Good afternoon, everyone, and welcome to Columbia Sportswear's Second Quarter 2024 Financial Results. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Andrew Burns. Sir, the floor is yours.

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 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 don't undertake any duty to update any of the forward-looking statements after the date of the 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 in the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a 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 pleased to report second quarter results were generally in line with guidance. We're working to maximize sales in a challenging U.S. marketplace characterized by slow consumer demand and cautious retailers. Outside the U.S., we're experiencing strong demand for our products in most international markets, including China and our Europe-direct business. Through the first half of the year, we've made meaningful progress on our top line priorities. Inventory exit in the quarter was down 29% year-over-year, reflecting substantial progress in our inventory reduction efforts. The Profit Improvement Program is on track to deliver between $75 million and $90 million in cost savings this year. We're reducing expenses associated with carrying excess inventory and driving cost reductions in focused areas of the business. We have generated strong operating cash flow of over $100 million through the first half of the year, enabling a meaningful return of capital to shareholders. We're on track to generate over $350 million in operating cash flow this year. With much of the cost containment and inventory reduction actions well underway, our focus is on returning to growth. For Columbia, we're building strategy to bring new consumers into the brand through enhancing our product line and marketing. Our efforts to stabilize SOREL and lay the foundation for its next phase of growth are in motion. prAna's turnaround efforts have begun with signs that the brand is on a path to return to growth in the seasons ahead. Mountain Hard Wear is benefiting from its recent brand refresh and is on track to deliver growth this year. Our fortress balance sheet remains a competitive advantage and enables us to take a thoughtful approach to unlocking the long-term growth and profit improvement opportunities we see across the business. We exited the quarter with cash and short-term investments of over $710 million and no debt. As we begin the second half of the year, our fall '24 order book supports sequential improvement in wholesale sales with the potential for overall sales to return to growth by the fourth quarter. Given our year-to-date performance and the current trends that we see across the business, we are reiterating our full year net sales and diluted earnings per share guidance. Overall, we remain confident that our fortress balance sheet, differentiated brand portfolio, and strategies position us to reaccelerate growth and capture market share over time. I will now review our second quarter financial performance. I'd like to remind everyone that the second quarter is our lowest volume sales quarter. Small shifts in the timing of shipments and expenses can have a material impact on reported results. Net sales of $570 million decreased 8% year-over-year and were within our guidance range. Gross margin contracted 270 basis points, slightly below plan as we made efforts to spur demand and reduce inventory in the U.S. SG&A expenses decreased 3%, primarily reflecting lower supply chain expenses. SG&A was below plan in the quarter, resulting in our operating loss coming in slightly better than the guidance range. Our second quarter loss per share of $0.20 compares to diluted earnings per share of $0.14 in the second quarter of 2023. Looking at net sales by geography, U.S. net sales decreased 15%, primarily driven by a high 20% decrease in U.S. wholesale. The combination of lower spring '24 shipments and ongoing retailer cautiousness impacted results. While wholesale sell-through was trending down mid-single digit percentage, in part due to lower shipments, Columbia brand channel inventories are well below prior seasons. We're well positioned to exit the season with lean channel inventories. U.S. DTC net sales decreased low-single digit percentage. Brick and mortar was up mid-single digit percentage driven by the contribution from temporary clearance locations and new permanent stores opened over the last year. U.S. e-commerce net sales were down high-teens percentage, a challenging e-commerce environment for traditional outdoor brands, coupled with efforts to deemphasize promotions on columbia.com weighed on performance. As we have said on past calls, our goal is to establish columbia.com as the best expression of the brand, ensuring that visitors to the site see our latest products and innovations with enriched brand storytelling. From our review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency rates to illustrate underlying trends in each market. Latin America Asia Pacific region, or LAAP, net sales increased 13%. China net sales increased mid-teens percentage led by robust e-commerce growth. Highlights in the quarter include a successful 618 event and continued growth with TikTok, which remains one of our fastest growing platforms. While e-commerce performance is leading, we are seeing strong performance in wholesale and DTC brick and mortar. Overall, the China marketplace is healthy, which is translating to increased store productivity, lower discounting, and leaner inventory levels. Our success in this competitive market is fueled by localized product and marketing investments rooted in our brand's deep heritage and innovation. Our brand activations in the quarter highlight the team's focus on cultural relevance and consumer connections. Our summer hike brand campaign featured a video with popular outdoor enthusiasts that garnered millions of views and even more impressions on social sites. We validated PFG's global appeal with a successful TikTok campaign in cooperation with a top fishing influencer on the platform. We have several more marketing activations planned for the balance of this year in this important market. We continue to anticipate that China will be one of our fastest-growing markets in 2024. Japan net sales increased high single-digit percentage. The continued increase in international tourism more than offset softer domestic spending. This summer, we activated several marketing campaigns throughout the season, including hike, travel, rainwear, and fishing activations. Beginning this month, we'll be sponsoring a short-form TV program called Life in the Outdoors, highlighting Columbia innovations and our connection to the outdoors. This program will air throughout the fall season, reaching millions of consumers across the greater Tokyo area. Korea net sales declined low teens percentage. LAAP distributor markets were up high 30%, primarily reflecting earlier shipments of increased fall '24 orders. Europe, Middle East, and Africa region, or EMEA, net sales increased 3%. Europe-direct net sales increased low double-digit percentage, led by robust DTC growth. I recently had the opportunity to visit Europe and meet with several leaders of our largest customers. It's clear that we have a tremendous opportunity to build bigger businesses with these strategic partners. Our teams in Europe are doing an exceptional job creating Columbia brand visibility and relevance in the marketplace. This summer, our brand efforts focused on generating momentum in the hike category through a variety of marketing efforts and grassroots events. From our Get Hiked marketing campaign to the Columbia Hike Society and an exclusive partnership with Megamarsch, we are strengthening Columbia's presence in this important geography. Our Europe-direct business remains on track to be one of our fastest-growing markets this year. Our EMEA distributor business decreased low single-digit percentage. Canada net sales decreased 4% as lower wholesale sales were partially offset by DTC growth. Columbia remains well positioned in Canada with high brand awareness and consumer trust. Looking at performance by brand, Columbia brand net sales decreased 5%, primarily reflecting a challenging U.S. marketplace, partially offset by healthy trends in many international markets. At the end of June, we launched our revamped U.S. Columbia Greater Rewards loyalty program with several exciting new features aimed at enhancing consumer benefits and engagement. Members now enjoy new rewards, personalized offers tailored to their preferences, and the ability to earn points on purchases. Spending over $300 annually earns members a newly launched titanium status which includes additional perks like early access to exclusive events and products. Columbia Greater Rewards program members already represent the majority of U.S. DTC sales with over 5 million active users who have made a purchase in the last year. These valuable Columbia customers typically spend more and purchase more frequently than non-members. With new and enhanced features, as well as our continued expansion of benefits, I believe we will be able to further increase the impact of this important program over time. On the innovation front, Columbia brand's cooling technologies and sun protection products are key differentiators. This spring, we introduced our latest cooling technology, Omni-Shade Broad Spectrum Air Flow, which provides lightweight breathable UV protection. During the quarter, several publications highlighted our unique tooling technologies, including Forbes' list of Best Sun Shirts and Sport Fishing's Best Father Day gifts for Fishermen. Several Columbia products were also highlighted in an ABC News article on the best sun protective clothing to keep your skin safe. This spring, we also launched our new Omni-MAX footwear system, which combines versatile cushioning, enhanced stability, and increased traction. Omni-MAX is featured in several key footwear styles and has been recognized by several top media outlets and reviewers. Women's Health Magazine awarded the shoe as a best new sneaker of '24, and Outdoor Life named our Columbia PFG Castback as the best boat shoe in its annual fishing footwear reviews. Omni-MAX will be an important component of our footwear growth strategy in the season ahead. As we look forward to fall, we're building on the success of Omni-Heat Infinity with more styles and a global marketing campaign. We're expanding the Omni-Heat family of warming technologies with the addition of Omni-Heat Arctic. This new biomimicry insulation system is inspired by how polar bears keep warm in extreme conditions. Omni-Heat Arctic starts with a translucent outer layer that lets solar energy in. Heat is then transmitted to an insulation layer close to the body for maximum warmth mimicking a polar bear's warmth protection system. The result is lightweight, highly efficient warmth, boosted by solar power. Shifting to our emerging brands, Mountain Hard Wear net sales increased 2% as DTC growth was partially offset by lower wholesale net sales. During the quarter, Mountain Hard Wear activated its Be Sun Wise marketing campaign, which highlights key sun protective products and their benefits. By partnering with online sports community Strava and leveraging content from athletes, influencers, and media outlets, Mountain Hard Wear was able to increase visibility and bring new consumers into the brand. Looking at the second half of the year, Mountain Hard Wear has several brand and product activations, validating its position as the premier outdoor apparel and equipment brand. These include expanding the iconic Ghost Whisperer collection and reigniting their snow sports offering. I'm also excited for the next month when USA Climbing team member and Mountain Hard Wear athlete Jesse Grupper will be competing for gold in Paris. Good luck, Jesse. prAna net sales decreased 21% in the quarter with declines across wholesale and DTC. I'm confident that prAna's new leadership team has strengthened the brand's talent, product, and marketing strategies. While it's not evident in second quarter results, prAna's revitalization is apparent in future season orders, which suggests a return to growth. SOREL brand net sales decreased 44% with challenging demand for spring '24 products across wholesale and DTC. As a reminder, the second quarter is SOREL's lowest volume quarter typically representing about 10% of full year net sales. New leadership is focused on stabilizing business trends while revitalizing the brand to drive long-term sustainable growth. This evolution will take time, but I remain confident in SOREL's future. I'll now discuss 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. Looking across the global marketplace, there are many external risks and uncertainties. Outdoor Industry and U.S. consumer headwinds, geopolitical conflicts, supply chain disruptions, and upcoming elections in many of our major markets. These factors, among others, have the potential to impact consumer demand and our operations. We continue to monitor disruptions in the Red Sea. At this time, delays appear manageable and the vast majority of our product line is expected to be delivered on time and in full. We have also seen a spike in spot pricing for ocean freight in recent months. We utilized contracted pricing for the bulk of our ocean freight which minimizes our exposure to spot pricing. With that said, we have noted an increase in peak season surcharges and our guidance incorporates our best estimate of the impact of these supply chain risks for the balance of the year. We are reiterating our net sales outlook of a 2% to 4% decline. While there are modest changes across our portfolio, our overall sales expectations have not meaningfully changed. Gross margin is now expected to expand 40 to 60 basis points to 50% to 50.2%. This is below our prior guidance reflecting efforts to spur demand and opportunistically work down inventory levels. SG&A is expected to be between 42% to 43% of net sales leading to an operating margin of 7.7% to 8.4%. We are reiterating our diluted earnings per share outlook of $3.65 to $4.05. We continue to expect strong operating cash flows of at least $350 million in the year. While it's too early to comment on 2025 growth prospects, I'd like to share that early indications from our spring '25 wholesale order book suggest a return to growth in our wholesale business in the first half of '25. Looking beyond spring '25, we're encouraged with the sharpened strategic focus and growth plans for each of our brands. For Columbia, we're focused on bringing younger active consumers into the brand through an enhanced product line that further emphasizes innovation, performance, and style. We also see the opportunity to elevate the brand's presentation across channels. We know that when we target the right consumers with our innovative products, we win in the marketplace. In summary, I'm confident we have the right strategies in place to unlock the significant 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 focused demand creation and investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that's digitally led, omnichannel, and global and empower talent that's driven by one of our core values. That concludes my prepared remarks. We welcome your questions for the remainder of the hour. Operator, can you help us with that?

Certainly. Everyone at this time, we'll be conducting a question-and-answer session. Your first question is coming from Bob Drbul from Guggenheim Securities. Your line is live.

Hi, good afternoon. Tim, I was wondering if you can expand upon your, I guess, the outlook for the rest of the year, the sequential improvement in the order book, the possibility of a return to growth in Q4 like what would it take for you to return to growth in Q4? And is that specifically U.S. returning to growth? And then on the early read for spring '25 can you expand a bit more? Is it continued growth in Europe and a return to wholesale growth in spring? Just wondering if you can just expand a bit on some of those comments?

Yes, certainly. Well today our order book is in good shape for the back half of the year. So we don't expect big changes in that book to give us what we're expecting in terms of our volumes for the balance of the year. If we compare ourselves to last year which was incredibly warm and our focus last year was on liquidating inventories. We just had too much. So we think this year we're in a better position from an inventory perspective, quality of inventory, and our expectations are for a more normal year, especially in the U.S. So I don't know if we can get all the way to growth for the full year based on our Q4 estimates for now, but we're certainly expecting to have an improved Q4 against last year. And then as it relates to spring '25, we've got a high percentage of our order book, something in the neighborhood of 90% already in hand. And that indicates that we're going to have growth for the year including growth in North American wholesale.

Got it. Okay. Can you provide more details about the freight situation based on what you've observed recently? You mentioned some information earlier, but I'd like to know about any developments from the past few months or weeks and how they may have affected your business, if at all.

Certainly. Well, we've noted the impact on deliveries as it relates to the Red Sea issue. And those issues are contemplated in our guidance that we gave you today. As it relates to rates, we have seen some pressure on rates. We have contracts in place with high-quality curators that are keeping their contracts. Our expectations are that the impact of rate changes as it relates to the back half of the year are contemplated in our guidance. So we're not expecting big changes. But based on today we think we're in good shape. We've got a fairly good percentage of our merchandise already delivered into our warehouses. And freight will be probably a constant issue for the balance of this year, especially with the continuing Red Sea issue.

Great. Thanks, Tim.

Thank you. Your next question is coming from Laurent Vasilescu from BNP Paribas. Your line is live.

Good afternoon. Thank you so much for taking my question. I wanted to ask about the Red Sea. We've heard a number of retailers talk about the potential delays of inventories. I don't know, Tim, if you saw a shift between quarters, between 2Q into 3Q. And if that's going to potentially trickle through into the fourth quarter?

Yes, Laurent, this is Jim speaking. We have noticed a slight shift due to some delays related to the Red Sea. The delays we are experiencing are in the range of one to two weeks, so they are not particularly significant. Earlier this year, we projected that revenues would be fairly steady, but you will see a slight shift from the third quarter to the fourth quarter in the outlook we are providing today, which reflects some of these supply chain delays. I also want to point out that despite these delays, our on-time delivery percentages remain very high, and we believe we will meet our market launch timelines with our distribution.

Okay. That's very helpful, Jim. And Tim, I appreciate you commenting around spring order books that they're going to grow potentially for next year or at least they're up year-over-year from now. Can you maybe comment about to Bob's question, I think you answered from a geo perspective? But can you kind of give us some commentary around how are you thinking about the brand early - it's early for spring, but I know SOREL had a soft year, but with new leadership, how do we think about SOREL coming back to growth and potentially for the Columbia brand as well for spring 2025?

Certainly. Looking at spring 2024 and comparing it to prior periods, we placed a strong emphasis on ensuring that our customer base was aware of any apparel or footwear containing PFAS. Our main goal was to focus on cleanliness, and the order book for spring 2025 reflects a reload of those items to some degree. Globally, we experienced robust business in China and Europe, both significant markets, along with other international areas. We are optimistic about the growth of the Columbia brand for spring 2025. Regarding SOREL, we have new leadership in place. Historically, the brand has leaned heavily towards the fall season, and our objective is to enhance performance during the spring and summer months. While we've made progress, it's worth noting that Q2 typically accounts for about 10% of the brand’s annual sales. We recognize the need for improvement in several areas, but I see considerable investments aimed at enhancing business for the spring and summer seasons.

Laurent, maybe I'll just close on that. We still see it being down from the wholesale perspective in the first half of next year, certainly not to the extent that we've experienced here in the first half of '24, and then on both Mountain Hard Wear and prAna. We're still pleased to see nice growth coming from those two brands based on what we can see out of our order book currently.

Okay. Very helpful. If I could squeeze one more question on China. Obviously, lots of concerns around China like sportswear world now in the luxury world. It seems like outerwear continues to hold really well. I think China was up mid-teens. Maybe if you could comment about what you're seeing in the marketplace there would be very helpful. Thank you.

Certainly. Well, when we talk about China, it's against a business that was underperforming. So we've been able, with the teams that we have in place in China, to improve our business. And so we expect continued growth there, not only in our own stores and e-com, but also in wholesale. We're excited about the opportunities. It's a huge market and we think we'll do very well there.

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

Thank you. Your next question is coming from Alex Perry from Bank of America. Your line is live.

Hi, thanks for taking my question. I just wanted to follow up on an earlier line of question on the 4Q guide and the implied weighting there. What is driving that? Is that just easier comp in Red Sea delay? Or are you seeing different buying behavior from your wholesale partners, wanting to take inventory closer to need? Is there a slightly different D2C versus wholesale assumption there that would be great?

Sure. Well, no, no changes of any significance on the timing of deliveries from our wholesale partners. We do expect that the improved merchandise that we have available for these stores for the Columbia DTC stores against last year will be better and less liquidations. Last year was really a focus on profitable liquidation of the high inventories that we had. So that's the primary delta.

Yes. And I would just add, I mean, obviously, we're coming into the latter part of this year with much healthier inventory that Tim touched on. And then we planned the business for more normalized weather. Of course, when you look at the fourth quarter of last year, it was unseasonably warm, and there's no doubt that had some impact on consumer demand. So with a more normalized approach this year, coupled with the factors that Tim touched on, that's where we've projected some degree of growth in the fourth quarter.

Perfect. That's really helpful. And then just my follow-up is on the gross margins. Just the difference versus the prior guide. Can you just walk us through that a little bit more? Is it the freight surcharge? Is there a bit more promo sort of contemplated in there? Just anything there would be great.

Yes, certainly. The most significant driver of that, and we saw a part of this in the second quarter, was the need to spur a bit more demand and move through certain of our excess inventory and continue clearing that inventory. As a result, we were a bit more promotional and had more markdowns in our direct-to-consumer channel. So that's what drove the second quarter. And then in light of that, in terms of how we've looked at the back half of the year, we made a similar adjustment. I would say to a far lesser degree, it is a reflection of what we're seeing from an ocean freight standpoint. Certainly, to Tim's point, ocean freight rates are up. But with the contracts we've got in place, we've made certain assumptions regarding that including any type of surcharge that we might incur. We believe that we've got that adequately covered. But by and large, the change you're seeing in our gross margin outlook relates to just the competitive or promotional environment that we're operating in currently.

That's very helpful. Best of luck going forward.

Thank you. Your next question is coming from Mauricio Serna from UBS. Your line is live.

Great. I wanted to hear more details about the Europe business seems to be holding up pretty strongly. Could you talk a little bit more about what you're seeing there in demand for the category and how the brand is positioned maybe in key markets? And then on the temporary stores, any details on the performance in the quarter and contribution to the sales growth in the U.S.? That will be super helpful.

Yes. So my trip in Europe was the last week or so in June, I met with many of our biggest customers in Europe. I think you just have to think about the brand in the context of our historical underperformance in that market. So we have a team there that's focused on building the brand and you're seeing now the results of their significant efforts. I would say that the brand awareness level has moved north, north meaning better especially in the markets of France, Germany, and the U.K. where we're seeing terrific results. And we're seeing adoption by bigger customers in a larger way. So I would say a combination of all those things is including the fact that we're just getting much better business now. With the brand is really resonating with the European consumer. As it relates to the temp stores, which are almost exclusively in the U.S. We've opened those stores to help us to liquidate the inventories that the company accumulated during the pandemic. While they are not necessarily highly profitable stores, they're helping us to liquidate the inventories against a method that would otherwise produce much less operating margin. So the stores will be operated for a number of months until we believe we get the right size of our inventory, and then we'll be closing them.

And Mauricio, I just emphasize in the case of the European business, our direct-to-consumer business we've seen robust growth in that part of our business across both e-commerce and the brick-and-mortar side. And then with regard to your question on the temp stores in terms of the contribution, we will get down to the level of quarterly detail. But in terms of just the magnitude, when you think about the year with 46 stores we're currently operating out through the end of the year, we've estimated that will be at around 2% of consolidated sales. But to Tim's point, in terms of the operating margin contribution from these stores, it's there's really not much to speak of, but it's obviously a far better outcome or vehicle to liquidate inventory than the alternative going through a more distressed closeout channel.

Got it. And if I may just follow up very quickly on the guidance for the second half of the year. I mean, what kind of growth or yes, what kind of growth are you expecting or embedding in the U.S. wholesale business compared to the first half, which I think it was like down in the low 20s percentages?

Well, it's all reflective of what we're seeing in our wholesale order book. So our wholesale order book for the first half of the year was down below 20%. Our fall '24 wholesale order book on a worldwide basis gives us the indication that our wholesale business will be down mid-single-digit percent in the second half of the year. I believe our U.S. wholesale business is relatively on par with that overall consolidated look of things. It still gives you a picture, a sequential improvement, but we're still not quite back to the point of growth. There's the belief that we could maybe see some growth in the fourth quarter, but part of that is just going to be some shifts in timing with some of the shipments going out a little bit more in the fourth quarter.

Got it. And is it just because you have like the PFAS like materials already out? Or like how come there's a sequential improvement in the U.S. wholesale?

Well, we're expecting that the weather will be more normalized. And so that will give us some additional revenue, plus the composition of our own DTC stores last year was a very high percentage of liquidation merchandise and not necessarily an optimal merchandising mix. So that's improved this year. So our expectations are for the guidance that we've given you today, we're comfortable with that.

Yes. Mauricio, keep in mind with that order book in hand, the assumptions that we place on top of that are cancels, reorders, replenishment, and we've approached that similarly to what we would do in an average year. So I don't think we've been overly aggressive or overly conservative in our approach. We're taking the middle of the road approach to how we've planned the business.

Thanks, and congratulations on the results.

Thank you. Your next question is coming from John Kernan from TD Cowen. Your line is live.

Hi, this is Alex Douglas filling in for John. Thank you for taking our question. My question is about how we should project inventory dollars for the remainder of fiscal '24. Additionally, could you clarify the status of your inventory clearance measures? Have those been completely resolved, or do you expect any impact in Q3?

Let me give you a very high-level approach and Jim could modify that if necessary. But we think that we can get the business to 3 turns annually, which means we can run the business on a lot less inventory than we have been. The goal is to continue to liquidate inventories profitably to get ourselves in the right level of inventory to be in the area of 3 turns annually. So that's our goal, and we see a path towards that, which is based on a number of things, not the least of which is the automation that we put into the inventory management systems here.

Yes. I think just to add to that, with just being said, 3x turns. It's going to take us some time to do that. That's over the course of the next few years. I think if you look on a trailing 12-month basis, our turns are 2.2x. I would anticipate we are forecasting for that to improve. Over the course of the balance of this year, certainly, we'll be at 3x this year. Having said that, we continue to plan for our business to be down in inventory at the end of the year. So sequentially, you'll see the rate of decline in our inventory balance decrease, but we still anticipate increasing at the end of the year. And as it relates to clearance activity in the second half, we are in much healthier shape than we were a year ago. Hence, you see an improvement in our gross margins in the back half of this year. While at the same time, we do need to continue working through certain of the inventory that we have that remains on hand that add PFAS chemistry in it. So we'll continue to operate these temporary clearance stores and other means of being able to work through that inventory in the coming months.

That's very helpful. Thank you.

Your next question is from Jim Duffy from Stifel. Your line is live.

Thank you for taking my questions. A lot of cross currents and unique comparisons to consider. I'm curious based on what you're seeing in the DTC channel and with wholesale sell-throughs. Broadly speaking, are there any detectable changes in U.S. consumer behavior that you've seen in recent months or things which caused you to kind of second-guess the outlook for the back half of the year?

Well, we have a fairly good track record of being able to be highly efficient in our predictability. I guess I would say if there's an overall trend, it's that the consumers tend to be very cautious in their spending. It actually helps us in many respects because the values that we have in our merchandise are much greater than many of our competitors.

Okay. Tim, I wanted to ask about the current state of the North American outdoor channel. It has been a challenging area for many brands. Considering the market conditions, what do you see as the prospects for more normalized or stronger demand trends from this important channel?

Yes. It's difficult, Jim, to understand sometimes what's happening whether it's an impact of broader competitors across the marketplace or whether it's a reduction in demand for specifically outdoor products? Regardless of what the impact is on the reduced demand, we've got a balance sheet which allows us to make investments when others can't and to operate the business in a meaningfully different way than other competitors. Our expectations are that we're going to be the survivor and continue to grow, gaining market share based on our ability financially to make these investments.

Helpful. And last one for me. The early commentary on the spring order book, that's very encouraging. I think this is earlier than you typically offer perspective on orders. I'm curious like at this juncture, how much of that visibility in that spring order book do you have? How much of it's booked versus what you would think would be typical going into the actual spring season?

Yes, I think we're generally on par with where we have been historically. We wanted to make sure that investors knew that we have growth in our future. I think we're probably in the neighborhood of 90% booked on our order book.

That's 90% plus, Jim, which is pretty typical at this point in time.

Excellent. Well, thank you, guys.

Thank you. There are no further questions in the queue.

Well, thank you for listening in. We're expecting great things in the future, and there's lots of opportunity for the company. So thank you very much. We look forward to talking to you in about 90 days.

Thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.