Greetings. Welcome to the Columbia Sportswear Fourth Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host Andrew Burns. Please proceed.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's fourth 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 and General Counsel, 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 earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host the Q&A period during which we will limit each caller to two questions so 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'm proud of what our global workforce was able to achieve in 2023 as we navigated a challenging environment. One of our top priorities throughout the year was executing an inventory reduction plan. I'm pleased to report that we exited the year with inventories down 27% compared to last year. This inventory reduction helped us to generate over $600 million in operating cash flows for the year. International markets were another bright spot, growing 7% on the year. In constant currency, China full-year net sales grew low 30%. The investments in talent and operational improvements we have made over the last several years are yielding results. Our Europe direct business grew low double-digit percent, reflecting strong execution across our product, brand and marketplace strategies. We also generated healthy growth in Japan, up low double-digit percent. In Canada, up mid-single-digit percent for the year. In the U.S., the marketplace proved more difficult. Consumer demand and traffic tapered off throughout the year. In the fourth quarter, a warm winter impacted cold-weather categories. I'd note that the onset of winter weather more recently has boosted sell-through. This helps us and our retail partners work through seasonal inventories and mitigate the impact of carryover inventory in future seasons. Overall, 2023 net sales increased 1% to $3.5 billion. In this muted growth environment, we experienced SG&A deleverage and our operating margin performance was well short of my personal goal for the business. Our balance sheet is strong. We exited the year with $765 million in cash and no debt. This provides resiliency during turbulent periods and allows us to continue to fund growth initiatives while returning capital to shareholders. In 2023, we repurchased $184 million in stock and paid out $73 million in dividends. Our commitment to returning capital to investors is evident in our track record. Since the beginning of 2018, we have repurchased over $1 billion in stock, which resulted in a 14% reduction in year-end shares outstanding. Over this time period, we also increased our quarterly dividend by 36% from $0.22 to $0.30. Looking ahead, we expect 2024 to be a challenging year. Retailers are placing orders cautiously and economic and geopolitical uncertainty remains high. Our spring and fall order books reflect these challenges. The impact of these headwinds is most pronounced in the US. We are projecting growth in many markets outside of North America. Our initial net sales outlook for '24 is a decline of 2% to 4%. We are seeking opportunities to maximize sales in this environment, and my personal goal is to exceed this outlook. Despite our cost containment actions to date, we expect the net sales decline to result in operating margin contraction. To mitigate further erosion in profitability and to improve the efficiency of our operations, we are implementing a multiyear profit improvement program. When the benefits of this program are combined with the cost savings that we anticipate from normalized inventory levels, we believe we can reach $125 million to $150 million in annualized savings by 2026. In our initial 2024 financial outlook, we are including approximately $75 million to $90 million in realized cost savings, net of severance and related costs of up to $5 million. We are focused on four areas of cost reduction and realignment. The first area of focus is operational cost savings. In addition to eliminating expenses associated with carrying excess inventory, we are optimizing our distribution network and driving cost efficiencies throughout our supply chain. We are also optimizing our technology cost structure, while increasing the throughput and agility of our digital technology teams. The second area of focus is organizational cost saving. Our overall headcount and personnel expenses have outpaced the growth of our business. We are executing a workforce reduction plan, primarily impacting our U.S. corporate teams. This represents at least a 3% to 5% reduction in our U.S. corporate personnel cost. This work will be done with respect and thoughtfulness, consistent with our core values, while taking the actions required to get back to sustainable growth. We expect the vast majority of these actions to be completed by the end of March. The third area of focus includes operating model improvements. We are streamlining decision rights and our ways of working to drive improvements in our operating efficiency and execution of strategic priorities. The last area of focus is indirect or non-inventory spending. We are focused on driving cost savings in this area, from our strategic sourcing and vendor rationalization outside of our supply chain. It's important to note that we are not cutting back on demand creation investments. At the same time, we believe there is an opportunity to optimize the efficiency of our marketing spend to drive greater returns. Steps are being taken to amplify the impact of this spending. We anticipate these cost savings will ramp up over the course of '24 and '25 with the full benefit being realized in 2026. This profit improvement program is an integral component of our goal to restore operating margins to a low teens percent rate. We have achieved this level of operating margin performance before, and we are confident it's achievable again. I will now review fourth-quarter financial results. Net sales were at the low end of our guidance range and operating income was below plan, reflecting the compounding effects of a difficult U.S. environment and a warm winter. Overall, net sales decreased 9% year-over-year to $1.1 billion. The decline was primarily driven by our wholesale business, which declined 17%. On-time fall '23 shipments shifted a greater portion of sales into the third quarter this year, relative to last year. The impact of this timing shift was greater than $100 million in the fourth quarter when compared to the fourth quarter of last year. Direct-to-consumer net sales declined 4% with weakness concentrated in the U.S. Gross margin expanded 20 basis points as lower inbound freight costs and favorable channel mix more than offset promotional activity. SG&A expenses were essentially flat, as higher DTC expenses were offset by lower demand creation spending on lower net sales and incentive compensation expense. For the full year, our demand creation is a percent of sales increased slightly to 6% compared to 5.9% last year. We incurred a $25 million non-cash Prana impairment charge during the quarter, which impacted diluted earnings per share by $0.31. Diluted earnings per share in the quarter decreased 23% to $1.55. I will now review fourth-quarter year-over-year net sales growth by region. For this review, I'll reference constant currency growth rates. U.S. net sales decreased 12%. U.S. wholesale decreased high teen percent, primarily driven by on-time fall shipments, which shifted sales into the third quarter relative to last year. U.S. DTC net sales decreased high single-digit percent. Across both brick-and-mortar and e-commerce, softer consumer traffic and weather weighed on results. Our DTC business performed well during peak sales windows like Black Friday and Cyber Monday but fell off during non-peak periods. Brick-and-mortar was relatively flat driven by the contribution from new stores opened over the last year, as well as incremental sales from temporary Claris locations. U.S. e-commerce net sales were down high teens percent; darrell.com was particularly hard hit in the fourth quarter as shifting consumer trends coupled with warm weather impacted demand. Latin America and Asia Pacific region or LAAP net sales increased 7%. China net sales increased high teens percent led by strong DTC performance. The team drove e-commerce growth across several platforms during the key double 11 holiday period. Transit, our premium China specific collection, performed well this season, highlighting our continued efforts to create localized products that resonate with Chinese consumers. Under the strategy of our new leadership team, we're now gaining traction in this important market. We expect China to again be one of the fastest growing parts of our business in 2024. Japan net sales increased mid-single-digit percent led by wholesale and to a lesser extent, e-commerce growth. During the quarter, we built on the momentum of our SAP Land Boot collection by expanding distribution to wholesale and e-commerce. The collection celebrates the sister city connection between Sapporo and Portland in a boot that combines style with performance. The SAP land was a key pillar of growth in the quarter and sell-through of the collection was exceptionally strong across all channels. Korea net sales declined low teens percent as we continue to reset the business. Our team in Korea is focused on building a sustainable growth model with several multi-year initiatives across talent, distribution, marketing, and product. We saw traction on our reset strategy in the fourth quarter through digital commerce expansion and authentic outdoor brand experiences like the Hike Society. LAAP distributor markets increased low 20%, reflecting earlier shipment of spring '24 orders. We have phenomenal distribution partners around the world that are operating over 400 full-price Columbia branded stores with many more planned for '24. In many of these markets, the Columbia brand is the leader in the outdoor market. Recently, our partners have opened some truly unique stores across Asia and the Americas. In November, a Columbia store opened in Namche, Nepal, which is a four-day trek from the nearest airport. This store positions Columbia at the gateway of Mount Everest, serving outdoor adventurers as their journey to base camp begins. In globally renowned fishing destinations, Puerto Vallarta and Lima, Peru, our distributor partners opened PFG retail concepts. These stores highlight our innovative products to adventure anglers from around the world. It's inspiring to see the power of the Columbia brand brought to life in so many unique destinations. Europe, Middle East, and Africa region, or EMEA, net sales decreased 7%. Europe direct net sales decreased low single-digit percent, driven by on-time fall 2023 wholesale shipments, which shifted sales into the third quarter relative to last year. This was largely offset by robust DTC growth. Europe Direct was one of our top-performing markets in 2023 and the Columbia brand is well-positioned in the marketplace. As we noted on the last conference call, we expect growth to decelerate in this market in '24, given economic and geopolitical pressures. Our EMEA distributor business declined low 20%, driven by on-time fall 2023 shipments, which shifted sales into the third quarter relative to last year. Recently, the ocean freight disruptions on the Red Sea have been in the news. We have experienced some impacts to the flow of spring '24 production, but our in-window delivery rates to wholesale customers are still well above 90% and cancellation exposure related to the delay is low as of right now. We will continue to monitor the situation closely. Canada net sales declined 29%, driven by on-time fall '23 shipments, which shifted sales into the third quarter relative to last year. This was partly offset by DTC growth. In Canada, we continue to invest in our strategic wholesale partners. In 2023, we opened several shop-in-shops with Mark's and Sport-X, and we have been pleased with their performance and expect to open more in 2024. Looking at performance by brand, Columbia brand net sales decreased 7% during the quarter and increased 2% on the year. While fourth-quarter weather improved, particularly in the U.S., Columbia's full-year growth reflects the strength of the brand in international markets. This fall, we continue to build momentum around Omni-Heat Infinity with an expanded assortment. Despite a warm winter, Omni-Heat Infinity showed strong growth on the year. Omni-Heat Infinity technology continues to draw praise for its lightweight performance and was included in several best-of lists from Outside Magazine and Men's Health. Of note, Columbia's new Arch Rock Double Wall Elite jacket won an important 2024 Travel Award from Good Housekeeping Magazine. On the partnership front, we launched our 8th Star Wars collaboration, which was one of our most exciting yet. The latest collection was inspired by the iconic rebel flight suit worn by Luke Skywalker in the original trilogy. The line generated significant brand heat and key styles sold out quickly. Marketing efforts for this collection included a video, featuring our NASCAR athlete, Bubba Wallace, and the original Luke Skywalker, Mark Hamill. The video went viral, earning millions of impressions on Columbia's social channels. As we look ahead, we forecast Columbia brand sales to be about flat in 2024; despite external pressures, we will not pull back on our innovation pipeline nor our demand creation spending rate. We're seeking opportunities to maximize sales despite retailer cautiousness. The Columbia Brand's vision is to be the number one outdoor brand in the world. We are embracing this growth mindset as we optimize our product, brand, and marketplace strategies. I'll spend the next few minutes highlighting the actions we're taking to accelerate Columbia's growth trajectory. In addition to serving existing customers with accessible outdoor essentials, we're focusing on bringing younger consumers into the brand. This target consumer craves the purpose-built high-performing products from brands they know and trust. Consumers trust the Columbia brand for its quality, value, and reliability. We want to further emphasize innovation, performance, and style. To do this, we're investing in products, channels, and brand experiences that fuel their active lifestyles. To reach these new consumers, our chief product officer Woody Blackford is focusing on reenergizing Columbia's product line. The foundation of our success is creating iconic products that are differentiated, functional, and innovative. In the coming seasons, we will be elevating innovation and style with new collections, as well as updates to our most iconic products. We're optimizing our color and style counts to focus our efforts on fewer, more powerful collections with clear purpose. I'm confident that we can continue delivering exceptional products to our core consumer while introducing new products that appeal to consumers seeking greater performance and style. In footwear, we're developing product franchises that propel long-term growth. Our innovation-led process that has fueled our success in apparel can be directly applied to footwear. We've developed classics like the Newton Ridge, which remain a top-selling style today. We've expanded our performance offerings with the facet and peak-free collections. We're introducing product platforms like Omnimax, which can be applied across several product categories, delivering versatility, scale, and unmatched comfort to consumers. We are also refreshing our most popular PFG styles and creating new ones that attract younger active consumers. PFG is the leading fishing apparel brand in the U.S. with dozens of iconic styles that have stood the test of time. We're focused on strengthening this position and extending it to reach new anglers around the world. On the marketing front, we're targeting a more balanced full-funnel approach, emphasizing mid-funnel investments to drive consideration from new consumers. I believe we can more efficiently deploy our advertising spend to capture additional share and drive growth. We've spoken about unlocking the marketplace of the future, a digitally-led omnichannel marketplace that elevates the consumer experience. We want columbia.com to be the best expression of the brand, highlighting our latest products and innovations with enriched brand storytelling. We want every consumer, even those who do not make a purchase to come away with a positive marketing message about Columbia's differentiated innovation and brand heritage. We're investing in our online consumer experience with an enhanced membership program and a more seamless shopping experience, including improved landing pages, product discovery, and search capabilities. I also believe our DTC bricks-and-mortar fleet can serve core consumers as well as strengthening brand perception by delivering the best brand experience possible. We are focused on enhancing our assortments and in-store presentations to tell better brand stories and to drive sales. From a wholesale marketplace perspective, we are focused on elevating our product assortment and enhancing our in-store retail presentations. We are working closely with our best-in-class strategic partners to bring new consumers to the brand. As we differentiate the marketplace, we will work closely with strategic retail partners to bring new collections to the consumer, led by innovation and style. Shifting to our emerging brands. In November, we announced Cory Long as our new SOREL Brand President. Cory is a veteran of the footwear and apparel industry with leadership experience across an array of growth brands. His leadership and consumer champion mindset will be key in fueling the next era of SOREL growth. SOREL brand net sales decreased 18% in the quarter and 3% on the year. In the fourth quarter, shifting consumer trends coupled with weather impacted demand. Weak sell-through performance this season is weighing on wholesale orders. As a result, we expect 2024 to be a challenging year with net sales forecast to decline approximately 20%. When we acquired SOREL over 20 years ago, it was a men's utility boot brand with minimal sales. Since then, the brand has successfully evolved into a women's led footwear brand with hundreds of millions in annual sales. The next phase in the brand embraces SOREL's heritage and the opportunity to serve all consumers globally by bringing the most style in the outdoors and the most outdoors in style. The team is thoughtfully refining the product line and marketing strategies to accelerate growth in 2025 and beyond. I remain confident SOREL has meaningful long-term growth potential. Mountain Hardwear net sales decreased 11% in the fourth quarter and 7% on the year. The decline in the quarter was driven by lower fall '23 wholesale shipments, partially offset by DTC growth. Despite a challenging sales environment, I'm confident Mountain Hardwear's product line and brand positioning are on track. The brand won two Coveted ISPO Awards in the 4th quarter for its new Alpine RT Pack and Spector Sleeping Bag. In 2024, we have the opportunity to further elevate its presentation in e-commerce and with strategic wholesale partners. Mountain Hardwear net sales are forecast to increase mid-single-digit percent in 2024. PrAna net sales decreased 29% in the quarter and 21% on the year. The PrAna team remains focused on repositioning the brand and unlocking its growth potential. They have made great progress reducing excess inventory and strengthening the brand's product and marketing strategies for future seasons. We anticipate modest growth in 2024, weighted towards the second half of the year, as we stabilize the business and lay the foundation for growth. I'll review our 2024 financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to these statements. For the full year, we expect net sales to decline in the range of 2% to 4%. Gross margin is expected to expand approximately 100 basis points to 150 basis points to 50.6% to 51.1%. The improvement in gross margin is primarily driven by improved inventory health, favorable product costs, and channel mix. SG&A is expected to grow in '24, driven by higher DTC incentive compensation and enterprise technology expenses, partially offset by lower supply chain costs and the impact of our cost reduction actions. Based on the projected decline in net sales and SG&A growth, operating margin is expected to contract between 50 basis points and 130 basis points to 7.6% to 8.4%. We forecast diluted earnings per share to be in the range of $3.45 to $3.85. Despite the earnings decline, we expect strong operating cash flow of at least $300 million in the year. Before answering your questions, I'd like to welcome Charlie Denson to our Board of Directors. Charlie's a veteran of the industry, having served as the president of the Nike brand for 13 years. His product and marketing expertise will be immensely valuable as we look to re-accelerate the business. Overall, I'm confident in our team, our strategies, and our ability to achieve the significant long-term growth opportunities we see across the business. We're investing in our strategic priorities to accelerate profitable growth, create iconic products that are differentiated, functional, and innovative, drive brand engagement with increased focus on demand creation investments, enhance consumer experience by investing in capabilities to delight and retain consumers, amplify marketplace excellence that is digitally-led omnichannel and global, and empower talent that's driven by our core values. That concludes my prepared remarks. We welcome your questions for the remainder of the hour.

Operator, could you help us with that? Our first question comes from Bob Drbul from Guggenheim. Bob, please go ahead.

So, Tim, two questions for you. The first one is, when you look at your full-year projections how much of the order book on the wholesale side is complete at this point? And then the second point around sort of the U.S. market is, could you just comment on where you think the channel is, especially with some of the more recent weather that have been positive over the last month or so?

Certainly, as relates to our order book, I wouldn't say in the range of high eighties to 90%. It's a focus for the company and we will complete everything by the end of March, something in that range, where we have a full complete view. Remember, we take orders and cancels every day and so we are going to continue to focus on building the book stronger as we get further into the market. As it relates to the USA market conditions, we think that they have improved substantially since the first of the year. Our DTC business has been incredibly successful and I know that our retailers have had great success liquidating major products after the first of the year. I'm expecting that it's going to be a reasonably good marketplace to sell into for fall 2024.

Got it. And then, if I could just follow-up on China. Can you expand a little bit more just in terms of the success that you are seeing, the encouraging results in China and the outlook that you talked about?

Sure. Remember, we have been operating in China for many, many years, both through a distributor and then as a joint venture and then as our own business. We really underperformed historically there, I would say, in the last several years. Our new team, we call it our new team, Pierre Leon, who is a veteran of the industry has been focused on that market and we are just now seeing some of the key results. He has built a great organization, which is highly focused on localizing the product and engaging with not only the consumers there but some of the large motor and retail operations. Our expectations are that, that business is going to lead the geographies for us and be very, very successful over time. It's got great metrics right now.

The next question comes from Laurent Vasilescu with BNP. Laurent, please proceed.

Thank you very much for taking my question. I want to ask a couple of questions here. Last quarter, the entire Q&A was focused on PFAS. I didn't hear anything about PFAS in the prepared remarks. I was just curious to know, where do we stand with that from a legislative standpoint, from an inventory standpoint? Do you think you will be able to clear through that, when it comes to the New York and California deadlines for 2025?

Yes. The reason we mentioned is we are well-organized and controlled within our own inventories. We have a modest amount of inventory of PFAS remaining to be liquidated, which will easily be taken care of during the year. As it relates to legislation in other jurisdictions other than California and New York, there's been noise around the system, the globe frankly on this topic. But there are no other areas that we know of right now that will be anywhere near the deadlines of the California and New York offices. I think we can talk about the impact of the threat on our retailers, and I think that's been part of the issue, where we have put a damper in confidence from our retail partners, excuse me.

Okay. Very helpful, Tim. Maybe, Jim, a question for you. I think in your CFO commentary, you talked about expected benefits of $75 million to $90 million and profit improvement across gross profit in SG&A. Maybe can you just unpack that a little bit more? How much of it is coming through gross profit versus SG&A expenses and how do we think about that cadence over the course of the year? First half, second half?

As it relates to the breakdown in terms of how to think about it, between cost of goods sold and SG&A approximately $20 million, I'll speak to the high end of the range, that $75 million to $90 million on the high end of the range. The cost of goods sold components about $20 million, and that's comprised of freight optimization work that our teams been working on as well as packaging savings. And we're well long in terms of the execution in lining those savings up. The balance is in SG&A and what I would say about that is 60% of that relates to the normalization of our inventory. And you'll recall that we incurred pretty heavy inventory carrying costs in '23 related to distribution, third-party logistics, and termination-related costs. So, this is the recovery of the vast majority of that. And then there's another $30 million or $40 million rather of savings that are tied up in operational cost savings across our business, as well as some organizational cost savings. Tim touched on that does include unfortunately headcount reductions and there's a component of indirect spend. So that really breaks it down in terms of being able to quantify that over the course of the year on a quarterly basis. That'd be tough to do. Much of the execution around this we're targeting have done late in Q1, and so you'd expect it to be Q2 through the balance of the year.

And just one last question, Jim. There have been many questions about the Red Sea throughout December and January. I understand that currently, it's primarily a logistics issue due to a two-week delay. However, I'm curious about the spot rates, which have increased significantly compared to November, and the potential surcharges. Could you explain the impact if these rates remain at their current levels over the next two quarters? Thank you.

Well, we can speak to thus far is we've got long-term contracts in place with certain of our ocean carriers. And to date, we have not been incurring by and large those spot rates that are in the market, nor are we incurring the surcharges. So thus far, we don't anticipate that having a meaningful impact on our business.

Okay. Thanks so much for taking my questions.

The next question comes from Abbie Zvejnieks with Piper Sandler. Please proceed.

In regard to the gross margin growth for the year, I understand the guidance for the first half. Could you explain what gives you confidence in the growth for the second half? Is the PAS issue expected to lead to more promotional activity for that product as suggested in the guidance? Also, how do you plan to approach the footwear business at Columbia for this year? Thank you.

Yeah, I'll touch on the first part of that and then pass it over to Tim as it relates to the footwear part of the question. As it pertains to the gross margin, I think keep in mind the single biggest driver when you consider the year in its entirety in the gross margin expansion that we've got planned, we're in much healthier shape in terms of the underlying quality of our inventory throughout 2023 and we are working through a fair amount of excess inventory, the overall assortment of what we will have within our business across our D2C business in our retail stores, themselves will be a better assortment. That gives us some of the gives us that confidence in terms of what you are seeing in the gross margin.

As it relates to the Columbia footwear, Columbia has got a heavy presence in winter footwear as well. Although, we do have a new set of products launching in spring '24 called Omni-Max, which is a full contingency of platforms including uppers and shared mid soles and outsoles, which has been very well received. And then as it relates to our international business, the footwear component of our international business is much larger. We have a lot of confidence that we have the right approach to the business and we will continue to invest in that area as well.

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

Thanks. It's Tracy Kogan filling in for Paul. I had two questions. The first, I was wondering if your first quarter guidance contemplates the improvement in performance you have been seeing in January or if it's more based on what you were seeing in fourth quarter? And then I was hoping you could talk more about the U.S. DTC channel and what you attribute the difference in performance in e-commerce and bricks-and-mortar to in the fourth quarter? Thank you.

Yes. Tracy, as it relates to the first quarter and the outlook that we provided, certainly January got off to a brisk start within our B2C business from a growth standpoint and we have seen the same thing as it relates to the wholesale sell-through within our wholesale distribution. Those updates or that impact on the business has been updated in our Q1 outlook. We did build the overall trend for the quarter, based on what we were seeing in the fourth quarter. So, we have adjusted January, but we have been a bit conservative, as you think about the balance of the quarter, just knowing how challenging marketplace conditions were in Q4. As it relates to the other part of your question on Q4 and our retail business...

Yes. I think we are seeing in our business as well as our wholesale partners that bricks-and-mortar businesses tend to do better today than the digital businesses. We see a move for the consumer to move closer to that. We see and feel it as a coach doing digital. And then as it relates to our own e-com business, a portion of the weakness is our structured move away from highly promotional events to have the brand be better representative at full price in our own e-comm business. And we talked during the period remarks about how we're planning to focus on the food showcase for the brand, but we would expect over time to have less promotional activity.

The next question comes from John Kernan with TD Cowen. Please proceed.

This is Krista Zuber on for John. Just sort of more of a big picture question, if I could, on the long-term operating margin target. I think, Tim, you said you're now sort of targeting a low teens operating margin, kind of how do you see the pathway towards that over sort of a timeframe developing from here? And I have one follow-up.

Well, clearly there has to be revenue enhancements. So, I mean that we're expecting that the investments we're making during this period and even the prior year will be extended and will yield revenue growth. This is what's going to be important to the business. We see the kinds of revenue growth that we're excited about internationally. We need to get that kind of growth domestically as well. So, I'm confident that we can grow the operating margins back to those numbers. We've historically hit those numbers or greater as the company's history, as a public company. We'll have to be very mindful of our expenses, continue to manage those in a way that our investors are used to seeing us manage those.

And then just on the inventory basis, can you just give us a little sense of kind of what you're seeing in the wholesale channels with your key wholesale partners and sort of the expectation of where you see inventory leveling out given all your plans for reorganization restructuring in fiscal ‘24.

Well, we saw significant conservatism in our wholesale partners purchasing patterns, not only in preparation for fall '24 but also in preparation for spring '24, where there was a lot of noise about the PAS, etc. So, I think the purchasing is been made by our retail partners, excuse wholesale partners, has been on the conservative side. We're prepared to help a bit with inventory that will be available, but we're not going to take risks on inventory to satisfy anything that they've forgotten to purchase or purchase them conservatively. So, my expectations are that the inventories at retail will be quite produced and will be in a much healthier position.

And I think, Krista, just to put that in context, when we look at where retailers inventory levels are in the channel currently, this is specific to the US for the Columbia and the SOREL brands inventory, the channel's actually down year on year. So, it gives you some sense for we believe it to be quite healthy despite the fact that retailers are being awfully cautious as, as Tim's touched on.

The next question comes from Alex Perry with Bank of America. Please proceed.

Hi, thanks for taking my question. I just wanted to ask about the overall promotional environment. I guess how should we think about the promo environment right now compared to last year? And then Jim, how do we square that away with your comments? That inventory seems to be in a much healthier place compared to last year? Thank you.

Well, I can speak, the company's promotional activities have moderated, certainly, as I said earlier in the e-com space. We can be in a better position with the brands held in our most visible environment. I would expect that as inventories moderate across the channel that you are going to see much less promotional activity. The question depends on the particular retailer and what their own financial, fiscal health is, but I think in general, you will see less promotional activity.

And that's by and large Alex, that was reflected in our outlook as well. As our inventory is cleaner, as the retailer's inventory is clean, that's more or less reflected I think in the front part of the year Q1. Certainly, they are working to clean up remaining inventory that's coming out of the fall season. There are some promotions out there. But as Tim touched on, increasingly as we go throughout the year and that further normalizes and it's healthy, that should be a net positive to how we are thinking about gross margin.

The next question comes from Mauricio Serna with UBS. Please proceed.

Great. Good afternoon. Thanks for taking our question. Maybe just thinking about the sales guidance from that 2% to 4% decline, what does that imply or the underlying growth of the outdoor category? Any difference that you are seeing between apparel and footwear? And maybe, is there like any impact that you could attribute to your efforts or your initiatives to reduce the PFAS product that is talking that's happening because of that?

Yes. Our basic underlying products have not changed. We have merely changed the chemistry that's applied to the product to a chemical that has equal performance, but no PFAS. I think there is frankly some moderation in demand on outdoor products, certainly in the U.S. So, we are seeing that, but at the end of the day, balance sheet matters. When there is a moderation in terms of total demand that's going to impact less financially capable companies more quickly than it will us.

Got it. And then just a quick follow-up on the gross margin. I see like the cadence is like some 70 basis point to 110 basis point expansion first quarter. And then the first half is like slightly up. So, I guess that implies some contraction in the second quarter. Just wanted to understand what's behind that. And very lastly, two quick follow-up on the temporary outlet stores. I mean, how does that work in terms of like, how long are they supposed to be open, given they are called temporary and shouldn't those impact your gross margin because of, I guess, like they tend to be more promotional? Thanks.

Let me talk about the temporary outlet stores first and maybe last Jim to talk a little bit gross margin topic. When we knew at the beginning of last year or maybe even the last part of the prior year that we had too much inventory, there were two strategies that we took to liquidate the inventory. One was to approach the typical vendors that would buy this kind of stuff T.J. Maxx and etc. that we have a long history with. And there was so much inventory around, frankly, that it became much clearer that we could clear these inventories through our own temporary stores that we could open them profitably, which we have been able to do. So, we're going to maintain the stores as long as it's necessary to complete the final liquidation of the excess inventory. And then we'll take, we'll analyze how many of them ultimately end up being kept, but by far the majority of them will be likely closed.

We expect greater gross margin expansion in the first quarter compared to the first half of the year. Throughout the first quarter, we still anticipate lower inbound freight costs, which will continue into the first quarter. We’ve seen about a 300 basis points benefit in the second through fourth quarters of 2023, and that trend will continue into the first quarter. However, there is an offset as we work through some of our inventory liquidation efforts. Additionally, in the second quarter of last year, we had some favorable inventory obsolescence provisions, which will be a tough comparison. It's also worth noting that our distributor business, from a growth perspective, has a lower gross margin, which will affect our results in the first quarter, particularly in the second quarter.

We have no additional questions at this time. I would like to hand the call back to management for any final comments.

Thank you, operator. This is Tim. So, I just want to point out that I'm personally very disappointed with the results we provided today. Our global team is focused on returning and surpassing the levels of growth and profitability that we've historically produced. So, we look forward to talking to you next quarter about how well we're doing on that plan. Thank you.

Thank you. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.