Columbia Sportswear's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Feb. 7.13 | About: Columbia Sportswear (COLM)

Columbia Sportswear Company (NASDAQ:COLM)

Q4 2012 Earnings Conference Call

February 7, 2013; 05:00 p.m. ET

Executives

Gertrude Boyle - Chairman

Tim Boyle - President & Chief Executive Officer

Tom Cusick - Senior Vice President of Finance & Chief Financial Officer

Bryan Timm - Executive Vice President & Chief Operating Officer

Peter Bragdon - Senior Vice President and General Counsel

Ron Parham - Senior Director of Investor Relations & Corporate Communications

Analysts

Bob Drbul - Barclays

Eric Tracy - Janney Capital Markets

Dan Meyers - Northland Securities

Kate McShane - Citigroup

Liz Dunn - Macquarie

Camilo Lyon - Canaccord Genuity

Jim Duffy - Stifel Nicolaus

Darla Shay - Credit Suisse

Chris Svezia - Susquehanna Financial

Operator

Greetings and welcome to the Columbia Sportswear Company, fourth quarter 2012 financial results conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

It is now my pleasure to introduce your host, Mr. Ron Parham, Senior Director of Investor Relations and Corporate Communications. Thank you Mr. Parham, you may begin.

Ron Parham

All right, thanks Manny. Good afternoon and thanks for joining us. Earlier this afternoon we announced fourth quarter and full year 2012 financial results and we provided a preliminary outlook for our full year 2013 and also for our first quarter 2013, and in keeping with our standard practice, shortly after the press release we also filed an 8 K, containing a detailed CFO commentary on the results and posted that commentary on our Investor Relations website.

With me today are President and CEO Tim Boyle; Senior Vice President of Finance and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Bryan Timm; and Senior Vice President and General Counsel, Peter Bragdon.

I’ll ask our Chairman, Gert Boyle, to cover the Safe Harbor language.

Gertrude Boyle

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, 2011 and subsequent filings with the SEC.

Forward-looking statements in this conference call are based upon 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 the change in our expectation.

Ron Parham

All right, thanks Gret. I’ll turn the call over to Tim.

Tim Boyle

Thanks Ron. Welcome everyone and thanks for joining us this afternoon. The fourth quarter and full year results we announced today, and the additional details provided in Tom’s CFO commentary, are consistent with the preliminary announcement we issued three weeks ago.

A year ago at this time, coming off record setting warm winter globally, we knew 2012 is going to be a difficult year for top line growth. The management team acted quickly and decisively in the first quarter, implementing expense reductions and we maintained solid discipline around discretionary spending throughout the year in order to preserve profitability.

Until the holiday shopping season began in late November, it looked as though we would achieve our outlook for a slight increase in full year operating margins despite a flat top line. However, December delivered mild weather causing us to fall short of our expectations in our North American wholesale and direct to consumer businesses.

We have made and continue to make what we believe are responsible changes in our cost structure and are focused on forging a path to top line growth that will enable us to generate operating margin leverage over the long term. These moments strengthen our resolve to remain focused on enhancing our brand portfolio through innovation, enhanced design and compelling marketing.

Over the past four years we have introduced differentiated technology platforms under our Columbia brand that help keep people warm, dry, cool and protected any time of the year, anywhere in the world. These innovations represent the platforms of our Columbia brand revitalization and repositioning strategy and we now have the opportunity to leverage and expand upon each of these platforms.

In today’s more stable sourcing environment, we are working closely with our product line managers and manufacturing partners to refine and reengineer our products to achieve a more democratic price value relationship. Our goal is to make our technologies more accessible to a broader base of consumers and drive better volume for ourselves and our retailers.

Our emphasis is especially acute on styles of feature Omni reflective and Omni-Freeze ZERO technologies, but ultimately it includes our entire product line. We believe consumers are still in the early stages of awareness and adoption of Omni heat reflective two years after its launch.

These past two mild winters have slowed their progress, but we continue to view Omni-Heat Reflective as a long-term competitive advantage, with visible qualities that differentiate it from different competitors and make it easy for consumers to understand.

As we continue to rationalize the price value relationship, we intend to maintain our fall marketing focus on Omni-Heat Reflective to create demand and driver broader adoption. We also intend to maintain disciplined distribution that directs our innovative products to brand enhancing sporting goods and specialty channels.

We expect retailers to be cautious as they place advance orders for fall 2013 and in turn we are also planning conservatively in building inventories. Under that scenario, if weather cooperates, we should all benefit from a greater proportion of full price sales, better gross profit margins and cleaner inventory levels exiting the year.

Taken as a whole, our product line offers differentiated technology platforms that help keep people warm, dry, cool and protected any time of the year, anywhere in the world.

Another important part of our long-term strategy is to establish greater year-around demand for our products. We are very excited about the launch of Columbia’s Omni-Freeze Zero and Mountain Hardwear’s Cool.Q ZERO technologies, which debut this month in key southern markets and spread around the world over the next three months. We’ve developed integrated marketing campaigns within each brand to drive demand for the schooling products.

Key retailers will be prominently positioning Columbia’s Omni-Freeze Zero on their floors. More than 1,000 rent enhancing sporting goods and specialty stores will be equipped with an Omni-Freeze Zero cooling station, consisting of point-of-purchase display materials and demonstration kits that will inform consumers and allow them to feel it’s active cooling properties.

The Omni-Freeze Zero tour consisting of two customized trucks armed with Omni-

Freeze Zero demonstration kits are expected to generate millions of in-person marketing impressions to live demonstrations of Omni 3.0 cooling properties. These trucks will visit hundreds of wholesale customers stores, music and sporting events, outdoor venues and neighborhood festivals in 45 cities from April through June.

We use these same trucks to execute a similar grassroots campaign from mid-July through mid-September last year that generated good initial awareness and anticipation for this year’s Omni-Freeze Zero’s launch. These and other grassroots efforts will be supported by an integrated print, digital and broadcast advertising campaign, targeting outdoor, athletic and PFG to consumers.

Now in hardware we’ll watch Cool.Q ZERO in early April with a campaigning featuring print advertising, social media and in-store events targeting the running community and specialty running accounts. In total, the Omni-Freeze Zero launch will be the biggest spring campaign in Columbia’s history.

Another way we are continuing to expand our year around relevance is with our performance fishing gear or PFG assortment, which also features Omni-Freeze Zero cooling technology. PFG has been a staple of our lines since the same adoption in, and is a growing part of our U.S. and Latin American apparel business.

PFG is strongest in the U.S. Gulf States, as well as in Central and South America. In these markets, consumers view Columbia as a fishing and water sports brand as passionately as northern consumers view Columbia as an outerwear brand.

Our PFG apparel is generating great sales through this fall and finished this season as our best performing category, reflecting its year around relevance in warm weather markets. Many consumers who enjoy PFG’s versatility have also embraced our Drainmaker footwear line, specifically designed for water-based activities. For PFG consumers Columbia is an essential head-to-toe partner in their outdoor experience.

In our fall 2000 Sorel line, we introduced a small assortment of versatile lightweight, less insulated styles, with enhanced wear ability targeting toward that early fall back to university season. Based on positive retailer feedback we expanded the assortment for fall 2013. Our goal is to extend Sorel’s retail relevance to include the shoulder seasons, so it becomes a more meaningful year around brand-to-consumers and our retail partners and a more meaningful contributor to our future sales earnings growth.

As our preliminary 2013 outlook makes clear, the next 11 months look very similar to the past 12 from the standpoint of sales and operating margins. On the heels of two unseasonably warm winters, the management team and I remain committed to evolving the organization, to position us to capitalize on growth opportunities, while continuing to diligently manage operating expenses.

I also want to make this clear; we know we cannot continue to cost our way to success. We will continue to aggressively pursue catalysts to grow our top line profitably. We will continue to invest in our brands, products and our people and initiatives that we believe can grow Columbia Sportswear Company in to a much larger business.

As we continue to focus on catalyst for long-term growth, we remain committed across the company to being a leading innovator with our substantial brand portfolio. Our first focus is on building the right product, positioned to appeal to a broad range of consumers.

For us the word innovation includes new or exclusive technologies, differentiating features, inventive and appealing designs, market leading performance characteristics, as well as creative and memorable marketing efforts that drive consumer demand for our brands.

It’s also about being innovative in our approach to how we conduct our business, which has been rapidly evolving as we’ve invested in the long-term growth platforms that are increasingly multi-channel, multi-brand and multi-national.

Looking ahead to 2014, we remain excited about watching our new China joint venture with Swire Resources and adding another important growth platform to our global business.

We have many tools at our disposal, starting with our brand portfolio that is backed by a very strong balance sheet. As we approach Columbia 75 anniversary, we are also mindful of the great strength of our heritage as an authentic active outdoor company.

That concludes my prepared remarks. Operator can you help us with questions?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from Bob Drbul of Barclays. Please go ahead.

Bob Drbul - Barclays

Hi, good evening.

Tim Boyle

Hey Bob.

Tom Cusick

Hey Bob.

Bob Drbul - Barclays

Okay, hi there. Tim, the first question I have is, when you look at the 13 estimates that you’ve put out there or the initial guidance on it. When you look year-over-year in terms of order book, where are you this year in terms of like the percentage of the book that’s complete versus last year?

Tim Boyle

I think we’ve done that analysis Bob and I think we are approximating the same sorts of percentages in total, but we expected a year like this, that will be somewhat kind of I think we are in that sort of lagging range now.

We’ve looked at the year with all the various components and the way that we’ve got the business structured and built the cost the globe, and that’s why we’ve guided or given the results that we expect today for ‘13.

Bob Drbul – Barclays

Okay. And then on the inventory, you made a lot of progress in to getting the inventories to a really good level here. When you look at the disposal of the inventory throughout the last several months, do you think that the clearance process has hindered your ‘13 demand? Was there a lot of, you think holdover from products from ‘12 to ‘13 that people are going to have for next year as well?

Tim Boyle

Well, I think it’s clear, especially in winter boots that there will be some carryover, but I think an outerwear and accessories, that’s pretty much cleaned up. Now we do have some significant winter weather, especially in this week coming through the Northeast, which is likely to help alleviate some of that inventory overhang, but I would say across our product lines, the only real significant overhang from ‘12 is winter footwear.

Bob Drbul - Barclays

Okay, and then my last question Tim is Omni-Freeze Zero, when you look at the sell in for the spring product, when you look at Omni-Heat versus Omni-Freeze Zero. Can you tell us like what you’ve learned with Omni-Heat, sort of how you’re applying it to Omni-Freeze Zero and if you think that level of penetration can be similar to what you’ve done with Omni heat?

Tim Boyle

Well, I think the difference between the two technologies and they are both visible to the consumer, so they are analogous in that regard. But the Omni-Freeze Zero opportunity is much, much larger, because we can sell that product in the middle of winter in Houston and Florida and the highly popular sections of the United States and frankly the world.

When it’s cold in areas that -- hopefully cold in areas and times of the year when it’s appropriate. So I think the difference is, it is a broader calendar demand period for that product.

Now its a bit more complicated as it relates to describing it to consumers and that’s why we’ve put so much time and effort into the retail theater portion of our marketing efforts that we talked about in the thousand or so stores, where we are going to have people actually demonstrate the product. So we are excited about the potential, but it is a little bit, it is slightly more a complicated story than Omni-Heat Reflective.

Bob Drbul - Barclays

Thanks Tim, good luck.

Tim Boyle

Thanks Tom.

Operator

Our next question is from Robbie Ohmes of Bank of America. Please go ahead.

Robbie Ohmes - Bank of America.

Hey Tim, how are you?

Tim Boyle

Good Robbie.

Robbie Ohmes - Bank of America.

Hey, a couple of follow-ups on Bob’s question; the Omni-Freeze Zero, who are the key retail partners that you will be doing the cooling stations with?

Tim Boyle

Well, the larger sporting goods changed, including Dickson Sports Authority, academy would be those that would come off the top of my head initially, but we also have product in a number of specialty stores across the Southwest. But I think the larger specialty; the larger big box sporting goods guys would be the ones that come off the top of my head initially.

Robbie Ohmes - Bank of America.

And then other question I had was the – down at the outdoor retailer store there was talk from some brands about changing the way they flow inventory through the season, through the fall season, particularly outerwear. Can you talk about whether you’ll be sort of changing the way you ship and flow and if that changes the wholesale shipment comparisons as you look to the back half of 2013 quick

Tim Boyle

Yes, it’s interesting, there was a lot of discussion about that. But when we analyze our order book, which is not complete yet, but our customers are asking for deliveries of products in about the same range and when we look historically at the rate of sale of outerwear products on the calendar, in almost any year that we look at, about 20% of the total is sold prior to October, probably to the middle of October anyway.

So we’ve seen customers keeping that cadence about the same. We see a higher level of interest and a higher order book on lighter weight products and then we see obviously a dampened demand for outerwear in general. But I think the cadence of deliveries is going to be about the same.

Robbie Ohmes - Bank of America.

Got you. Last question Tim and then I’ll let you go. Can you just comment on the footwear outlook for 2013 for Columbia brand, for fall 2013 and for Sorel and anything you’d highlight for both those brands and footwear?

Tim Boyle

Yes, so let me start with Sorel, because that’s the epitome of a cold weather product. We work diligently to design and merchandise some of these shoulder season products and we’ve been successful moving some of the product there, but by and large Sorel is a cold weather footwear brand and so when it has roots in North America, when it’s in a sense appropriately weathered there, it’s impactful. So we’ll expect to see some dampening there.

On the Columbia side we have a heavy dependence on winter footwear for Columbia as well, but there’s also the fairly significant spring-summer and trail product on the Columbia side. So it is less whether dependency on that brand.

Robbie Ohmes - Bank of America.

Got it, thanks Tim

Tim Boyle

Thank you.

Operator

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

Eric Tracy - Janney Capital Markets

Hey guys, good afternoon.

Tim Boyle

Good afternoon.

Eric Tracy - Janney Capital Markets

I guess if I could follow up on the questions around the seasonal cadence of retailer orders, you mentioned Sorel having more transitional product, but within the core Columbia brand particularly with outerwear, is there a plan to go with more transitional product in less, kind of on the core outerwear? How should we sort of be thinking about that?

Tim Boyle

Well, our offering will include both, heavy outerwear and lighter products and so we’ll be led by our retailers demand for both the types. It’s sort of a question of whether you believe that winter will never happen again or whether or not the last couple of years have been an aberration.

So my own personal take is that it’s difficult to extrapolate a couple of years into a global change in the weather, but we have both types of outerwear, we are relying on our customers to order whatever they’d like.

Eric Tracy - Janney Capital Markets

Okay yes. In addition to those weighted sort of flexi supply chain, your inventory positioning and get enhanced to be able to flex the assortments and I now its though to pick one outerwear given the lead times, but I was just sort of curious there.

Tim Boyle

I think in general, our response is to be more conservative in terms of how we approach any additional inventories that our customers haven’t written orders for. So that’s our approach.

Eric Tracy - Janney Capital Markets

Okay and then you sort of alluded to the price value equation and wanting to just sort of take the technologies to a broader set of consumers, can I infer by that that there might be some price compression and if so, how should we think about that in terms of implications on margins, are you able to manufacture the product to hold the line there?

Tim Boyle

Yes, so I guess I would answer that this way. I think in our initial launches of these differentiating technologies we’ve tended to put them out with the most premium quality materials and the most premium features on the garments, which makes them relatively expensive against other competitive products.

So we can offer these technologies with somewhat less make and in a more popular price point, actually with higher margin for the company. So our focus is going to be on bringing these products, bringing these features and innovations into products that don’t have all the bells and whistles that we’ve been adding, and so there’s where we think we can have a more popular price point, more people can utilize the technologies and the company will have a higher margin.

Eric Tracy - Janney Capital Markets

Okay and then lastly I guess, you guys obviously did a great job in terms of managing expenses on the G&A line this year. I know you got some bonus stuff coming through, comp in 2Q and then also just more broadly, how we should think about the marketing spend and investment needed to kind of drive the top line versus again something that’s trying to control the overall G&A line is really what I was try to get at.

Tim Boyle

Sure. Well, we think there’s broad acceptance inside Columbia and I think you’ll find agreement with our retailers that were not spending enough on marketing and we agree. We need to be able to provide a bigger marketing spend and we need to be able to provide higher operating margins frankly as well.

So our focus is on managing those expense levels where we can and the levers, there are many available to us. We have committed to a slight increase in our marketing spend for 2013 and frankly as we look at the marketing spend, we realized that we can be more efficient with that spend.

So I think you will see even though we are not spending as much on marketing as we would like, you will see a better utilization of that spend and even a slight increase in what we are spending.

Eric Tracy - Janney Capital Markets

Okay, I appreciate it. Thanks guys, thanks a lot.

Tim Boyle

Thanks.

Operator

Thank you. Our next question is from Dan Myers of Northland Securities. Please go ahead.

Dan Meyers - Northland Securities

Hi guys. It’s Dan on for Reed. I’m just wondering if there are any other new product initiatives that you haven’t mentioned yet, that you have in the works and to do you expect these new project initiatives to carry higher margins in some of your current lines?

Tim Boyle

Well, I think Dan what we’ve discovered in rolling out these innovations is that -- and we still have a number of innovations in our pipeline. But what we discovered is that we were launching these things at two quick a pace.

So before we even had a full adoption of, as an example Omni Reflective, we had a plan to have generation two on the Heat Reflective in the marketplace and we have since stepped back in little bit, talked to our customers, talked to retailers and consumers and really we decided ‘hey, there is a lot of people around that don’t know what Omni Reflective is. Let’s make sure that we fully absorb, that consumers can fully absorb that innovation before we start launching another.

So we have more schedule to be launched, but we are going to really be diligent about the cadence, so that we get more adoption and more utilization of these before we start offering new ones. So we have more, but we don’t have plans to add them at this time.

Dan Meyers - Northland Securities

Okay, that’s helpful, thank you. And then you mentioned, you plan on making some changes to the cost structure going forward, is that mostly on the G&A line or is anything with gross margins their? Thanks.

Tim Boyle

No, we think there is an opportunity to expand gross margin at the same time that will bring our costing down, our garment cost down. There are levers available to us to change our S&A structure and we are analyzing those constantly. But when we talk about democratizing our pricing structure, it’s more about what price points we are aiming at with our products.

Dan Meyers - Northland Securities

All right. Thank you very much.

Operator

Thank you. Our next question is from Kate McShane with Citi. Please go ahead.

Kate McShane - Citigroup

Thanks. Good afternoon.

Tim Boyle

Kate.

Kate McShane - Citigroup

I was wondering if you were able to quantify or generally tell us the direction in the margin differential between some of your heavier winter products versus some of the lighter weight products.

Tim Boyle

I’m sorry, the marketing did you say?

Kate McShane - Citigroup

Yes, margin differential.

Tim Boyle

Yes, I think our margins frankly across the weight of the garments are about the same. I don’t think there is a significant change between lighter weight and heavier weight garments.

Kate McShane - Citigroup

Okay and then my second question is on Europe. I was wondering if you could walk us through a little bit what you saw in Europe during the quarter. I think their winters skewed a little bit colder than here in the U.S. and what progress is being made with the brand and the countries you are in currently?

Tim Boyle

Certainly. Well, the weather there in 2012 and 2013 was better than it was here in North America; it came earlier. I would say that we are still challenged there and we are focusing on again, in markets where we’ve been strongest, which would include France, Germany and Spain and again, providing those democratized applications of our technologies.

I wouldn’t say that we fully formulated the proper approach there yet and I think we’ve noticed may be more impact on economy there than we had otherwise thought. But Europe offers a great opportunity for the company to continue to improve itself and that’s been a focus, particularly of mine.

I think I’ve been to Europe now either four or five times since August and it’s been an area where I’ve been focusing time, not only with our team there, but also with our retailers, to make sure that we’ve got the right product offering.

Kate McShane – Citigroup

Thank you.

Operator

Thank you. (Operator Instructions) And the next question is from Liz Dunn of Macquarie. Please go ahead.

Liz Dunn - Macquarie

Hi, good afternoon. Can you hear me okay?

Tim Boyle

Yes, absolutely.

Liz Dunn - Macquarie

Great. My first question is around just the spring business. Understanding that this has obviously been a period where you have had some difficult whether that’s kind of gone a bit against you. I’m surprised there is not more opportunity in spring than there is in the fall. Can you just discuss your progress as your spring business?

Tim Boyle

Certainly. Well, we talked in my prepared remarks about our PFG product, which is almost exclusively a spring business for us, especially in the southern part of the United States where you can argue with spring year round there, if not summer year around. I think the average temperature in Houston in December is probably 70 degrees. That business has been quite good for us, the PFG business, as well as expanding in a central South America at a pretty rapid pace.

Additionally the largest spring product launch we’ve ever been involved with will be the Omni-Freeze ZERO, which is a great spring product for us. So we are highly focused on spring and summer product, not only because it’s a big opportunity for us, but if you look at a heat map of the globe, there’s more people living in warm areas than there are people in cold areas.

Liz Dunn – Macquarie

I’m living there right now. Without asking you to take a position on climate change or anything, are you thinking about strategies for Sorel in light of these warmer winters that we’ve had. Is there any way to sort of move that product a little bit towards more lightweight and then how are you planning 2013 from the standpoint of winter? Are you planning 2013 and then budget it in this guidance. Is there an expectation for a more normal winter? Thanks.

Tim Boyle

Certainly. Well strategically with Sorel we are moving that brand to product that is less weather sensitive and can be worn as an example in rain or just cool temperatures or even just in a rugged type application. The brand’s true strengths are in winter and so its even as we move away from the specifics of weather, we still have a big business based on weather.

My particular opinion is that winter will happen and these are years that are aberrations, but our approach has been frankly to be much more conservative in terms of how we approached the inventory levels and that’s at the end of the day how we are looking at the unknowns of whether.

Liz Dunn – Macquarie

Okay, and then just one more if I may. Can you talk about how the -- I know we are about a year away from it, but how the joint venture with Swire will impact the P&L and how we should expect that to flow when that agreement takes home?

Tim Boyle

Yes, we are very excited about the China JV. Its a huge opportunity for us to grow the business, but I’ll let Tom may be speak specifically on how we are looking at that implications on the P&L.

Tom Cusick

Yes Liz, so I think as we’ve mentioned, the joint venture launch is around the first part of 2014. So the joint venture will sell to wholesale customers and consumers to spring ‘14 and beyond product. So we’ll begin to recognize the full amount of revenue and cost for that business begin in January. However, we will incur some transition start up costs throughout the course of this year, probably beginning in the second quarter for things like trade shows and sales meetings etc.

Liz Dunn – Macquarie

Okay, great. Thanks. Good luck.

Operator

Thank you. Our next question is from Camilo Lyon of Canaccord Genuity. Please go ahead.

Camilo Lyon - Canaccord Genuity

Thanks. Good afternoon everyone. With respect to the follow order book, could you just talk about any potential ASP impact with a shift to more lighter weight product from the heavier traditional outer weight product that we are accustomed to seeing and how those orders might be effected by those ASP shifts?

Tim Boyle

Yes. In our analysis of the order book to-date, we haven’t seen a significant change. Although I guess I would expect some slight change just based on the fact that customers are more interested in moderate weight product and fleeces rather than heavyweight product. But I don’t know that the change has been so dramatic that we would see it, yes.

I think there’s been some slight, if you look at just average unit costs across the product line and across the globe just given the mix of inventory, I would say about the mid-single digit, perhaps even higher single digit in certain regions and categories for product, but generally given mix, the average unit cost across the line are down slightly in fall ‘13 compared to fall ‘12.

Camilo Lyon - Canaccord Genuity

Great. But it was slightly above just the average price of a lighter weight jacket versus a heavier outerwear jacket, I would assume is less expensive. So I’m just trying to understand what the impact would be on the sales in the back half from that transition to lighter weight product?

Tim Boyle

Yes, from an average weighted price standpoint for fall ‘13, we are not seeing really any meaningful fall change year-over-year.

Camilo Lyon - Canaccord Genuity

Okay great. And then I guess just shifting to Sorel, do you guys think about trying to broaden out the climate acceptance for the product and if you go into warmer regions, does that alter or expand your just recent opportunities, which would be opening more doors or speaking to other retailers that don’t carry the product today?

Tim Boyle

Yes, I think we are currently selling to almost everybody globally that we want to sell to and again, the product, as much as we would like to convert it into a less weather sensitive product brands and we are working on that, it’s still a winter product and that’s the bulk of its sales there. So I wouldn’t expect it, absent whether that it would change dramatically.

Camilo Lyon - Canaccord Genuity

Okay, maybe I’ll ask it a different way. Assuming that you are here, its still considered a winter product and obviously it is. Are there opportunities for you to expand your distribution in 2015 within that winter category? In doors are you currently not in or do you feel like you are at a right level of penetration.

Tim Boyle

Yes, I think we are selling everywhere we want to sell today, but we would like to sell those customers more, but frankly the demand for winter product has been depressed.

Camilo Lyon - Canaccord Genuity

Okay great. And my last question is about the motivation behind the price reductions. Obviously you want to be more competitive given the landscape. Is that something that you feel can have some meaningful impact this year? Is that something that the consumer is going to have to learn about over the coming years? Can you get that message out soon enough, that it will have an impact on sell-through?

Tim Boyle

Well, it’s really a matter of taking the garments that we traditionally sell and adding the Omni-Reflective and other technologies to make them more appealing price wise. So we have accomplished some of that for fall ‘13, but I would say the sea of change of products in that more moderate price range will be future seasons.

Camilo Lyon - Canaccord Genuity

And would that come with different distribution channels for that monitory priced product or would it stay as it currently is for the product line?

Tim Boyle

No, its good to stay in the premium sporting goods and specialty stores, but those stores typically sell high volumes of moderately priced products well.

Camilo Lyon - Canaccord Genuity

Got it. All right guys, good luck with everything. Take care.

Tim Boyle

Thanks.

Operator

Thank you. Our next question Jim Duffy of Stifel. Please go ahead.

Jim Duffy - Stifel Nicolaus

Thanks. Hello everyone.

Tim Boyle

Hey Jim.

Jim Duffy - Stifel Nicolaus

Tom, a few questions for you on the guidance. Can you speak to the change in the fall order book that’s presumed in the guide and the owned retail store comps that’s presumed in the guide?

Tom Cusick

Yes, so maybe starting with your first question related to retail. We are currently planning ten new stores in the U.S. and those come online, four in Q2, four in Q3 and two in the fourth order and those will be outlets.

And then as it relates to the order book, I think it’s a little too early to talk in any specificity there. We’ll come back and provide more detail around the order book in our April call, but I would say just directionally speaking from a geographic perspective, we are planning for 2013 to be comparable to 2012 with growth in our global direct-to-consumer business.

The LAP region on a currency neutral basis, there is obviously some headwinds there with the yen right now and growth in that distributor business in Europe and that’s anticipated to be offset largely by declines in our U.S. and European wholesale businesses.

Jim Duffy - Stifel Nicolaus

And are you planning for positive same-store sales in your owner retail locations?

Tom Cusick

Yes, we generally don’t talk about comp store sales, but the answer to that question would be yes.

Jim Duffy - Stifel Nicolaus

Okay and then Tom, is there any mentionable consequence to the earnings from the recent recalls you’ve had on the battery-powered products or was that covered by reserved accounts?

Tom Cusick

Well, we anticipated those costs and estimated those reserves and those are -- assuming your right, those costs are captured in the fourth quarter.

Jim Duffy - Stifel Nicolaus

Great and then Tim, maybe a question for you, can you speak to current state of inventories in the channel after the recent spell of cold weather we’ve had. Is it general inventory in a healthy place entering mid-February or is there still more work to be done there?

Tim Boyle

Well, I think it’s certainly improved. Anytime there is cold weather we’ve had an improvement in our sell-through’s at our retail partners and I would say that absent winter footwear, where I think based on the weather that we are anticipating hitting the Northeast and being around for a while, will likely cleanup a lot of whatever residual is left now. But we’ve still got some issues as it relates to winter footwear in stores through I would say at least today.

Jim Duffy - Stifel Nicolaus

Okay, and then a final question, just an update on the thoughts on the use of cash. I was surprised there wasn’t a special dividend. Does Columbia still consider itself a potential acquirer? Any light you can shed on that would be helpful, thanks.

Tim Boyle

As you know Jim, we’ve got three traditional levers of the dividend buyback and M&A we generally don’t comment on the letter two. As it relates to use of cash in the near term, our expectation is that we will utilize upwards of $50 million to capitalize our China joint venture between now and the end of the first quarter in ‘13.

So in the near term that will be a large use of cash and then as we just look at free cash flow in 2013 with the higher CapEx in ‘13 as compared to ‘12, coupled with the dividend, we are not looking to generate significant excess cash in 2013.

Jim Duffy - Stifel Nicolaus

Okay, that’s helpful. Thank you.

Operator

Thank you. (Operator Instructions). Our next question is from Christian Buss of Credit Suisse. Please go ahead.

Darla Shay - Credit Suisse

Hi, this is actually Darla Shay on for Christian, thank you for talking the call. In regards to your long-term product pipeline, are there any changes to the mix of sportswear versus outerwear evolving over the next several years?

Tim Boyle

Well, not particularly, although the sportswear business globally is larger obviously than the outerwear business and less weather sensitive. So as we are successful, as we become more successful in our sportswear business and there could be a larger growth there than in outerwear.

Darla Shay - Credit Suisse

All right, great. Thank you very much.

Operator

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

Chris Svezia - Susquehanna Financial

Good afternoon everyone. Tim, I was wondering if you can just help us out. When you think about the fourth quarter and how the season played out, do you feel that the Columbia brand was able to sustain its market share position? I think last year you had mentioned that you felt pretty confident, like the Columbia brand maintained its market share.

But I mean this year as you kind of came through, can you kind of parcel out maybe what we chose to come back to and think about how the brand was positioned and maybe where the market share stands for it.

Tim Boyle

Certainly. I would answer that from a categorical and geographical area. So I think there is areas in the globe where we’ve had significant market share gains and I think there’s areas in the globe where we gave some back and I would also point categorically to the impact and positive nature of our PFG product as a gain.

And I think in outerwear and winter footwear, the jury is still out whether or not we actually lost market share or in fact – I am convinced that the market has contracted. So whether or not we gave up market share there, it is possible. But I know for sure that the market itself has contracted.

Chris Svezia - Susquehanna Financial

Okay. And then just going back to Europe for one second, when you talk about some of the new product that’s being launched, is it being launched simultaneously in that market and are you I guess providing additional marketing support behind it when you launch that product in Europe as well?

Tim Boyle

Yes, so our product launches are global and so the European consumers will be seeing those simultaneous with the U.S. and we are probably spending more as a percent of sales in Europe than we are here in the U.S. So plenty of consumers are going to be seeing the ZERO product in Europe.

Chris Svezia - Susquehanna Financial

Okay. Last question I have is just on the SAP integration. I know you guys did I think Canada last year. I think you are planning to do North America this year. Any thoughts about the pros and cons to it in Canada and just any use of your nightmares with the times with SAP integration. So I’m just kind of curious, any protocols you have in place when you put it into place here in North America. Thanks.

Tim Boyle

I’ll let Bryan speak to that specifically.

Bryan Timm

Yes, as you mentioned, we went live with Canada last year, in 2012. It was a good implementation and then we spend the next couple of months really trying to stabilize the business and make sure it allowed them to do their business process as necessary.

We quickly turned our attention to our largest region here in the U.S. and as in the commentary, we have plans to go live in the U.S. region in April of 2013. I think one think about 2013 we are trying to accomplish is when you look at the Canada versus the U.S., there is additional functionality that we plan to put into the U.S. and things like the way we communicate with our liaison offices in Asia, our vendors in Asia, as well as our sales force.

And we’ll also be upgrading our warehouse management system, also in 2013, all of which progress us in this implementation effort and ultimately start to reduce some of the risk of the actual U.S. go-live in April of next year.

Chris Svezia - Susquehanna Financial

Okay, and all the ones cost Bryan are in your SG&A guidance for the year, correct?

Bryan Timm

That’s correct Chris.

Chris Svezia - Susquehanna Financial

Okay. All right, great. Thanks very much and all the best.

Tim Boyle

Thanks.

Tom Cusick

Yes, this is Tom. I wanted to follow up to Jim Duffy’s earlier question. I think I had stated that capitalization of the China joint venture would be complete by the end of the first quarter of ‘13, I meant the first quarter of ‘14. So that roughly $50 million investment will be about roughly two-thirds this year and a third next year, in the first quarter of next year.

Operator

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to manage for any additional or closing remarks.

Tim Boyle

Well, thanks everyone for listening in. We are looking forward to talking to you further at the end of the first order. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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