Greetings and welcome to Columbia Sportswear Second Quarter 2021 Financial Results Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Andrew Burns. Thank you, Andrew, you may begin.

Good afternoon and thanks for joining us to discuss Columbia Sportswear Company's second quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our Investor Relations website investor.columbia.com. With me today on the call are Chairman, President, and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President and Chief Administrative Officer, Peter Bragdon. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement 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 SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call we may reference certain non-GAAP financial measures including constant currency net sales. For further information about non-GAAP financial measures and results including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our second quarter 2021 earnings release. Following our prepared remarks, we will host a Q&A period during which we will limit each caller to two questions, so that we can get to everyone by the end of the hour. Now, I'll turn the call over to Tim.

Thanks Andrew and good afternoon. I hope everyone is well. I'm thrilled to report second quarter financial performance that exceeded our expectations. The robust recovery in our business fueled record-setting second quarter and first half net sales, gross margin, operating income and diluted earnings per share. We eclipsed pre-pandemic first half 2019 financial results which represented record performance at that time. This marked an important milestone in our recovery. Net sales upside in the second quarter was primarily driven by better-than-planned performance in our U.S. Wholesale and DTC brick-and-mortar businesses. It's important to highlight that even as consumers returned to in-store shopping, our e-commerce business also remained strong. Measuring second quarter 2021 financial performance versus second quarter 2019 results which were not impacted by the pandemic, is a useful measure of our business recovery trend line. Globally, net sales were 8% above our 2019 levels in the second quarter with all four brands surpassing pre-pandemic levels. Second quarter net sales in our U.S. DTC brick-and-mortar business slightly exceeded 2019 and U.S. DTC e-commerce sales increased over 80%. It is clear that our brand portfolio is resonating with consumers and we are well positioned to benefit from consumer and outdoor trends. Columbia's value proposition and differentiated innovation positions the brand to capitalize on the increasing popularity of outdoor activities. Consumers are gravitating to SOREL's energized spring-summer product line validating its evolution to a year-round brand. Mountain Hardwear spring 2021 sell-through rates and fall 2021 orders demonstrate consumers are responding to the brand's authentic and innovative mountain sports product line. As consumers' interest in the sustainability of the outdoors grows, Columbia is well positioned at the intersection of these powerful trends. These record results were achieved despite ongoing pandemic-related disruptions. Industry-wide supply chain disruptions are causing production and delivery delays as well as shipping cost pressures. Ongoing periodic lockdowns and temporary store closures are also impacting DTC and wholesale and brick-and-mortar store performance in several international markets. Thanks to the tremendous efforts of our dedicated global workforce, we were able to overcome these disruptions to achieve record sales results. I would add that we also achieved these results with a low inventory position, exiting the quarter with inventory down 16% year-over-year. Overall, our spring sell-through has been exceptional, retail inventory positions are very low and our fall 2021 and spring 2022 order books point to continued momentum in the business. Looking at the seasons ahead, I'm confident in our pipeline, innovative products and ability to execute in this dynamic marketplace. Our fortress balance sheet is intact with cash and short-term investments totaling $821 million with no bank borrowings. Based on second quarter results, we're raising our financial outlook for 2021. Our updated outlook now calls for 25% to 26.5% net sales growth and a diluted earnings per share of $4.30 to $4.55. This outlook includes our current view of the impact from supply chain disruptions which are impacting fall 2021 production and deliveries. Furthermore, in our revised outlook we are assuming approximately $40 million of incremental ocean freight costs not contemplated in our prior outlook as we emphasize supply chain continuity and market share gains over costs. Now I'll quickly review our second quarter 2021 financial performance and reference year-over-year comparisons versus second quarter 2020. While reviewing second quarter year-over-year growth rates and margin performance, it's important to remember that the second quarter is our lowest volume sales quarter and small changes can result in large percentage changes. Additionally, second quarter 2020 was significantly disrupted by the pandemic. Many of our DTC and retail partner stores were closed for the majority of the quarter last year. Second quarter net sales increased 79% driven by 89% growth in our Wholesale business and 69% growth in our DTC business. Wholesale growth was led by the U.S. and was primarily driven by later timing of Spring 2021 shipments compared to Spring 2020 and higher Spring 2021 sales. While shipments were delayed several weeks on average, order cancellations were minimal. In this inventory-constrained environment retailers remained eager to get product as it arrives. Globally, DTC brick-and-mortar net sales grew 149% as we lapped prior year's temporary store closures. Sales in this channel significantly exceeded our expectations as store traffic levels and sales improved faster than anticipated. Overall, we made great progress in the quarter. Store traffic still remains below pre-pandemic levels. U.S. DTC e-commerce net sales grew 5% and represented 16% of the total sales mix. These results were in line with our expectations as we lapped the prior year surge in e-commerce sales. Gross margin expanded 540 basis points to 51.6% of net sales. In addition to the decreased inventory reserve provisions relative to elevated levels last year, we benefited from lower DTC promotional activity and favorable wholesale product margins. This was partially offset by unfavorable channel sales mix. Our SG&A expense increased 20% primarily reflecting the variable component of our expense structure with increased sales volume. This performance resulted in operating income of $35 million or 6.2% of net sales compared to an operating loss of $70 million in the prior year. Diluted earnings per share improved to $0.61 compared to a loss per share of $0.77 in the prior year. Looking at first half financial performance, net sales increased 35% year-over-year and diluted earnings per share increased to $1.44 compared to a loss per share of $0.76 in the first half of 2020. I'll now review second quarter year-over-year net sales growth performance by region and brand. For this review, I'll reference constant currency year-over-year net sales growth rates unless otherwise noted. U.S. net sales increased 107% reflecting low 140% growth in our wholesale business and mid-80% growth in our DTC business. The robust economic recovery, improving vaccination rates, and strong consumer demand for outdoor products created an excellent retail backdrop during the quarter. In our U.S. wholesale business, spring 2021 season-to-date sell-through rates have been exceptional, driving double-digit sell-through growth compared to spring 2019 on lower retail inventory stock levels. In our U.S. DTC brick-and-mortar business, it was apparent that consumers are increasingly willing to shop in-store. Net sales increased mid-250% year-over-year as we anniversaried prior temporary store closures. During the quarter same-store sales and traffic trends recovered much faster than expected. Even though international tourism remains quite low, we experienced a meaningful improvement in stores that historically relied on this business. U.S. DTC e-commerce net sales increased low single-digit percent in line with our plan with significantly less promotional activity compared to the prior year. Turning to international sales performance. During the second quarter, many regions continued to struggle with the vaccination rollout. We experienced sporadic lockdowns and temporary store closures at various points throughout the quarter in several markets including Japan, China, Europe, Canada and distributor markets. Latin America, Asia-Pacific or LAAP region, second quarter net sales increased 11%. Across Asia performance was mixed. In China net sales were down low single-digit percent primarily reflecting lower wholesale sales resulting from earlier timing of spring 2021 shipments which shifted to the first quarter. China DTC net sales were up year-over-year led by e-commerce growth. China represents one of our largest geographic growth opportunities and we know that e-commerce will be an integral part of unlocking Columbia's full potential in this important market. Our management team is hyper focused on enhancing our digital capabilities, strengthening strategic partnerships, and developing talent to drive growth and enhance the consumer experience. Overall, first half net sales in China increased low 30% and we anticipate full-year net sales to approach 2019 levels. Korea net sales decreased mid-teens percent as we anniversaried growth in the prior year that was aided by government stimulus which boosted retail consumption. In Japan net sales increased mid-50% as we anniversaried prior year pandemic-related disruptions which were more impactful than the state of emergency declarations in various regions throughout the second quarter of 2021. LAAP distributor markets were up high 30% as we anniversaried prior year pandemic-related order cancellations. Europe, Middle East, Africa or EMEA region second quarter net sales increased 46%. Europe direct net sales increased mid-30% driven by higher spring 2021 sales and later shipments of spring 2021 orders. EMEA distributor net sales increased mid-50% as we anniversaried prior year pandemic-related order cancellations and earlier delivery of fall 2021 product compared to fall 2020. Canada net sales increased 140% in the second quarter, primarily driven by later shipments of spring 2021 orders and higher spring 2021 sales. Looking at performance by brand, Columbia brand net sales increased 79% in the second quarter despite the delays in shipments. Sell-through of our spring 2021 product line has been fantastic. Top performing categories included headwear, footwear, and fleece with particular strength in PFG products. It's important to note that these high sell-through rates were achieved with strong full-price selling resulting in favorable product margins. Columbia's innovations received several media callouts and awards during the quarter. Outside magazine featured the PFG Zero Rules Ice shirt in their roundup of Best Fishing Gear highlighting its unique Omni-Freeze cooling technology and UPF protection. Outside also featured the Escape Summit OutDry shoe in its list of best hiking shoes. Gear Patrol featured the OutDry Ex Reign Jacket as the most innovative rain jacket in its list of best rain jackets of 2021. The feature noted the jacket's differentiated look and unique proprietary waterproof construction. On the product and partnership front, this June, we continued with our successful collaboration with Disney/Lucasfilm with Columbia's first Spring-Summer Star Wars Collection. This new Outer Rim collection combines iconic elements of the Star Wars legacy with the comfort and performance that our Columbia PFG apparel is known for. The media coverage of this launch generated over 20 million impressions and that product quickly sold through in our branded stores and online. During the quarter, Columbia broadened our partnership with the Greening Youth Foundation to promote equitable outdoor industry career paths for diverse youth and young adults. As part of this ongoing relationship, Columbia has made a donation of product and funds to support its Historically Black Colleges & Universities Internship Program. This program connects young people from underrepresented communities with outdoor industry job opportunities. In addition to releasing a special Pride Month collection in June, Columbia was excited to celebrate our partnership with The Venture Out Project during the quarter. This non-profit organization helps individuals gain skills and confidence through shared outdoor experiences. We will be working closely with this organization in the months to come. On the marketing front, we're eager to launch our global Omni-Heat Infinity campaign later this month. Omni-Heat Infinity is the newest and largest innovation launch in our company's history. This new highly differentiated addition to the Omni-Heat family is the next evolution of thermal reflective warmth. We will be supporting the launch with a comprehensive global marketing campaign that will create awareness throughout the season. Our full funnel campaign will be visible to consumers in-store and across traditional, digital and social outlets. On October 1, we will celebrate Gold Medal Day, which will feature content from a group of partners and influencers promoting the initiative across social media platforms. They'll be inviting consumers to join with them in taking Columbia's challenge to spend 24 hours outdoors in total warmth and comfort wearing Omni-Heat Infinity. Given the challenging retail landscape, I believe it's worthwhile to reiterate our distribution channel strategy. Throughout our long history we've valued the strong relationships we've built with our top global retail partners. For the Columbia brand, we believe broad democratic omni-channel distribution is an integral part of the brand's success. We will continue to partner with retailers to serve our loyal consumers wherever they choose to shop. We will also continue investing in our profitable and growing DTC businesses. With our broad omni-channel strategy in mind we see sales opportunities as some brands exit wholesale accounts. We are actively engaged with these retailers to help serve their customers. We believe that Columbia brand's exceptional value and differentiated innovation is a winning proposition for retailers and consumers alike. Turning to our emerging brand portfolio, SOREL net sales increased 71% in the quarter with strong wholesale growth, led by exceptional sneaker and sandals performance. Strong sell-through velocity and full-price selling reflect consumer excitement around SOREL's bold spring-summer styles. On sorel.com, the Kinetic sandal was the top selling style. This sports-style sandal expands the Kinetic collection and builds on the success of the popular sneaker product line. The brand also noted strong growth in the newly introduced sandal collection CAMERON, led by the CAMERON platform. During Pride Month, SOREL partnered with Paper Magazine to spotlight three individuals as they use style to express their everyday pride. Featuring the Kinetic Rush Pride sneaker, created in their honor, the program captured these bold and confident individuals in their unique element. As part of this collection, SOREL made a donation on behalf of each of the individuals to the charity of their choice. prAna net sales increased 43% in the quarter led by wholesale growth. As spring 2021 product reached our retail partners we were encouraged by sell-through rates and full-price selling. During the quarter prAna demonstrated its belief in adventure for all with a Pride collection and partnership with The Venture Out Project. Interest in prAna's recently introduced Re-Sign fabric continues to build with strong orders noted across key retailers for spring 2022. In June, prAna brand President Russ Hopcus announced his pending retirement this fall. Over Russ's eight years with Columbia and prAna he's been a valued member of our senior management team and I want to thank him for his contributions. A search is underway for his successor. Mountain Hardwear net sales increased 95% in the quarter, with strong wholesale and DTC performance. Spring products sell-through is excellent driven by especially strong sportswear and equipment demand. For fall 2021, the order book reflects continued strength in the business. The Mountain Hardwear team has done an amazing job bringing new innovation to the marketplace and elevating the brand's online and in-store presence with important wholesale accounts. We're excited to see Mountain Hardwear athlete Kyra Condie take the global stage in the debut of sport climbing in the Olympics. She is one of only four USA sport climbers to represent the country in this inaugural event. We look forward to sharing her journey through Mountain Hardwear’s social media platforms. Good luck Kyra. After four years leading Mountain Hardwear’s business, brand President Joe Vernachio made the decision to pursue another opportunity. Joe has made tremendous impact at Mountain Hardwear and is leaving the brand in a strong position with a very talented team. We thank him for his contributions. A search for his successor is underway. I'll now discuss our 2021 financial outlook. This commentary includes forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to these statements. As we begin the important fall sales season, we're focused on navigating pandemic-related disruptions and delivering products that inspire active consumers. We're also investing in demand creation and capabilities to leverage our compelling brand portfolio to connect with consumers and enable long-term profitable growth. Based on second quarter results, we're increasing our full-year financial outlook. Our updated 2021 outlook contemplates 25% to 26.5% year-over-year net sales growth with growth across all four brands. This compares to our prior outlook of 21.5% to 23% growth. This outlook assumes no meaningful deterioration of current supply chain or market conditions related to the ongoing pandemic. Gross margins are expected to expand 95 to 115 basis points. Our revised gross margin outlook includes approximately $40 million of incremental ocean freight costs not contemplated in our prior outlook. Currently, global demand for ocean vessels and containers is far outstripping available capacity. In general, we've been successful securing allocation of containers and vessel bookings to transport our products. We have worked to incorporate what we know about ocean freight rates into the financial outlook we are providing today, but these markets are highly volatile, and rates are difficult to estimate. In this environment, we have prioritized supply continuity and market share gains over costs. We are diligently working with our logistic partners, industry representatives and government officials to address these challenges. We expect SG&A to grow slower than net sales. Demand creation is anticipated to increase as a percent of sales to 6% in 2021, compared to 5.7% in 2020. Combined, we expect operating margin to be in the range of 11.7% to 12.2%. Diluted earnings per share is anticipated to be in the range of $4.30 to $4.55 compared to our prior range of $4.05 to $4.30. While it's too early to provide specific details around our first half 2022 planning process, I'd like to share some initial thoughts on our spring 2022 order book. As I referenced earlier, strong consumer demand for our spring 2021 products has driven exceptional sell-through rates. This has resulted in very low channel inventories and high retail restocking demand for our spring-summer product line. As a result, our spring 2022 order taking process has been substantially completed far earlier than the season is normally completed. Our bookings point to high teens to low 20% growth in our spring 2022 order book over spring 2021 sales levels. With inflationary pressures building across our business, we have implemented price increases to help mitigate these higher costs. We're confident in our brands' portfolio pricing power. As a reminder, our order book only covers our wholesale business and is not an indicator of DTC performance expectations. Before my closing remarks, I'd like to highlight that we recently released our 2020 corporate responsibility report, which is available on our website. I'd encourage you to review the report, which outlines the progress and accomplishments that we've made empowering people, sustaining places, and promoting responsible practices. 2020 was an incredibly challenging year for everyone, but our commitment to our core values did not waver. 2020 highlights include setting a climate target goal for a 30% reduction in manufacturing emissions by 2030, establishing a senior-level Diversity, Equity and Inclusion leadership team. The report also features spotlights on Columbia Sportswear's response to issues including COVID-19, voting, social and racial justice, and climate. In summary, the momentum in our business is incredibly strong. I believe we have the right strategy in place to navigate pandemic-related disruptions and drive sustainable and profitable long-term growth. We're committed to investing in our strategic priorities to drive global brand awareness and sales growth through increased focus on demand creation investments, enhance consumer experience and digital capabilities in all of our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems, invest in our people, and optimize our organization across our portfolio of brands. That concludes my remarks. We'd welcome your questions for the remainder of the hour. Operator, could you help us with that?

Thank you. Thank you. Our first question comes from Bob Drbul with Guggenheim Securities. Please proceed with your questions.

Thank you. Good afternoon, guys, congratulations.

Thanks, Bob.

Hi Bob.

Great quarter. I guess the first question that I have is, Tim when you look at the competitive landscape, I guess the comments you made about market share opportunities, can you just talk a little bit more in terms of like, where you see the opportunities that you're pursuing, either by category or by region? Just what you see happening on the competitive front, that you're going to be a little bit more aggressive and go after it from that perspective? And I think the second question that I have, maybe for Jim is the price increases, can you give us a little bit of flavor, sort of how much you're taking price up or the inflationary pressures that you're seeing in the business if you could just help us quantify that, that would be helpful? Thanks.

Sure. Well, I think Bob, probably the number one area we're taking share would be in smaller brands that may not have the capital, the balance sheet to be able to provide them the solace to pay these exorbitant prices that we're all facing in terms of our freight rates coming in. So that would be an area where we would be able to point quickly to where we can take share. Additionally, we've got a number of businesses where we have a unique position that would include specifically PFG in North America where the business is incredibly strong and geographically that would be focused on the south and southeast. But across the business and across the globe frankly, the business has been very strong, very low inventories. And I think we've all been surprised at the brick-and-mortar traffic levels and just the extraordinary consumer demand for outdoor products. And those are the first things that come to mind when I think about where we're growing so much so rapidly.

And then Bob, as it relates to your question on price increases and specific to spring 22, the price increases we're contemplating are low single-digit percent. So when you look at the order book that Tim commented on with low 20 to high-teen growth, most of that's unit volume. We do expect to continue to see costing pressure up to the fall 2022 season and of course, we'll be looking further into price increases to help mitigate and offset those inflationary pressures.

Got it great, thank you very much.

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

Yes, thank you. Maybe a broader question on the earnings outlook, it looks like the first half of the year your earnings were above 2019. For the full year, that's not what you're assuming. So maybe just wondering as you look to the back half, how we should think about the earnings potential especially in light of the 2019 numbers that you delivered?

Yes, good question, John. If it hadn't been for what Tim commented on, and then for the ocean freight costs, the vast majority of the $40 million of incremental ocean freight costs that we anticipate incurring this year will be in the latter part of the year. So absent that, the $0.70 beat that we delivered for the quarter, we would have delivered for the full year. If you do the math on that, the earnings recovery, I think we'd be looking at an overall earnings at or better than where we were in 2019. So, we're awfully encouraged with the momentum in the business. Obviously the supply chain challenges we'll deal with those and manage what we can and I think that pretty well covers it.

And maybe as a follow up, how do you think about the recoverability of some of those margin pressures, especially since you're taking some pricing next year? Theoretically the freight issue should be temporary at some stage once you get past them, so any thoughts on the margin recoverability? And then even as you look to fall 2022 orders any high level thoughts on some of the swing factors as you look out to fall 2022?

I think that the brand, what we're realizing is the brand really has the power to price appropriately. We're also very mindful of our business. This industry has been incredibly deflationary over the last 20 years, merchandise becoming less and less expensive. So this is an area where we've been very focused on managing our ability to raise prices, and to be mindful of what the cost portions of the business are going to be, as well as continuing to invest in innovations which will separate us and allow us to differentiate ourselves. And lastly, our investment in brand building and brand awareness, I think will really speak to results in the future.

And Jon, absent ocean freight costs that we're incurring, and based on everything that we're learning from the logistics partners that we work with, and various other advisors, we anticipate continuing to see these elevated freight charges through the first half of next year. Absent those charges, and we're not providing specific gross margin guidance today, but absent those charges, we would have expected our spring 2022 product margins to be better than spring 2021 based on where we've priced and how the order books come in.

That's helpful. And just lastly, if I could, could you come in any on any direct shipping delays you are baking into third quarter and is that impacting the Omni-Heat Infinity launch plans at all? Thank you.

No, we've really prioritized Omni-Heat Infinity because it's so important for the company in total and for the investments that we've made. We want to make sure we have the product in the stores, so we prioritize shipping of that merchandise. We expect that there will be delays on other categories and other items, but all of those delays have been built into the guidance we've given you today.

Yes, and we're continuing to experience that three to four week delay generally speaking, as relates to tying up our inventory receipts and our wholesale shipments. And so what we will see is some push out of the third quarter into the fourth quarter. And as Tim touched on, there's some commentary related to our second half growth rates including Q3 and Q4 and that's all baked into that outlook.

Okay, thanks again.

Thank you. Our next question comes from John Kernan with Cowen. Please proceed with your question.

Yes, excellent. Thanks for taking my question. Nice job on the quarter. I just wanted to talk to the SG&A rate as well as the low end of the guidance on a rate basis, it's still above 2019. You're guiding to the high end of sales to be above that fiscal 2019 base, so just curious the kick up in the SG&A relative to 2019, if there's any costs related to supply chain in that or how we should think about the SG&A rate?

Yes, a couple comments in there Jon. I guess first and foremost would be demand creation. We did plan to make incremental investments in demand creation this year, you'll recall 2019 our demand creation spend was 5.5% of sales. In our outlook we're currently contemplating 6%. So that's a pretty meaningful component to that. As relates specifically to the supply chain, the one item or two items that would be in here specific to the supply chain is there's a fair amount of labor pressure in the market right now and so we have made wage rate adjustments for our distribution centers. We've also done likewise with regard to our retail store associates in order to attract talent, as we go into full steam of the season that lies ahead. So those are the predominant drivers, when you think about SG&A de-leverage over 2019. There's some incentive comp, as well as it relates to just the strong year that we've had thus far. That would be really the recap.

Got it. That makes sense. Just to go back to supply chain, it sounds like there's going to be some headwinds into fall 2022. Now when you take a look at all the inflation here, whether it's shipping, ocean air, some of the headwinds regarding production in Vietnam and other places. When looking into a crystal ball, how do you think this unwinds? I mean, at what point do we start to see what seems like cyclical inflation come down — in particular with some of the freight rates? It doesn't sound like you're assuming that they're going to get much better into 2022. I'm just curious if there's anything you see that could alleviate some of these cost pressures and when we will see that?

Yes, I think actually the only thing that will significantly impact the ocean freight rates will be government intervention, whether that's European government or U.S. government acting to break up some of these monopolistic organizations that are really causing the bulk of the problems. I mean, there's one thing that — to deal with delays which we all understand that's possible due to the container dislocation, but the freight rates are clearly monopolistic in my opinion. So when will that happen? That's anybody's guess, but I think, in general, as I said earlier, we are entering a period of inflation, when in fact the industry as a whole has been in a deflationary spiral for many, many years. So it's going to be incumbent upon companies that are well organized like ourselves to be able to have brands with pricing power that can continue to grow sales and have strong margins.

Yes, I think John, the comment I made is, if you would set aside the ocean freight costs that we're currently seeing in the business, and just look at the product margin before that, our spring 2022 margins are more healthy than they would have been for spring 2021. Now, obviously, we're looking at those ocean freight costs, and there's a lot of estimation in terms of what lies ahead as we think about the first half of next year, but that will put some pressure in there as Tim touched on. We're a bit early as it relates to fall 2022 as we're finalizing the line and our pricing before we go-to-market.

Understood, thanks for all the information.

Thank you.

Thank you. Our next question comes from Jim Duffy with Stifel. Please proceed with your question.

Thank you. Good afternoon. A few questions from me around the trends you see and how that's translated to the guidance change. Did I hear you correctly the U.S. direct-to-consumer brick-and-mortar was up in the 2Q versus 2019? And if so, I'm curious has that—was that consistent across the quarter and into the third quarter?

Yes, that's correct, Jim. So our brick-and-mortar business was up a low single-digit percent through Q2. We saw a nice pickup in that DTC business data back to March, around the time that we saw some of the U.S. stimulus and we've really been able to sustain that level. Having said that, consumer traffic levels still remain down quite significantly relative to pre-pandemic, but we've been making up for it with improvement in all other operating metrics in the stores, including conversion. So it held, as we look at the quarter, month-by-month, it held steady through the month of June and we've continued to see nice trends as we sit here in the month of July. And then as it relates to how we factor that into our outlook, we've taken a prudent approach in terms of not expecting that traffic would get back up to pre-pandemic levels exiting this year and that revenue would be at or slightly down. So I gave you a little backdrop on that.

Okay, helpful, thanks. And you've mentioned inventories tied retailers anxious to get product, were you able to make any adjustments to fall orders to upsize those to capture some of that demand in the second half of the year?

Well, we have as we've said we have logistics issues we're dealing with for the merchandise that we've already sold for fall 2021 and we have inventory available. And we believe that we're obviously in a much lower inventory position than we were exiting the quarter last year. So to the extent we can fulfill orders we'll be there and provide that merchandise.

Okay, thanks, guys. I'll leave it at that.

Thank you.

Thanks, Jim.

Thank you. Our next question comes from Alex Perry with Bank of America. Please proceed with your question.

Thanks for taking my question and congrats on a great quarter. Just wanted to circle back, I think you talked about rising cases in sourcing countries across Southeast Asia impacting the product availability and deliveries. I guess just given the shutdowns you have seen in the last few weeks, are you still on track to hit shipping windows for peak selling periods? I guess another way of asking is, if there's any upside potential here to have to give in sort of what you're seeing in the supply chain?

Well we've approached our forecast the way we have historically, as it relates specifically to some of the closures in Asia, which would include Vietnam. As we sit here today about 70% of our inventory has either been produced or is in transit or we've received it. So we're in pretty good position as it relates to having inventory available for the season. Now, we still have some obviously to produce and certain of that inventory is in factories in Vietnam that are experiencing closures. So there'll be some risk associated with that, but by and large those impacts to our business including the supply chain disruptions are reflected in the revenue outlook that we've provided today.

Perfect, that's really helpful. And then I just wanted to touch on it a bit more Tim, some of the comments you made about the approach your competitors are taking to the wholesale marketplace in North America. Can you just comment on sort of the whitespace opportunity you see there from what your competitors are doing, and what you're doing to capitalize on that?

Certainly, well, it's been well publicized the reduction in major brands' distribution partners is in the billions of dollars, and that's just in North America. So there's lots of opportunity for our brand which is in high demand to fill portions of that. So, I mean, it’s a significant amount. It eclipses our current footwear business — just the footwear portion eclipses our current footwear volume. So it could be very significant if we're able to capture a good portion of that business.

Perfect, that's really helpful. Best of luck.

Thank you.

Thank you. Our next question comes from Laurent Vasilescu with Exane BNP Paribas. Please proceed with your question.

Good afternoon. Thanks for taking my question. Jim, I think in the CFO commentary, it says that there has been a shift in Canadian and European direct sales from 1Q to 2Q. Can you possibly quantify those shifts? And then if I look at the third quarter, fourth quarter implied guidance with regards to on a two-year stack basis, it looks like 3Q had been down mid-single-digits, but then 4Q will be up mid-teens. Is it the right way to think about it, if you didn't have the delays would third quarter and fourth quarter be more normalized on a two-year stack basis across both quarters?

Well, as it relates to your first question on Europe and Canada from a wholesale perspective, and I might approach that just kind of looking at it from more of a global standpoint, because certainly, we've had a fairly significant shift in our inventory receipts for spring 2021 that have shifted out of Q1 and Q2, and hence, had an impact on our ability to deliver and ship those in Q1. The impact of that, our spring 2021 order book ex-timing, we're up about 20% from a global standpoint, that will be both Canada and Europe, I can't recall specifics, but they're going to be in around that level of growth. So certainly the outside growth you're seeing in the quarter is largely related to the later inventory receipts and shipments. And then as it relates to Q3, Q4 Laurent, I think the only detail I can share with you is that what you're seeing in the CFO commentary is the fact that we see relatively balanced growth in Q3 and Q4, it's a low 20%. There is a fairly significant shift out of the third quarter into the fourth quarter just in light of the fall 2021 later inventory receipts and the impact that that's having on the wholesale business.

Okay, very helpful. And then drilling down on footwear, I think your full-year revenue guide at the company level implies low single digit growth on a two-year stack. I think in the CFO commentary it says that apparel will grow faster than footwear. So far, your footwear has grown 20% year-to-date on a two-year stack. So if footwear is supposed to grow slower than apparel, does that mean we should think that footwear actually declines in the second half on a two-year stack basis? And if you can help us kind of put the puzzle together it would be really helpful?

Yes, I don't think it's declining in the second half. But it will certainly decelerate from a growth standpoint and might have some manufacturing capacity constraints that we anticipate on the year, but we're still seeing footwear growth in the low 20% level, so not quite to the level that we are from an apparel standpoint.

Okay, and maybe if I can squeeze one more in on the gross margins, the reversal provisions, you've had two quarters in a row, do we expect any more reversals or maybe asked another way, how much is your gross margin guide of about 100 basis points embedding reversals for the full year?

What we've realized today is essentially our inventories are quite clean and I wouldn't anticipate given how clean our inventories are at this point in time relative to where they were at the same point in time last year. Last year, the economy had shut down with both fairly significant reserves in light of our unfilled positions. And as we sit here today, the aging and the unfilled positions we have in our inventory is quite healthy. And so we brought our reserves down on a more normalized basis. I wouldn't assume that there's any further benefit as we look at the balance of the year.

Okay, very helpful. Thank you very much and best of luck.

Yes. Thank you.

Thank you. Our next question comes from Camilo Lyon with BTIG. Please proceed with your question.

Thanks very much. Good afternoon, everyone. I just want to clarify on the $40 million of incremental supply chain expense for the back half. Can you help us think about the weighting of when that $40 million is going to hit — more Q3 versus Q4, or is it, should we think about it as evenly split?

I would look at it just in terms of, if you look at the relative revenue volume that we do in each of the two quarters, I'd weight it against that, because we're essentially realizing those costs in line with the rate of sale.

Perfect. And is that the right amount of incremental costs that we should think about for spring 2022 as well?

Tough to call right now. We're certainly going to see that pressure next year. I mean all indications, as Tim touched on, absent government intervention here, we would expect that we'll continue to see elevated freight charges through the Chinese New Year. And so by then we will have effectively received all of our spring 2022 inventory. So the first half of the year would be impacted by what we're currently seeing based on everything that we know today. And obviously, there's a ton of volatility in these, the rates have skyrocketed in the last 60 days, and if we had this conversation 60 days ago, we wouldn't be having this. We saw a fourfold increase in ocean freight from June 1 through the middle part of July.

Yes, it's pretty pervasive everywhere. Okay, perfect. And then if we could just step back for a second, and maybe if you could detail and peel back the layers on what you see in Europe — seems like they're a little bit behind us in terms of vaccination rates. I'm just curious to see how that region has been pursuing your brands and driving that growth, relative to what you've seen, that's been a much faster kind of recovery here in the U.S.? And maybe, if there's a timeline that we can put around it, are they a quarter behind us in terms of that recovery curve really starting to ramp up and look more like the U.S. or is there a further out period, before they start to really embrace the recovery the way that we have?

Our European business is still recovering and it is behind the U.S. in terms of vaccination uptake. And so we have less visibility on that, because it's country-by-country. Obviously, vaccination mandates vary. But our inventories in Europe are less than the U.S., so there's less of an opportunity to capture any particular uptrend that we might have. It's more difficult and more challenging there for us, versus the U.S.

Got it. And if I could squeeze one more in, for the back half of this year, would you be able to parse out how we should think about wholesale versus your DTC assumptions within the context of that 20% back half revenue growth projection?

I don't think we've broken that detail out. But I would just comment, our fall 2021 wholesale order book was quite robust coming off of retailers being exceptionally clean, coming out of the fall 2020 season. So we'll see outsized growth in the wholesale business. Keep in mind, e-commerce is going to be going up against some fairly significant comps that we delivered last year. We did provide commentary that we anticipate the e-commerce business from an overall penetration perspective, and we were 19% of sales in 2020, that we would see that come down ever so slightly, and then you'll have the recovery pickup of the brick-and-mortar business.

Very helpful. Thanks very much, guys and good luck.

Thank you. Our next question comes from Jay Sole with UBS. Please proceed with your question.

Great, thank you so much. Tim, I just want to ask about your thoughts about the underlying growth rate in your categories, because you mentioned the spring-summer 2022 order book of high teens or low 20s. You mentioned the sell-through in this quarter was up, strong double digits versus 2019. Just between the different moving pieces of restocking versus price increases and some of the things that are changing, what do you see the category growing as you get into 2022 just because of the increased consumer trend toward outdoor activities that's been in play now for the last few quarters?

I think the smallest impact is going to be price increases, frankly. The underlying business is incredibly strong. Sell-through rates have been among the best that the company has ever seen and the brands are really riding an incredible wave of demand, thanks to the strength of the brands, as well as the strength of the industry in general. And then again, as I mentioned earlier, smaller brands that would be delivering a portion of products that a store might get are just going to be under incredible pressure. And so, I think it's really a great opportunity for the company at a time when the brands are strong, and we are investing heavily in demand creation.

Understood. So maybe one more from me, just in terms of the guidance that you've given for the full-year. If we think about the supply chain and all the impacts that's having on the ability to chase into possible upside to orders or just to manage your direct consumer channel, is the ability of the company to sort of beat the guidance different this year, just because of all the complications that have happened to the supply chain, how should we think about that?

Well, we've really given you the best view we have of a highly complicated business, which is global in nature and spread across multiple brands. So we've really given you our best shot at what we think will turn out.

Got it. Okay, thank you so much.

Thank you. Our next question comes from Paul Lejuez with Citigroup. Please proceed with your question.

Thanks guys. Can you just talk about the second quarter DTC business, I'm kind of curious about the drivers of the sales improvement as of 2019 in terms of units versus price? And related to that, can you talk about merchandise margin by channel? Sorry if you did and I missed it, but curious how retail works compared to your wholesale business in 2019 and same question for wholesale? Thanks.

Hey, Paul, sorry. The sound quality is pretty poor. We didn't catch that. I heard something with regard to DTC revenue and ASPs and gross margin, but maybe can you repeat if it's any clearer?

Hey, it's Tracy calling in for Paul. I think he was asking, what the drivers were in the U.S. DTC channel, the drivers of the improvement this quarter versus last quarter in terms of price and traffic?

Yes, we saw a significant uptick in our traffic relative to where we had been the last few quarters. We're still quite a ways under where we were from a pre-pandemic standpoint, but there's been a nice flow of traffic. I think consumers generally with vaccination rates in the U.S. in particular have gotten to the level they are. Consumers are showing signs of getting back into physical retail, which is great to see and then our in-store operating metrics, between conversion and just the metrics we monitor with the consumer were all quite good. As it relates to price itself, you can see in our gross margin, our gross margin is up several points on the quarter, most of that is because we were less promotional. And so to the degree we're less promotional, there's some price benefit. We're picking up from that vantage point.

Great. And then the second part of his question, I believe was merchandise margin performance within channels, so wholesale merchandise margin versus 2019 and then DTC merchandise margin?

I think we had strong margins across all of our channels and the way we analyze the business. Because of the shortfall and the amount of inventory available to retailers, we had strong margins across the business.

Great, thank you, guys.

Thank you.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments.

Well, thank you very much for listening in. We're looking forward to great results when we talk to you at the end of Q3 and please stay healthy.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.