through the first nine months. Nearly half of that year-to-date decline is the direct result of an expected timing shift of U.S. wholesale deliveries from September into October with the vast majority of the remainder reflecting wholesale customers bankruptcies and store closures. Adjusting for the timing shift, third quarter USA sales would have declined only 5% rather than the reported 12% decline. And the U.S. region would have been essentially flat compared with last year's third quarter. As we anticipated at the beginning of the year, our U.S. direct-to-consumer business has helped to offset some of the wholesale decline posting low-double digit sales growth in the quarter and high-single-digit growth year to-date. Third quarter U.S. DTC growth was a combination of comp store growth in contribution from new stores and high-single digit growth in e-commerce. Despite the disruptive dynamics in the U.S. wholesale markets and setting aside costs associated with Project CONNECT we improved our operating margin through the first nine months by 20 basis points and our 2017 outlook also excluding Project CONNECT costs anticipated 10 basis point improvement. As you look across the rest of our business beyond the U.S. wholesale channel, you’ll see that we generated sales growth and improved profitability in every other region in the third quarter and that the same holds true on a year-to-date basis with the exception of Korea where our year to-date sales are essentially equal to last year. Our EMEA region has led the way with constant currency sales up 15% in the quarter and 14% year to-date. Our European wholesale and direct-to-consumer businesses posted a high teen, constant currency growth rate for the quarter and year to-date led by broad based Columbia brand growth across product categories, customers and countries as well as a 30% growth from the SOREL Brand. In addition the independent distributor portion of our EMEA region contributed low double-digit growth in the third quarter and there's the high-single digits year to-date on the continued improvement in the Russian market. More importantly after achieving breakeven profitability in 2016, we now expect our European wholesale and direct-to-consumer businesses to be profitable in 2017. Our team in Europe has done an outstanding job over the past three years improving the profitability of our business there. We have plenty of untapped market potential and the existing infrastructure to drive continued growth and expand profitability in the years ahead in that very important market. In June, we asked the architect of our European turnaround Franco Fogliato to relocate to Portland to support the increased focus on our U.S. and Canadian markets and promoted Mattieu Schegg to serve as European GM to continue driving our momentum in Europe. Our Latin America and Asia Pacific region pushed into high-single-digit growth in the quarter and is up mid-single-digits year to-date. Sales to LAAP Distributors grew more than 30% in the quarter benefiting from a favorable shift in the timing of shipments and increased advanced fall season orders. Sales to LAAP Distributors are also up by more that 30% year to-date. Our China joint venture posted high-single digit growth on the strength of its digital wholesale and owned e-commerce channels. While Korea produced mid-teens growth by adding new wholesale customers to help accelerate its continued inventory reduction efforts. In Japan, a mid-single digit constant currency increase translated into a low single digit decline in U.S. dollars. To complete this quick trip around the globe, Canada contributed high single-digit growth driven by the Colombia and SOREL Brands largely due to a favorable timing shift in wholesale shipments. Third quarter and year to-date gross margins improved to 46.7% and on the spending front, excluding the strategic $8.6 million year-to-date expenses of Project CONNECT diligent expense management by our global team, sales year-to-date SG&A growth in line with the rate of year to-date sales growth. Our balance sheet remains extremely strong with $430 million in cash and zero long-term debt. Clearly, we have reason to be confident in our portfolio of brands, our global multi-brand, multi-channel business model, our strong balance sheet and in our ability to prioritize and allocate capital towards profitable growth opportunities. Our confidence and that of our board, is also reflected in the 6% dividend increase we announced today, marking our fifth consecutive year of dividend increases and the tenth increase since we introduced the dividend 12 years ago. Looking, at how each of our brands are positioned for the fourth quarter, we continue to believe that the Columbia brand is gaining U.S. wholesale market share in this challenging environment. And that wholesale channel inventories are generally healthy as we await the arrival of seasonal weather in the holiday shopping season. Over the past year, our Colombia brand team has installed more than 150 new Columbia shop-in-shops and elevated brand presentations at key partner stores around the world with plans to nearly double that number by the end of 2017. Our investment in this rollout reflects our commitment to enhance the consumer's experience within our global wholesale channels and also speaks to the confidence that our customer have in us as one of their most reliable partners and in the Columbia brand as one of their most consistent performers. The Columbia brands tested Tough brand marketing platform, continues to drive a unified global message about enabling consumers to enjoy the outdoors longer. The second year of our successful directors of toughness program includes this month after driving hundreds of millions of consumer impressions on social media channels. This fall, we’ll launch a new seasonal campaign titled Columbia Warm that sits on top of our existing tested Tough brand platform. It will expose consumers to a consistent global story across TV, digital, print, out-of-home, e-mail and in social and it will include new micro-campaigns across digital channels that will be updated regularly to maintain an always-on marketing presence. This effort kicked up in September where the campaign focused on our partnership in outfitting deal with the UK National Park System and was followed by a content marketing partnership, featuring actor and celebrity, Zac Efron and his brother Dylan that has already driven over 400 million impressions. For the full year, we expect the Columbia brand to contribute low single-digit global growth with increases in our U.S. DTC channel in every international region offsetting our anticipated decline in U.S. wholesale. Our SOREL brand team is very excited about what they have lined up for this fall season. Next week, SOREL’s 4,000 pair limited boot collaboration with renowned Paris based luxury design house Chloé launches a 14 million of Chloé's premium global wholesale partners including Nordstrom [indiscernible] Barneys and Holt Renfrew. The boot which will retail for more than $500 will also be available in Chloé retail stores in major markets around the world and on chloe.com This collaboration is a perfect fit with SOREL’s fashion-forward female consumers and is already gaining – garnering traction with global fashion press. SOREL’s complete new fall 2017 line is in stores has been supported by the brands new defined marketing campaign that reinforces SOREL’s position as the most fashionable brand in outdoor and the most outdoor brand in fashion. The campaign is anchored by a street-level window executions across New York have some of SOREL’s most visible and influential partner stores as well as by extensive social media campaign that features eight up and coming fashion influencers who are helping to extend our communications around SOREL’s fall product line. We expect SOREL will contribute high single-digit growth for the full year led by the U.S., Europe and Canada. At prAna, during the third quarter we promoted Russ Hopcus, Columbia’s former SVP of North America sales to prAna brand President. I'm confident in his and his team's ability to magnify prAna’s message of sustainability and healthy active free-spirited lifestyle to drive growth. Early fall sell through at key wholesale customers has been strong led by yoga and swim categories. Our updated 2017 outlook anticipates low single-digit growth for prAna as it overcomes headwinds caused by the U.S. wholesale market disruptions. At Mountain Hardwear, new brand President, Joe Vernachio continues to build out a new product team that is working to create a compelling high performance product lineup. Mountain Hardwear’s innovative Stretch Down products are performing well at retail. Our full year outlook anticipates a low single-digit percentage sales decline from Mountain Hardwear. Our updated consolidated 2017 outlook anticipates gross margins up about 20 basis points from 2016 and that inventory levels will be consistent with anticipated full year 2017 net sales growth. We also anticipate about 80 basis points of SG&A deleverage, which includes 60 basis points of deleverage related to be anticipated full year costs of Project CONNECT. In summary, we're pleased with our solid year-to-date performance and how we have positioned ourselves for the remainder of 2017. It’s from this position of strength and confidence that we are moving steadily forward on Project CONNECT, which I described during our July conference call. As a quick refresher and for those who are new to the story, Project CONNECT is a comprehensive assessment of our business model and identification of strategic organizational and operational initiatives to accelerate execution against our strategic plan and to drive profitable growth. Wants the realignment of our organization around a brand led consumer-first philosophy. Project CONNECT teams have been identifying initiatives to accelerate our performance against the company's four strategic priorities, which are drive brand awareness and sales growth in our wholesale and direct-to-consumer channels through increased focused demand creation investment. Enhanced consumer experience in digital capabilities across all channels. Expand and improved global direct-to-consumer channels with supporting processes and systems. Invest in our people and optimize our organization across our portfolio of brands. To give you a sense of its comprehensive scope, Project CONNECT includes initiatives to drive revenue, capture cost of sales efficiencies, generate SG&A savings and improve our marketing effectiveness. A few of these initiatives have shorter lead times and will be among the first to be implemented, examples would be initiatives in the area of e-commerce optimization, indirect procurement, marketing effectiveness and refining the promotional cadence in our DTC channels. Other initiatives generally entailed longer lead times, particularly those pertaining to product creation such as assortment optimization and intensifying our emphasis on designing products with the features and functions that consumers value most. Meaning that some of these may take us till 2020 or beyond to fully implement and realize the benefits. As we move forward with implementations, our intent is to redirect a significant portion of any realized tangible benefits towards incremental demand creation behind each of our brands in order to drive growth. We will also invest in other initiatives that contribute to profitable sales growth both margin expansion and SG&A efficiency and then enhance our strategic global operational capabilities. We plan to incorporate those initial anticipated benefits and resource allocations in our 2018 financial outlook that we will share in early February in conjunction with our fourth quarter and full year financial results. For now I want to reinforce how committed we are to Project CONNECT and how confident we are that there are significant opportunities for us to transform our business, increase our growth driving demand creation investments, expand our operational capabilities and further improve our profitability. Before we move to your questions, I want to provide a little color about what we're seeing as we look into the first half of 2018. In September, we wrapped up our spring advance order thinking process with our global wholesale partners. Although, we no longer report specific backlog figures and are not prepared to provide a full outlook for 2018. I want to share that based on the visibility we have today, we're optimistic that we will continue to generate global growth and then our U.S. wholesale business will return to growth in the first half of 2018. We believe that the combination of our global multi-brand multichannel business, our sound strategic plan and our teammates around the world form a solid foundation that will enable us to grow, expand our profitability, and increase our total return to shareholders in the years ahead. Okay, find out more detail on our Q3 and year-to-date results and our updated 2017 outlook in Jim, CFO commentary available on our website. That concludes my prepared remarks. We welcome your questions for the remainder of the hour.

Thank you. Ladies and gentlemen, at this time we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bob Drbul with Guggenheim Securities. Please proceed with your question.

Hi, Tim. Good afternoon. I guess the first question I have is when you talk about the shift or sort of the recovery or return to growth for the U.S. business, U.S. wholesale for the spring period. Can you just elaborate what’s changing is this that you are lapping everything and in the reception on the product side that you are seeing with a return to growth in U.S. wholesale?

Certainly, well one of the few people in the outdoor business that has a strong presence in the fishing business. So I would suggest our sportswear business is quite strong in spring led really by our PFG product, its unique and we don’t have a lot of competition in that area. Secondarily, our footwear business is really now gaining traction and the expectation is from percentage point of growth that our products will be probably led by footwear for spring. And then there's just increasing confidence in our global approach, increased improvement in our European business and of course in Russia where the business there has improved significantly.

And Tim, just want to know if you could also spend some time I guess on your DTC business. I think, would be interested just to hear your e-commerce business versus your wholesale e-commerce efforts and how that's materializing for you on a global basis.

Certainly, well as we know there's been significant disruption in the U.S. brick-and-mortar wholesale business and certainly some of that if not the majority is due to the impact of e-commerce businesses both on a wholesale basis, as well as our existing good customers who have significant investments and businesses in e-com selling our products and others across the Internet. So as we've said for years we're – we really considered ourselves to be a wholesale business. Our e-com platforms for all of our brands are really designed first and foremost to have visitors to the site receive the terrific marketing message about the brand. And hopefully go by the product if not Columbia have gone somewhere else. And I think we're finding that that's certainly happening we will continue to make investments in this really important method to communicate with the consumers. And but with the goal of really providing marketing messages, so that consumers can find our products and read about them and hopefully buy them somewhere else.

Great, Tim. Thanks very much. Feel better.

Thank you.

Thank you. Our next question comes from the line of Kate McShane with Citigroup. Please proceed with your question.

Hi, good afternoon, thanks for taking my question. Just regards to the strength in your Europe, a few companies now reported some very strong growth trends. I’m wondering if there was really break out how much comp growth in region versus incremental growth in new door opportunities at Columbia’s year-over-year?

Certainly, well embarrassingly the company had an enormous European business thought six or seven years ago which we did not nourish and does have problems with and I would suggest that our business today is with our existing and former customers that are now coming back to the brand as we improved our connection with those customers and our products and frankly our team members in Europe. We really decided to focus on the biggest customers there, once that can provide us with solid performance and taking a shy over long-term. So there is really no new customers for intensive purposes, just all rekindling a relationships and business that the company have in the past.

Yes, Tim I would add, by and large the sales growth we are seeing in the Europe direct businesses, potentially the wholesale business probably 80 plus percent of the growth in far less from a DTC standpoint, although we are seeing nice growth from our e-commerce business in that part of the world.

Okay, great. That’s helpful. And then just a one unrelated question, Tim you mentioned that you talked Columbia was gaining in the U.S. wholesale market, are there any particular categories in which you are seeing it or is it across the board?

Well, I think we are finding it in outerwear and then certainly in footwear where we believe that probably the biggest product opportunity for the company. This two primarily, we have a solid sportswear business and again as I mentioned earlier we have a unique position with PFG product that where we don't have a significant competitor.

Thank you.

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

Thanks, good afternoon everyone. Tim, I was hoping you could help us maybe quantify how we should think about the benefits from Project CONNECT. The major initiatives will be more difficult, although maybe help us think about where you see the most impact from these initiatives come into life?

Yes, as Tim shared in the prepared remarks, as we really kind of look at the project and we are not ready to provide specific guidance as it relates to 2018, that said as we kind of look at cadence in where we anticipate seeing that benefit. Certainly there's some shorter lead time related initiatives that are there, these are lives of indirect procurement, some of the work that we are doing from e-commerce optimization standpoint and really driving more traffic in conversion from the e-com standpoint. And then of course there are longer lead time initiatives as well and those longer lead times ones really being in the product creation space where we've got more lead time associated with product creation itself, over 2019 and in 2020. And so we’ve anticipate beginning to see benefit flow through in 2018 such as Tim described we will intend to reinvest back into the business, demand creation being a priority. And we’d anticipate seeing most of the benefit particularly we get out to some of those longer range initiatives in 2019 and 2020.

Great, that’s great. Thank you. And my follow-up question is really to the wholesale market in North America, clearly there is disruption that still present and the potential for further disruption as retailers, large and small continue to kind of [indiscernible]. Can you talk about how you’re positioned for that within the sporting goods industry and then how you view that channel as either social growth or one of caution as you approach 2018?

Well, Camilo, this is Tim. So not to jinx it historically the company has done an exceptional job of extending credit and we do a diligent job of reviewing our customers financial positions before we extend credit. So from that standpoint, I think that we recognized that we don’t need to do anything crazy to hit a number we build the guidance you’ve seen today based on what we think will happen during the balance of 2017. And there's likely to be as you said continued disruption. We believe that there's strong opportunities for growth, brands with the survivors and there will be many and will align with those. So…

I just want to maybe reiterate what Tim has said regarding Project CONNECT, this is a very strong healthy company. And our focus on Project CONNECT is how we eliminate the legacy activities that have not been enhancing our growth. So we're about – making sure that we're going to be here for the long-term and continue to improve our performance but we think that there's lots and lots of opportunity for us in Project CONNECT.

Thanks guys.

Thanks.

Thank you. Our next question comes from the line of Susan Anderson with FBR Capital Markets. Please proceed with your question.

Hi, there is an inferences in my question and nice job on the quarter again.

Thank you.

I want to maybe dig in a little bit on the Columbia’s sportswear product, maybe if you could talk a little bit about where the transition of the brand versus outwear now and what’s the opportunity there like I guess how much more growth could there be with on the sportswear side of things.

Sure, I want to make sure I heard your question correctly. You want to know which categories are strongest than where there is opportunity for growth.

So far the sportswear within the Columbia brand seem to have grown at least in terms of SOREL space somewhat within sporting goods and just kind of like where you think of the opportunity there is – penetration of sportswear within the Columbia brand.

Well, maybe I’ll ask Jim to jump in here and give us some idea about approximate size of these categories but frankly most U.S. consumers would think about us as an outwear company. And outerwear in the U.S. typically obviously is a third and fourth quarter somewhat first quarter business but really weather-dependent, the company has been very focused on both the footwear, the non-winter footwear business and the sportswear business because the opportunities there are significant. Both in sporting goods and frankly in the strong remaining department store business where consumers typically shop for sportswear. So I think there is lots of opportunity for us there, if I look out five years I think our fastest growing and largest product category if I’m right will likely to be footwear but we're going to be focused on growing all of those businesses.

Thank you. That’s helpful.

Yes, and then Susan maybe just sort of follow-on to Tim’s comments there, just in terms of composition of business from a categorical standpoint, the footwear business represents just over 23%, 25% of business in the balance is really pretty equally split between the outwear and the sportswear categories.

Got it, that’s very helpful. And then I guess just one follow-up on Mountain Hardwear, looks like the trend line continue to improve there, how should we think about it for next year, you guys doing good now about or the product how should we think about that returning to growth at some point?

Well, the most important change in my opinion in Mountain Hardwear is the management team that we have present there today. So the categories where there’s most significant strength have been outwear and equipment and those are a bit longer lead times in terms of developing products. So when we expect to improve in 2018, I don't think we're going to see the significant improvement that the team is quite capable of itself 2019.

Got it, okay. Great, thank you, guys. Good luck next quarter.

Thank you.

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

Thanks, good afternoon everyone. I want to ask about U.S. wholesale where you talked about extra timing shift of business being down mid single-digits, is that in line with what sell-through is in U.S. wholesale that also running down around mid single-digits or at what pace do you think wholesale sell-through is running at in the U.S.?

Well, as you know we monitor a significant amount of our wholesale partners’ sell-throughs. And today we are running about where they were last year slightly added some small – some categories but generally in the neighborhood where they were last year.

So generally flattish trend into that do you think any of that is a function of weather or is that sort of your assumption for how the run rate could be for fourth quarter?

Yes, so most of the inventory that’s in our stores is weather-sensitive merchandise or in preparation for the fall winter season. So that merchandiser selling as well as next year at this time and so our expectations are the guns are loaded. I don’t think, I think the channel is relatively clean, I don't think there’s a lot of inventory coming around from prior periods. So I think we are going to be in a good position on the snow clothes.

Okay, great. And then just I'm curious if you can give us some insight into given the retailer bankruptcies that you've endured over the last several quarters what your playbook is for navigating this choppy landscape. In other words, how you approach a partner that seems to be of stating economic health and just sort of protecting your interest to protect in the inventory you might have normally thought to selling to that partner, is there any perspective you can give us on how you approach that it seems like there's more of that to come over the next three or five years.

Yes, certainly. Well, as I said not jinxed anything, we’ve done an exceptional job, really our creditor – our credit department for extending credit, it’s a big part of the business. And so we’ve had to go through periods when we’ve had close friends in the business that have had financial reversals and those are the toughest discussions that we have. But frankly we're committed to providing our investors with solid returns really regardless of the economic conditions that exists. So, typically if we have a customer that that has a financial issue we will reduce the credit limit and then move towards some guarantee from a financial institution or cash in advance, or in some way offer them the help that we can without really putting our investors at risk.

Okay, great. Thanks very much.

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

Yes, hi, thank you. First question, I just wanted to ask, I know the quarter came in sounded like, certainly better than you had projected. As of Q2 and I just wanted to reconcile. I know you essentially reiterated the full year outlook. So, if you could just reconcile those two pieces and were there any shifts from Q3 to Q4 if you could just give more color there?

Yeah, Jonathan just to touch on that, in terms of third quarter results, the top line we came in probably at $10 million better than where we had anticipated but when we break down, really where we thought that revenue upside, it was by and large with our whole sales businesses in Canada, I believe Europe and China and it is really – getting ahead of some of the shipments with the fall 2017 season. So really, much more function of top line and that is kind of more or less sell to the bottom line where you see the relative to where we had anticipated earnings coming in on the quarter. So with those results in mind, and with a lot of year ahead of us here, we’ve retained the outlook that we've provided in July. Of course we've updated our outlook to include the impact of Project CONNECT.

Okay, great and then just following up on the Korea market and the Russian market. Korea not entirely clear if the improvement you saw there was sustainable, but if I could just ask about those two markets combined, kind of the outlook and the sustainability of better trends for each of those.

Certainly will, they're actually quite distinctive. The Korean market is a company subsidiary and so we have more control there, the market for our core products in that area has just really been significantly diminished. We've spent really the last several years rightsizing our inventory positions. I think we're close there, we still got some work to do. But I believe that we have the right team in place there to manage us back into growth that we consider as to be a trough in Korea. And in Russia our distributor there is one of the strongest businesses of any type. We've had a long relationship with them over 25 years and we consider them to be exceptional business people. And they're in the position where they're coming out of the ruble decline, the rubles have strengthened and their business has resumed growth. They are a survivor in that market, and will be flourishing because of the lack of competition there. So it's, really a tale of two issues as it relates to the performance of the company – Columbia brand there, I might remind those listening in that, the Columbia brand I think is in Number 3 or 4 position behind either Nike, Adi, Reebok, neck and neck with Reebok in terms of awareness to the Russian consumer. And it's been a great market for us a long time and we expect to continue to grow there.

Great. Thank you.

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

Good afternoon. Congratulations, on your forecast of return to profitability in the Europe direct business. Great.

Thank you.

I was just curious, how we should think about restoring that business to the appropriate margin level long-term. Is there further improvement, is it just all of our top line growth from here or is this potentially part of Project CONNECT looking at the cost structure associated with that segment. Thanks.

Well thanks. I think we've actually got our costs as much in line as we can in Europe that's really about the top line. Of course we have some tailwinds as we get currency back to position where it was call it several years ago. It's very significantly down, the U.S. dollar strengthened against the euro. In fact one of our issues in Europe was that we had over built the infrastructure there for the size – what the business ultimately became. So as the business continues to grow we will not have to add significant infrastructure there. So there should be significant profitability from that business as we continue to get top line up

Great, thanks. In terms of follow up on your positives footwear commentary. You saw mid-teens growth in the category going back to 2015 and then 2016 and 2017, seems like it got caught up same with apparel in terms of the retail headwinds. Sounds, like from your commentary that you're thinking that, it re-accelerates, so the question is, to what needs to happen to get there. What are some of the catalysts and growth opportunities you're looking at to make that the fastest growing category for your SOREL and Columbia. Thanks.

Certainly, well if you look historically the business has been so heavily winter oriented that when have a warm winter it impacts our business significantly because of the expensive nature of those products and the seasonality. So we've been very focused on de-winterizing especially SOREL brand but importantly the Columbia Brand as well and really up much of our success for spring 2018 is a function of our PFG footwear, which just continues to perform very, very well. So over the next several years, we'll be really focusing on continuing to de-winterize the footwear business and to get products that are in-demand regardless of the weather.

Thanks and good luck.

Thanks.

Thank you. Our next question comes from the line of Jay Sole with Morgan Stanley. Please proceed with your question.

Great thank you. My question is just on the commentary around returning to growth in the U.S. in the first half of fiscal 2018. By calling it first half, that certifies more of a second quarter type situation or, or is it a first quarter situation?

To step in there, we have not broken down, we've taken the order book effectively in terms of the comments that Tim has made and based on the orders that we have seen for the spring 2018 season it has given us confidence that we will see growth in the U.S. wholesale business, the actual low between Spring and Fall. Can’t say one direction or another in terms of where we see the bulk of that but with growth, we’ll anticipate sometimes that there.

Yeah, I would expect typically the second quarter as the Company’s lowest revenue quarter of the year. So we haven't, we haven't really talked much about 2018 in terms of the split back order. But certainly it's really going to be spring product. I would doubt if there would be much winter product in that mix there in the first half of the year.

Okay, got it. And then maybe just on, with retailers trying to buy closer to lead, what percentage of the business you think you have visibility into for that first half of 2018. For the total amount of sales you expect to do in the first half of 2018 at this point here in October.

Well we have a very high percentage of our order book. And so we have significant confidence in terms of how the order book will play out. We are confident.

And maybe we can transition, maybe with the Manchester United deal for probably over a year now, can you just talk about, how that partnership has worked, has it made you more interested in creating more collaboration with other teams or other types of you know whatever pro or college or in that nature of the sport.

Certainly, Man U was successful for us and we didn't get the – as much of an uptake globally as we had hoped. But, it was still considered to be a very successful launch, it really exposed us the consumers especially in Europe that they didn't know much about the brand. As it relates to future projects, we're going to be talking about our collaboration with Disney on Star Wars, and we will have some more information on that in the near future. But we’ve got a number of collaboration’s not only sports teams but things like Disney and the Zac Efron collaboration in partnership was really a positive. So we're trying to differentiate ourselves from the big athletic brands that heavily rely on athletes to promote their products and in the outdoor business, consumers typically are more – to look just like an athlete but we certainly get the brand awareness from these call them usual connections with popular brands and personalities.

Okay, got it thank you so much.

Thank you.

Thank you. Our next question comes from the line of Chris Svezia with Wedbush. Please proceed with your question.

Thank you, good afternoon everyone. And thanks for taking my questions. I guess first Tim just a question for you. When I look at the guidance for the reminder of the year. In particular I think for SOREL and for Mountain Hardware looks like your guidance for the year has changed slightly a little bit higher, while you are still maintaining 3%. Does that just they are too small really to move the needle or just talking about rounding errors and how does that FX play into it considering I think in the third quarter FX was pretty neutral, as going into fourth quarter I think it gets a little bit more favorable on a year-over-year comparison. How do we think about that.

Yeah, I think there's obviously some puts and takes in terms of some of the adjustments you are seeing in the revenue plan. So, I think that's going to be smaller adjustments feature those brands not having a meaningful impact, when you look at a consolidated level in terms of 3%, that we've maintained in the overall outlook. And then as it relates to the currency tally equation, you are able to continue to monitor where we are from a currency standpoint, got that reflected in our outlook as well. So really, no updates there in terms of impact to the year and a translation perspective.

Okay, and I have a question just on Project CONNECT. You have roughly $15 million or so in expenses, related to kind of getting it up and running. As we kind of think forward are there any additional expenses or sort of one off expense that we should think about as we move forward, or is it just simply you start to get some incremental benefit from it and you take some of that benefit and you're reinvesting at it. Something like demand creation. I am just trying to think about how we think about this $15 million this year, and how we should think about that going forward from an expense, one time expense run rate perspective.

The $15 million that we have incurred in 2017 was obviously – yet to come in the fourth quarter is made up of the combination of program related costs and some discrete cost as well. As we get into 2018 I'm not providing a specific outlook today, we’d anticipate there's still a fair amount of runway ahead in turns of incurring additional screening program really cost next year and of course as we visibility through that and we provide and outlook for 2018. We would all separate those, so those are clear in terms of what we intend to incur and as part of that you know we'd be looking at benefit flow through that, and we anticipate in 2018 building that into or outlook as well.

Okay, thanks you very much and all of the best. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of Rafe Jadrosich with Bank of America. Please proceed with your question.

Hi good afternoon. Thanks for taking my question. Can you give a little more color about the key drivers of the high-single-digit growth outlook for SOREL and then maybe break out how much of that will be international versus the U.S.

Yeah so as I am looking at SOREL, I think the key growth drivers in here are effectively going to be the U.S. wholesale business. If you recall, we sell a lot of ad growth really in the spring season and with the expansion of what we've done with the spring line, with SOREL. And then the other major contributor in here being new the growth the that we are seeing in our European business. And so it’s really kind of a combination of the growth in the U.S. wholesale side coupled with our European direct.

Hey great, and then just in terms of are your U.S. wholesale distribution, can you give some color on the relative sizes between the different channels, things like department stores, sporting goods, specialty and then how do expect that to change over time or do you think it will be about the same?

I don't think we've specifically given guidance as it relates to the channel mix in our wholesale business. But I think over time, it's very likely to have a much larger percentage of the wholesale e-com business. Whether they are wholesale partners, whether they are pure-play or retailers, who have any increasingly important e-com business of their own.

Great. Thank you.

Thank you there are no further questions at this point. I'd like to turn this floor back to Tim for closing comments.

Thank you very much for listening. We appreciate your time and efforts. We look forward to talking to you about our fourth quarter and plans for 2018 in February.

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