Jonathan Komp: Makes sense. Looks like a good brand move there. Just one follow-up on your Columbia brand for the year, the revenue of about flat globally. Could you just comment, it looks like you’re assuming something positive, maybe mid-single digits in the back half. So I’m hoping you could maybe share the visibility that you see and maybe the key drivers as we think about Colombia and whether you’re baking in benefits from some of the newer growth initiatives or if those have a longer tail. Thank you.
Jim Swanson: Yeah. As it relates to the outlook itself on a full year basis, Jon, that’s right. We’re about flat. And looking at the second half, in particular, we do contemplate growth in the brand. I would say that, that leans more towards the apparel category, footwear, I think as Tim touched on, the outdoor footwear trends remain challenged. So I’d expect to continue to see some challenges there, at least in the near term. But longer term, we’ve got a lot of confidence in the direction we’re taking from a footwear standpoint. And then that growth that we’re planning for in the back half of the year. Some of that is based on our wholesale order book and for Columbia apparel, the wholesale order book for the fall 2024 season.
We’re anticipating modest growth out of the wholesale business. So that’s encouraging. And I think there is the benefit of — the brand continues to perform well from an international standpoint. And certainly, that will be the brand when we look at the brick-and-mortar side of the business with our store fleet and additional stores, but we will see the most benefit from that part of business.
Jonathan Komp: Okay. Great. Thanks, again.
Operator: The next question comes from Mitch Kummetz with Seaport Research. Please proceed.
Mitch Kummetz: Yes. Thanks for taking my question. I guess, my first question, just on the order book. I think when you guys reported 4Q, you mentioned that fall orders were down low to mid-single digits. I’m wondering if there’s any change in that now that we’re a little bit further into that process. And then also on the SOREL guide change, I’m just wondering if that’s order book related? Or are you changing other assumptions around SOREL? And I have a follow-up.
Jim Swanson: Yeah. The biggest change in the case of SOREL, more a reflection of what we saw in the e-commerce business in the first quarter in which the business has been down a bit more sharply than we had anticipated. And so with that in mind, it’s been a tough environment. We revised the outlook down to the — reflecting down mid-20s. Obviously, we’ve got order book in hand for fall 2024 that would be also be indicative of those declines. And we’ve got new leadership in place and looking forward to the updates that they make to the brand, the product line and really looking forward to reinvigorating growth, but it’s going to take some time and obviously challenging in the near term.
Mitch Kummetz: And then is the order book — the consolidated order book still in that down low to mid-single digit range. Has that changed at all?
Jim Swanson: I think — so on a global basis, our order book for the fall 2024 season is contemplated to be down a low single-digit percent. So call it the 1% to 2% range.
Mitch Kummetz: Okay. And then just a second question on the gross margin, so you guys showed nice gross margin in the first quarter but you expect to be down pretty substantially in 2Q. From a kind of puts and takes standpoint, what’s the main reason for that big swing?
Jim Swanson: The biggest one is what I was referring to. I can’t remember who asked question a little bit earlier, but Q2 of last year, we had some exceptional provisions related to sales and inventory that benefited the gross margin. So, there were onetime adjustments last year were favorable. We don’t have those same things this year. If you take those aside, we’re basically neutral on margin in Q2. And then, Mitch, as you think about the back half of the year, we planned our gross margin up and by far in a way the thing that’s going to drive gross margin in the latter part of the year is the healthier inventory position that we have. And even though we continue to operate the additional outlet clearance locations, the assortment of merchandise that we will have available within those stores to sell is a better assortment that will — that we expect to drive a better margin that’s applying to that outlook.
Mitch Kummetz: Okay, understood. Thanks.
Operator: Okay. The next question comes from John Kernan with TD Cowen. Please proceed.
Alex Douglas: Hi. This is Alex Douglas on for John. Thank you for taking our question. So, my first one was on some of the fiscal 2024 gross margin puts and takes, specifically the lower inbound freight costs. I know you’ve got something you guys have commented on the last couple of earnings calls. So, I was just wondering what’s the timing for when you guys will start lapping those lower freight costs? And would it maybe be fair to assume that by the end of the year, that impacts either for a flat or flex headwind? Thank you.
Jim Swanson: Yes. The more meaningful impact that we’ve experienced each of the last several quarters as it relates to inbound freights coming off the highs in terms of what we’re seeing in inbound ocean brake charges from over a year ago. And as you look back on our last four quarters, our gross margin has benefited in the tune of, on average, 300 basis points per quarter. Q1 was plus 200 basis points. So, as we move forward from here, beginning in the second quarter, we would expect that to be far less of a benefit. Having said that, just given lower overall demand and supply being built, overall, the freight negotiations that we’re in currently would indicate to us that there’s continued opportunity where we see those freight rates come down a bit more, but certainly not on the order of magnitude of what we’ve seen over the course of the last year.
Alex Douglas: That’s very helpful. Thank you. And then my next question was on one of your comments on inventory turns. Just more of a clarifying question. You mentioned the goal of 3x. Is that more of a long-term goal or end of fiscal 2024 goal? Just if you can help clarify that for modeling purposes, it would be very helpful. Thank you.
Tim Boyle: Yes. We improved our inventory turns over prior periods. But to get to 3, which is a good goal for the company and other companies achieve this we, believe is attainable, but it would be more of a long-term goal.
Jim Swanson: Yes, certainly not 2024. Our expectation, though, would be that — and while we don’t want to give specific inventory forecast at the end of the year. There’s a lot of complexities to that. Our expectation would be that we’ll be able to manage inventory down year-over-year relative to where we exited out of 2023. So we’ll see that inventory efficiency and that improvement in the turns.
Alex Douglas: Okay. That’s very helpful. Thank you.
Operator: The next question comes from Paul Lejuez with Citigroup. Paul, please proceed.
Paul Lejuez: Hey, thanks guys. Curious within the US DTC bricks-and-mortar business. Can you maybe talk about how much of that business is being driven by traffic versus ticket? I don’t know if you could share what comps were excluding the additional temporary clearance locations. And just point of clarification on those. Did you say 2% of total sales in the second quarter, that’s what those represented and then how many do you plan to have in the back half? Thanks.
Tim Boyle: Yes. We consider ourselves really to be a wholesale company. So we really don’t release a lot of information on the KPIs around our retail business. But I can tell you, generally, the traffic numbers have been good in those markets where we’re operating outlet stores and the conversion rates have been exceptional. So the brand is in high demand. And really, the focus for us is to — on these temporary stores to get our inventories down with high gross margins for the company overall and then to operate the suite of stores in line with what we believe are long-term inventory liquidation plans, should be as we begin and continue to operate at an efficient turn level for our inventories.
Jim Swanson: Yes. And then just a follow-up point on there. You asked about the comps. And as Tim touched on, we don’t provide specific retail KPIs of our business. Having said that in Tim’s prepared remarks, we did indicate that the growth from a direct-to-consumer brick-and-mortar perspective was a combination of the temporary new stores, but also included productivity gains. So you can take away from that, it’s a positive comp and some of the Tim’s comments with regard to traffic and conversion, help contribute towards that. And then, yes, my prior comment was with regard to our temporary clearance stores, that those represented just slightly less than 2% of consolidated net sales for the first quarter. And on a full year basis, we plan for that to be slightly greater than 2%. But again, back to my point, these are modestly profitable. And as we think out to 2025, we began to ramp down and exit out as the lion’s share of these.
Paul Lejuez: Got it. Thanks. And then just one follow-up. Can you just give us an update on clearing through the PFAS product, where you are in that process?
Tim Boyle: Yes. We believe that by the end of this year, we will be virtually out PFAS products, and it hopefully be a topic in our rearview mirror.
Jim Swanson: Yes, we’ve made great progress. We feel good about being able to work through the balance of what inventory we do have, most of which is already sold and allocated to a customer that we intend to sell through our own direct-to-consumer business. And to the degree there’s excess that remains there. Certainly, when you look at the clearance capability we have from an outlet standpoint, this is perfectly salable, high-quality inventory. We don’t envision that being a challenge and be able to move through that profitably.
Paul Lejuez: Got it. Thank you. Good luck.
Jim Swanson: Thanks, Paul.
Operator: [Operator Instructions] Next question comes from Alex Perry with Bank of America. Please proceed.
Alex Perry: Hi. Thanks for taking my question. I wanted to ask about China actually. Can you talk about what’s driving the outperformance there versus a lot of your peers, is it strong new product reception? Are you doing any distribution expansion there? And then maybe just remind us on how the margins of the China business compared to the other regions? Thank you.
Tim Boyle: Sure. Well, just as a reminder, we’ve been doing this in China for about 20 years, operating the business directly ourselves for five, six years. And we underperformed there for many years. Even though we were first in the marketplace, we were underperforming. So when you look at our business by comparison to others, we’re smaller and the fact that we’ve turned the business around maybe has some outsized results when you compare with the rest of the business. I would say that the bulk of the improvement is a function of just cleaning up our operations and making them much more relevant for the local market. We haven’t really expanded our distribution. It’s a great way, but we’ve been focusing on improving our monthly performance and store productivity, utilizing a number of different ways, including key retail operations, as well as directly designing — which has been improved for the local market more focused on the local market requirements.
And lastly, the management team that we have is exceptional. It’s been really instrumental in making the decisions much better.
Jim Swanson: Yeah. I’ll just double down on Tim’s talking points there. From a distribution standpoint, we’re operating no less. In fact, we may be operating a door to less than we were a year ago. So this is all coming through productivity gains within our existing store fleet and online dealers that we work with. And then one other follow-up point to your question, Alex, with regard to the margins in China, we will provide specifics on it, but I can share that is among the most profitable parts of our business from an overall contribution perspective, certainly far above the overall corporate operating margin.
Alex Perry: Perfect. That’s really helpful. And then I just wanted to parse out the DTC guide a bit more. I think the implied guide for DTC brick-and-mortar is for it to be up quite a bit. I guess, what’s the driver there? Is that just year-over-year door count? And then I think it implies some acceleration in dtc.com as you move through the year. Can you maybe talk about what would be driving that?
Jim Swanson: Yeah. Good question. So as it relates to the brick-and-mortar side of the business, the combination of the new stores we opened last year, our plans for this year, combined with those temporary clearance stores. We ramped up those temporary clearance stores throughout last year. So you’re going to see the annualized benefit of them being open throughout this year. Case in point, we had 44 that we operated in Q1 of this year versus eight last year, and so we’ll continue to see the annualization of that — associated with that. To a lesser degree, we are contemplating some improvement from a productivity standpoint. Keep in mind given the excess inventory that we’re flushing through the outlets for most of last year, the assortment size around the color that we had available to the consumer in those stores is pretty weak for different points in time, throughout last year as we’ve got a better assortment in the stores this year.
We believe there’s opportunity where we left revenue on the table last year and we can recapture that this year. So that’s, by and large, the brick-and-mortar side of things, not to mention the brick-and-mortar business, we had international and particularly in Asia and our China business that will drive growth as well. And then with respect to the e-commerce business, we do contemplate some degree of improvement that in the back half of the year. And as Tim touched on, late last year, mid last year, we began making changes, particularly on columbia.com in the US with regard to the degree of promotions. And so in the earlier part of the year, we were highly promotional and discounted. As you get into the latter part of the year, we essentially backed off of that to a better representation of the brand online.
