Greetings. Welcome to the Columbia Sportswear Fourth Quarter 2024 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. You may begin.

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 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, 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 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. As we begin 2025, I'm encouraged by the continued momentum we see in our international business and the fact that we are returning to growth in North America. I'd like to thank our global workforce whose hard work and dedication allowed us to overcome challenges throughout the year. I'm proud of the many accomplishments our teams were able to achieve, including exiting the year with our inventories down 7%, and we are rapidly closing our temporary clearance locations. Inventories are healthy, supporting our outlook for gross margin expansion. Our Profit Improvement Program delivered $90 million in cost savings and we're actively pursuing additional ways to lower our cost structure. We also returned meaningful cash to shareholders with $318 million in share repurchases and around $70 million in dividends paid. We also maintained our fortress balance sheet, exiting the year with $815 million in cash and equivalents and no debt. While we made progress in many areas, our 2024 financial performance was short of my personal growth and profitability goals. Overall, 2024 net sales decreased 3% to $3.4 billion reflecting challenging marketplace conditions in North America. The net sales decline and ongoing cost pressures resulted in operating margin contraction and a decline in earnings. On the last call, we introduced the Columbia brands ACCELERATE Growth Strategy. This strategy is intended to elevate the brand and attract younger and more active consumers while continuing to serve existing customers with accessible outdoor essentials. During 2024, we laid the foundation for the ACCELERATE Growth Strategy including a refreshed marketing direction, enhanced consumer segmentation, and a new product construct. I'd like to provide some updates on the progress we're making. Our product teams are focused on creating products and driving growth with our targeted consumers who value innovation and style. For fall 2025, we're expanding our innovation-led offerings like our premium Titanium product line. We are also bringing new collections to market with elevated style like the amaze puff insulated jacket and rock pant. We are expanding our Omni-MAX footwear collection, which delivers consumers lightweight, ultra-comfortable performance. The Columbia brand is fun, irreverent, and authentic and our refreshed marketing strategy will bring this to life. You will begin to see the new brand voice in our fall marketing campaigns. To amplify our refreshed marketing, we are increasing our targeted demand creation spend to 6.5% of sales compared to 5.9% of sales in 2024. To activate the brand and product strategies, we will be elevating the brand storytelling and consumer experience across the marketplace. We're investing alongside our strategic retail partners to enhance in-store presentations. In our direct-to-consumer business, we've already begun to evolve columbia.com to be the best expression of the brand. In brick-and-mortar, we're opening a small number of branded stores in high traffic centers in North America. These new branded stores feature elevated product assortments that showcase Columbia's apparel and footwear innovations. These North American stores will join the hundreds of Columbia branded stores that raise the image of the brand in important international markets. Taken together, we're thoughtfully evolving how the Columbia brand is perceived by consumers and how we show up in the marketplace. We're being thoughtful about how, when, and where we utilize promotions across all channels and consumer segments. Overall, it's great to see the energy and alignment around the ACCELERATE Growth Strategy across the organization. I'm excited to bring it to life in the seasons ahead. Our initial 2025 net sales outlook contemplates modest growth in addition to Columbia brand growth; our outlook contemplates a return to growth for prAna and continued momentum at Mountain Hardwear. While we expect the SOREL business to remain down in the spring, efforts to reinvigorate the brand will be more evident in the fall. Our initial 2025 operating margin outlook contemplates similar performance compared to 2024, with healthy inventories entering the year. We anticipate less clearance activity and that will contribute to gross margin expansion. This is expected to be offset by SG&A deleverage resulting from demand creation investments and ongoing cost pressures. When we announced the profit improvement program last year, we targeted $125 million to $150 million in annual cost savings by 2026. This program has meaningfully slowed SG&A spending growth, but it has not been enough to align our cost structure with current sales levels. With this in mind, we're expanding the review of our cost structure as we pursue additional savings and enhanced profitability. It is too early to quantify the financial impact of this review and our outlook does not include additional cost savings or potential charges that may occur. We will update you on our efforts as our plans are formalized. Turning to fourth quarter financial performance, we were able to overcome a slow start to the winter season with strong December performance resulting in fourth quarter results within our guidance range. Net sales increased 3% year-over-year to $1.1 billion, driven by a 7% increase in wholesale net sales and 1% direct-to-consumer growth. Gross margin expanded 50 basis points to 51.1%, driven primarily by lower closeout sales at improved margins compared to elevated clearance activity in the prior year. SG&A expenses increased 6%, primarily reflecting higher incentive compensation and DTC expenses. This performance resulted in operating income and diluted earnings per share within our guidance range. Looking at net sales by geography, U.S. net sales decreased 1%. The U.S. wholesale business declined low-single-digit percent, reflecting our lower fall 2024 order book and challenging outdoor category trends. Even though sell-through was down year-over-year, our retail partners are exiting the season with clean inventory levels. This is helping to fuel our positive order book for both spring and fall. U.S. DTC net sales declined low-single-digit percent with lower e-commerce sales partially offset by modest brick-and-mortar growth. U.S. e-commerce net sales were down mid-single-digit percent, reflecting challenging market conditions, as well as lower planned promotional activity and a shift in digital marketing strategies on columbia.com. December trends significantly improved, as colder weather arrived, and we invested in marketing to spur demand. Brick-and-mortar net sales were up low-single-digit percent driven by the contribution from new stores and temporary clearance locations. With improved inventory health, we will be closing most of our clearance locations in the first half of the year. A small number will remain open as we assess their potential as permanent stores. For my review of fourth quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. Latin America, Asia-Pacific region or LAAP net sales increased 7%. China net sales increased mid-teens percent with healthy growth across wholesale and DTC. For the year, China grew over 20% in constant currency. The outdoor industry is experiencing a powerful growth trend in China fueled by growing consumer interest in outdoor activities and outdoor brands. We are capitalizing on this trend by connecting with consumers through meaningful brand activations, localized product collections, and a robust digital strategy. E-commerce was China's fastest growing channel in 2024. During the year, we expanded Columbia's TikTok platform, adding new stores for women and footwear. We had amazing brand activations during peak sales periods like Double 11 and participated in successful Super Brand Day events with both Tmall and TikTok. Columbia's premium transit product line designed specifically for Chinese consumers continues to perform incredibly well. To build on this momentum, we will further expand our localized product assortments in China this year. Across our product offerings, marketing activations, and marketplace strategies, we are working to create a more premium Columbia brand experience for Chinese consumers. We expect China to once again be our fastest growing market in 2025. Japan net sales increased mid-single-digit percent with continued strength in international tourism. Despite high inflation and sluggish domestic spending, our team in Japan continues to deliver growth through compelling localized product offers, unique marketing activations, and strong digital and in-store execution. Korea net sales decreased mid-single-digit percent in the quarter. 2024 was a challenging year in Korea, including macroeconomic headwinds and political unrest. Despite these challenges, the team made meaningful progress, resetting the marketplace and laying the foundation for future growth. In 2025, our team in Korea is focused on accelerating digital sales, revitalizing the DTC store fleet, and optimizing marketing investments. LAAP distributor markets were up low-double-digit percent primarily reflecting spring 2025 order growth. Europe, Middle East and Africa region or EMEA net sales increased 21%. Europe Direct net sales increased high-teens percent led by robust DTC growth. Europe Direct was a top-performing market in 2024. The European team is doing an exceptional job expanding our DTC businesses and growing wholesale sales with key strategic retail partners. Our EMEA distributor business increased over 30% primarily reflecting spring 2025 order growth. Canada net sales were up modestly in the quarter. The Columbia brand remains well-positioned in Canada and we forecast constant currency growth for this geography in 2025. Looking at fourth quarter performance by brand, Columbia net sales increased 6% this fall; our top innovation stories were Omni-Heat Infinity, our newest cold weather innovation Omni-Heat Arctic. These differentiated innovations and technologies were prominently featured by numerous media outlets. Columbia products were named in over 20 best of lists from top media outlets including Esquire, Men's Journal, Travel + Leisure, and SKI Magazine. Product awards and reviews from trusted editors validate and bring awareness to the innovation and value we deliver to consumers. Omni-Heat Infinity remained one of the fastest growing parts of our business and our top marketing story globally. Omni-Heat Infinity will once again be featured on Intuitive Machines' next lunar lander named Athena. In addition to Infinity, the lander will utilize a second Columbia technology, Omni Shade Sun Deflector. This patented material, which is part of our sun protection apparel line, uses titanium dioxide reflective dots to deflect sunlight and mitigate heat generation. The launch window for Athena begins later this month, so stay tuned for more details. On the collaboration front, we turn to the dark side with our largest Star Wars collaboration to date, the Vader Collection. This was the first Star Wars launch where Columbia Greater Rewards members got early access to the product. The consumer response was incredible, resulting in the highest demand hour we have ever had on columbia.com. Early access is just one of the unique benefits of our new enhanced membership program. Since the re-launch of Columbia Greater Rewards this past June, our active membership continues to grow. I'm especially encouraged by the engagement of our titanium members who spend more than $300 annually. We will continue to expand our membership benefits and deepen our connections to this key customer base in 2025. I'd like to congratulate two of Columbia's athlete ambassadors on their recent halfpipe skiing wins. This past Sunday, Alex Ferreira won gold in the Freeski World Cup in Aspen, continuing the success of his unprecedented perfect season last year. Cassie Sharpe won the X Games gold medal in the SuperPipe event in a triumphant return from a two-year break from competing following the birth of her daughter. Congratulations to Alex and Cassie. Shifting to our emerging brands, Mountain Hardwear net sales increased 5% in the fourth quarter led by e-commerce growth. Consumers responded well to Mountain Hardwear's fall assortment including new snow sports offerings and an expanded Ghost Whisperer collection. In November, Mountain Hardwear released another highly sought after collaboration with iconic streetwear brand Stüssy. The collection featured expedition-quality gear including jackets, beanies, bibs, and shells. I'm confident in Mountain Hardwear's product line and refreshed brand positioning. To further elevate Mountain Hardwear in the marketplace and attract new consumers, we're investing in the brand. This includes demand creation investments to supercharge its e-commerce business as well as partnering with outdoor retailers to elevate in-store presentations. I believe these investments will lay the foundation for growth acceleration in the years ahead. We expect Mountain Hardwear to continue to grow in 2025, including strong fall 2025 wholesale orders. prAna net sales decreased 2% in the quarter. In 2024, the prAna leadership team made amazing progress reinvigorating the brand. This will come to life in 2025 with exciting new product collections and creative brand activations. prAna is also expanding its wholesale account base with new specialty retail partners. We're very excited to get prAna's new product and marketing direction in front of consumers in the seasons ahead. prAna is expected to return to growth in 2025, including robust fall 2025 wholesale order growth. SOREL net sales decreased 16% driven by lower wholesale and DTC sales. During the quarter, SOREL created brand heat with its first collaboration with streetwear brand Supreme. The limited edition Caribou boot came in two colorways, introducing SOREL's iconic style to Supreme's fashion-conscious consumer base. 2024 was a challenging year for SOREL, but the team made meaningful progress refining future season product assortments and building strategies to reenergize brand marketing. 2025 is expected to be a year of stabilization, with modest growth in the second half of the year. I remain confident SOREL has meaningful long-term growth potential. I will now discuss our 2025 financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements. This outlook and commentary do not include any potential impact on the company as a result of the recent U.S. administration change other than the direct cost of tariff actions announced on February 1, 2025. It also does not include any potential impact from actions we may undertake as we review our cost structure and look to expand the profit improvement plan. For the full year, we expect net sales growth in the range of 1% to 3%. Based on current exchange rates, foreign currency is expected to be an approximate 140 basis point headwind. This outlook also assumes most of our temporary clearance locations are closed in the first half of the year. Combined, the FX headwinds and temporary store closures resulted in nearly a 3-point headwind to reported sales growth. Gross margin is expected to expand 80 basis points to approximately 51%. The improvement in gross margin is primarily driven by a healthier underlying inventory position and favorable input costs. SG&A is expected to grow in 2025, driven by investments in demand creation, higher incentive compensation, and DTC store growth. Based on these assumptions, we expect an operating margin of 7.7% to 8.3% leading to diluted earnings per share in the range of $3.80 to $4.15. I'd note that this range includes a $0.30 negative impact to diluted earnings per share due to changes in foreign currency exchange rates. In summary, I'm confident we have the right strategies in place to unlock the significant growth opportunities we see across the business. We are investing in our strategic priorities to accelerate profitable growth, create iconic products that are differentiated, functional, and innovative, drive brand engagement with increased focus demand creation investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that is digitally led, omni-channel and global, and empower talent that is driven by 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?

Absolutely. At this time, we will be conducting a question-and-answer session. The first question comes from Bob Drbul with Guggenheim. Please proceed.

I was just wondering if you could expand some more on your order book for spring and fall. Is there any difference between the two seasons? Wondering if there's any geographic commentary you can add. And then, just if you could spend some time on China, what you're seeing in China, those numbers are pretty impressive. That would be helpful. Thank you.

Certainly. Well, as we said earlier, our order book for spring and for fall will both be up; I'm very excited about that as we return to growth. I think the geographic component will be led by China and Europe. Those two markets will be our fastest growing markets and we're very excited about that. We're also excited about the return to growth in the U.S. But specifically, in China, and really this applies to Europe as well, we've been quite clear that historically we've underperformed in those markets. Again, this is a people business. We have great leadership running both businesses there and so we've seen terrific results. Specifically in China, once we encouraged our teams there to focus product development on items that are significant in their markets, we've seen much better results. Additionally, we have a leader there that is focused on highly productive stores and is now working on monthly performance per store rather than a dual season approach, which has improved our outcomes.

Hey Bob, this is Jim. I'd just add a couple comments. One, as it relates to spring 2025, we shared in October that our order book for the spring 2025 season for our wholesale business globally supports mid-single-digit growth, nothing's meaningfully changed in that order book since that time. For fall 2025, it's a bit lower growth rate in the low-single-digit percent, and we're well into our order taking for the season with about 90% of those orders in. So we have good visibility to the order book at this stage.

Great. One other question just on the demand creation commitment for 2025. I think you said a lot of the newness is going to kick in in the fall. Will the spend be down in the first half and then magnified in the second half of the year? Just wondering if you can discuss the plans there a little bit more. Thanks.

I would describe the first half spend as more moderated. This will still be a function of the percent of sales, but it'll be more moderated than in the fall, where we tend to be quite aggressive, and that's where the bulk of the new material will be seen and the budgets will be larger.

Yes. I think that's fair, Bob. We wouldn't expect it to be down in the first half, but certainly we anticipate it will be amplified in the second half of the year as we push forward with our accelerated marketing investments.

The next question comes from Jim Duffy with Stifel. Please proceed.

Thank you. A couple of questions. First on the U.S. D2C business, is there a change in tactic on a year-to-year basis? Despite the increased number of stores, the U.S. DTC business in the fourth quarter is up just a modest amount. And then you're also expecting growth next year despite closing some of the temporary stores. If you could reconcile that, that'd be great.

Sure. There's a bunch of things happening in D2C. The primary difference would be the closure of these temporary locations that we established to help liquidate inventory more profitably than we otherwise could have. Additionally, we're really focusing on columbia.com as being the showcase of the brand, with less promotional activity than in the past to maintain a more premium positioning in the marketplace. Lastly, we are opening a number of stores in full price, high traffic malls, which will allow us to showcase the brand and our ACCELERATE strategy.

Thanks, Tim. Are you seeing evidence of traction with the new marketing direction bringing younger and active consumers to the brand?

I would say we're right on the cusp of that. We have digital presentations which will start appearing this spring, and I think that will set a different tone. Everything we've tested so far regarding fall is promising, and we are excited about our positioning.

The next question comes from Laurent Vasilescu with BNP Paribas. Please proceed.

Good afternoon. Thank you for taking my question. Jim and Tim, I want to ask about revenues with regards to the first quarter. Why are revenues expected to be down 1% to 3%? Is there a dynamic in place with regard to shifts? Is there something we should consider by channel? And then, when it comes to, I think to Jim's question about DTC, I believe you mentioned in the prepared remarks that the closures will be about a 300 basis point headwind for this year. And I'm guiding for DTC to grow up low-single-digits. So underlying it means DTC should grow about mid-single-digits. Can you parse that out a little bit?

Yes. Laurent, thanks for the question. To start off with the first quarter, while you're seeing the projection of revenue being down in Q1, there are a few contributing factors. First, we're lapping a very cold winter in January and February of last year, which brought amplified demand. We don't anticipate a repeat of that here in Q1. We updated our outlook based on what we've seen through January. Another factor involves earlier shipments of our spring 2024 wholesale orders last year in anticipation of our transition to PFAS-free chemistry. Lastly, there’s also continued pressure from our plan to reduce promotional activity on columbia.com, which will affect how we start the year.

Super helpful. I wanted to ask about the gross margins expected to be up 80 bps for the year. Can you provide some color on how you're thinking gross margins should shake out between 1Q and 1H? And on the SG&A front, I saw that you're stepping up demand creation to 6.5% of sales with the new marketing director, but could you unpack that pressure point on SG&A further?

Yes, sure. For the gross margin in the first half of the year, we expect Q2 to be a stronger quarter in terms of gross margin expansion. The full year guide includes 80 basis points of expansion, but Q2 will be more favorable due to the proportion of full-price sales going into that quarter, while Q1 will not be as strong. Regarding SG&A, aside from the marketing impacts, incentive compensation continues to create pressure, and we are strategizing on ways to streamline the business to drive greater cost efficiency.

Yes, as it relates to the new marketing efforts, we're being very focused on measuring and testing these messages to ensure we've got the right approach. We're looking forward to launching this in the fall.

The next question comes from Jonathan Komp with Baird. Please proceed.

Hi, good afternoon. Thank you. If I could just follow up on that last point regarding ramping up the incremental marketing that you're planning, could you go further on what you're hoping to accomplish and some key metrics you'll be looking to show from those efforts?

Certainly. We've been highly democratic in our approach to our customer base and product orientation. Although we have some of the most sophisticated products for keeping people warm, cool, dry, and protected, we are often perceived as a highly valued line. This value allows us to produce large quantities of merchandise, and we can leverage that to create targeted products for younger consumers. By combining these new products with a compelling marketing message, we expect increased sales and consideration, particularly in the fall.

As it relates to KPIs, we typically don't get into specifics around our D2C business. However, we look for improvement in the conversion rate with our online business, especially since we've shifted more marketing into mid- and upper-funnel efforts. We need to see improvements in conversion rates over time, along with member retention and acquisition from our new membership loyalty program.

That's really helpful. Thank you. Just one separate follow-up on the profit recovery you're projecting. You're well underway with your first profit improvement plan, discussing a normalized inventory environment, yet the margin profile is below historical levels. What are your thoughts about long-term opportunities to achieve higher profitability levels?

That's why we're undertaking the work we've described. Our expectation is to return operating margins to appropriate levels, with expectations of reaching double-digit margins and ultimately positioning ourselves in the upper quartile compared to our peers. We have some work ahead to manage our cost base effectively. The recent years have seen top-line growth not keeping pace with inflationary pressures and other costs, so this year is about building that plan to ensure a scalable business for margin leverage going forward.

This is why we are making measured investments in marketing to reach consumers effectively. We're confident in our products and will be disciplined in managing our SG&A spending.

Up next is Mitch Kummetz with Seaport Research. Please proceed.

Thanks for taking my questions. I want to start with the fourth quarter. Your sales were near the high end of your range, but the operating margin fell a little below the midpoint. I’m curious about that disconnect. Did you end up being a little more promotional than expected, or did you ramp up demand creation more than anticipated once the weather turned and sell-through improved?

Yes, Mitch. A couple of things to consider. From a gross margin standpoint, we weren't any more promotional than we would have been a year ago. However, October and November were softer months overall, and typically during those months, we focus on more full-priced sales before the holiday promotional season arrives. The healthy demand we experienced during Black Friday and Cyber Monday increased revenue but also included more promotions, which did impact gross margin. Additionally, SG&A severance costs in the quarter affected our results.

On the guide, I know Laurent asked about projected sales being a bit light, and Jim touched on that. My follow-up is on Q2 with the implied sales growth rate, which seems strong. Could you clarify how much of that is primarily due to a more normalized delivery schedule this year?

Yes. The shift between Q1 and Q2 accounts for around $20 million to $30 million of the wholesale business. This shift supports a higher growth degree relative to the anticipated decline in Q1. Setting that aside, I don't think there are any significant differences in our business planning.

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

Thanks, it's Tracy Kogan filling in for Paul. I have two questions. Are you seeing any difference in order trends from your partners in the U.S. depending on whether it's a department store or a specialty store? And could you break down your CapEx into stores, IT, and other categories? Is $60 million to $80 million a good run rate for beyond 2025?

Yes. I can talk about our customer base for fall 2025; we're in a strong position with virtually all of our customers. We have strong relationships across the board and are seeing a robust order book with customers embracing this new consumer category. The growth in those customers has been quite dramatic and exciting.

As for our capital expenditures, we've averaged around $60 million over the last few years, so the current range of $60 million to $80 million seems reasonable. Breaking that down into specifics is challenging, but around a quarter of CapEx relates to maintenance capital. Meanwhile, we're planning to open around a dozen stores this year, including a combination of branded stores and locations.

Up next is Alex Perry with Bank of America. Please proceed.

Hi, this is Lucas Hudson on for Alex Perry. The guidance assumes a stabilization in the SOREL business. Can you provide more detail on what's driving that? You've mentioned collaborations like with Supreme, but any more context would be helpful.

Yes, I just came from reviewing the upcoming seasons for SOREL, and I’m excited about our opportunities. We have several collaborations planned, some of which I can't disclose yet. We're confident about moving beyond winter footwear with an improved women's offering and a brand new men's line to expand our consumer base.

Yes, Lucas. In the spring season for SOREL, we anticipate a decline in the order book based on new leadership working on strategy and product lines, but we expect to return to growth in the latter part of the year through wholesale and direct-to-consumer initiatives.

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

Good afternoon, and thanks for taking my questions. First, I wanted to hear the rationale for why the full order book is lighter for fall 2025. And was there any pull-forward of demand in your Q4 results? Lastly, on free cash flow, your guidance of operating cash flow of at least $250 million seems well below fiscal 2024, which was around $490 million. I wanted to understand that rationale since EBIT is expected to be up this year.

The fall 2025 order book being lighter reflects the distinct dynamics of the seasons. We came through fall 2024 with lower sell-through. We're encouraged that retailers are responding positively despite the lower growth rate compared to spring 2025. Regarding Q4, there was no pull-forward of revenue from Q1; however, we did experience around $60 million in sales shipped from Q3 to Q4 due to supply chain disruptions. Finally, the operating cash flow guidance reflects a more normal working capital efficiency this year, even though we are working to drive inventory efficiency.

As for our full order book, it reflects customer adoption of the new category of consumers we are pursuing. Products like the amaze puff, which is a very popular down jacket for women, and the rock pant collection have been incredibly well received. We aim to operate with less inventory over time, which will significantly improve cash flow.

On the topic of gross margin, the lower product costs are due to working closely with our factories and benefiting from lighter input costs this year, particularly in raw materials. In Q2, margins are expected to be higher due to the proportion of full-price sales, while the other quarters will typically see a similar expansion rate of around 80 basis points.

We have no further questions in the queue. I would like to turn the floor back to management for any closing remarks.

Thank you, Operator. I just want to thank everyone for listening in. We're very excited to be returning to growth in 2025, and we're looking forward to the ACCELERATE Growth Strategy coming to life in the seasons ahead. I look forward to talking to you next quarter.

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