Columbia Sportswear Company

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 8K 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, 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 Braggins. 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 FCC 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 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 US, 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 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 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 Sorrel and lay the foundation for its next phase of growth are in motion. Krana's turnaround efforts have begun with signs that the brand is on a path to return to growth in the seasons ahead. Mountain Hardware 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 our current trends that we see across the business, we are reiterating our four-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 20 cents compares to diluted earnings per share of 14 cents 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. wholesales. The combination of lower spring 24 shipments and ongoing retailer cautiousness impacted results. While wholesale sell-through is trending down mid-single-digit percent, 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. USDTC net sales decreased low single-digit percent. Brick and mortar was up mid-single-digit percent, 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 percent. A challenging e-commerce environment for traditional outdoor brands, coupled with efforts to de-emphasize promotions on Columbia.com, weighed on performance. As we have said on path 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. For my 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 percent, 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 phishing 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 percent. 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 percent. LAP 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 percent, led by a 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 Megamarsh, 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 percent. 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 our newly launched Titanium status, which includes additional perks like early access to exclusive events and products. Columbia Grader Rewards Program members already represent the majority of USDTC 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, OmniShade Broad Spectrum Airflow, which provides lightweight, breathable UV protection. During the quarter, several publications highlighted our unique cooling technologies including Forbes' list of best sun shirts and Sport Fishing's best Father's 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 OmniMax footwear system, which combines versatile cushioning, enhanced stability, and increased traction. OmniMax 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. OmniMax 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 OmniHeat Infinity with more styles and a global marketing campaign. We're expanding the OmniHeat family of warming technologies with the addition of OmniHeat Arctic. This new biomimicry insulation system is inspired by how polar bears keep warm in extreme conditions. OmniHeat 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 grants, mountain hardware net sales increased 2% as DTC growth was partially offset by lower wholesale net sales. During the quarter, mountain hardware activated its sun Be Sunwise 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 Hardware was able to increase visibility and bring new consumers into the field. Looking at the second half of the year, Mountain Hardware 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 hardware athlete, Jesse Gruper, will be competing for gold in Paris. Good luck, Jesse. Chrononet 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 suggest a return to growth. Sorrel brand net sales decreased 44%, with challenging demand for spring 24 products across wholesale and DTC. As a reminder, the second quarter is Sorrell'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 Sorrell'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 utilize 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 meaningful 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% in net sales, leading to an operating margin of 7.7 to 8.4%. We are reiterating our diluted earnings per share outlook of 365 to 405. 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 2025. 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 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 will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. We do ask that participants please ask one question and one follow-up, then re-enter the queue. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Bob Durbel from Guggenheim Securities. Your line is live.

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

Yeah, 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. So 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 a Q4 report,

Estimates for now, but we're certainly expected to be 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 America wholesale. Got it.

Okay. And then, you know, On the gross margin, I guess just, you know, can you expand a bit more around the freight just in terms of, you know, what you're seeing? You gave some color around it, but just sort of more, you know, within the last few months, you know, last few weeks, any, you know, just sort of developments and how that has impacted your business, if it has at all.

Certainly. Well, you know, 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 carriers that are keeping their contracts. And our expectations are that the impact of rate changes as it relates on the back half of the year are contemplated in our guidance. So we're not expecting big changes, but, you know, that's based on today. You know, we think we're in good shape. We've got a fairly good percentage of our merchandise already delivered into our warehouses. And, you know, freight will be probably a constant issue for the balance of this year, especially in relation to the continuing of the Red Sea issue. Great.

Thanks, Tim.

Thank you. Your next question is coming from Laurent Veselescu from B&P Paribas. Your line is live.

Good afternoon. Thank you very 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 in between like quarters, you know, between 2Q to 3Q, and if that's going to potentially trickle through into the fourth quarter.

Yeah, Laurent, this is Jim speaking. We have seen a slight shift as a result of some of the Red Sea delays. And again, the delays we're seeing are in the, you know, week to two-week zone, so nothing overly meaningful. With that said, when we provided an outlook earlier this year, we thought our revenues would be relatively, even from Q3 and Q4, you'll notice a slight shift out of the third quarter and into the fourth quarter of the outlook we're providing today. And that's essentially reflective of some of those supply chain delays. I should also mention, despite those delays, in terms of our on-time and in-full percentages, they're still really high. that we believe will be on time to market with our distribution.

Okay. That's very helpful, Jim. And, Tim, I appreciate you commenting around spring order books that are going to grow potentially for next year, or at least they're up year over year for now. Can you maybe comment about, you know, to Bob's question, and I think he asked it 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 Sorrell's had a soft year, but how do we, with new leadership, how do we think about Sorrell coming back to growth and potentially for the Columbia brand as well for spring 2025?

Certainly. Well, you know, I think if we look at spring 24 and the delta between that and prior periods, It was a strong focus on our customer base to get clean on any particular piece of apparel or footwear that might contain PFAS. So the focus was on getting clean and the spring 25 order book that we're looking at reflects reloading to a certain extent for those items. And then globally, as we said, we had strong business happening in China and in Europe. Both are big markets, as well as other international markets around the world. So we're encouraged that we've got growth on the Columbia brand coming for spring 25. As it relates to Sorrel, as you know, we have new leadership there. And from a historical perspective, the brand has always been much more heavily fall weighted. The goal was to try and improve our business in the spring and summer. And we've made progress in that area, although Q2 is only generally about 10% of the company's, of the brand's sales for the year. So we need to get better at a number of things, but I see significant investments being made there to improve the business in the spring and summer.

Maybe just to close on that. Lauren, maybe just to close on that. 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 Hardware and Prana, you know, we're still pleased to see nice growth coming from those two brands based on what we can see out of our order books currently.

Okay, very helpful. If I could squeeze one more question on China, obviously lots of concerns around China, right, sportswear world, now in the luxury world. It seems like OutAware 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 a team that we have in place in China, to improve our business. And so we expect to continue 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. 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 questions. I just wanted to follow up on an earlier line of questioning on the 4Q guide and the implied waiting there. What is driving that? Is that just easier comp and 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'd be great. Thanks.

Sure. Well, 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 Columbia's DTC stores against last year will be better.

And we'll have less liquidations.

Last year was really a focus on profitable liquidation of the high inventories that we had. So that's the primary delta.

Yeah, 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 that we plan 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 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. Thank you.

Yeah, certainly the most significant driver of that, and we saw 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. And 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 is it 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, you know, we've made certain assumptions regarding that, including any type of surcharge that we might incur, and 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 with the promotional environment that we're operating in currently.

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

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

Great. Good afternoon, and thanks for taking my questions. I wanted to, you know, hear more details about the Europe business. It 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 would be super helpful. Thank you.

Yeah, so my trip in Europe was the last week or so in June. I met with many of our biggest customers in Europe, and 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 get in better, especially in the markets of France, Germany, and the UK, where we're seeing terrific results. And we're seeing adoption by, in a larger way, by bigger customers. So I would say a combination of all those things, including the fact that we're just getting, we're running a much better business now with a brand that's 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. And 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've got the right size of our inventory, and then we'll be closing them.

And Mauricio, I just emphasized 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 level detail, but in terms of just the magnitude, when you think about the year with the 46 stores that we're currently operating out through the end of the year, we've estimated that'll be at around 2% of consolidated sales. But to Tim's point, in terms of the operating margin contribution from these stores, 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 very quickly on the guidance for the second half of the year, 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 down in the low 20s percentages? Thank you.

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 a low 20%. Our fall 24 wholesale order book on a worldwide basis gives us the indication that our wholesale business is down a mid-single-digit percent in the second half of the year. And I believe our U.S. wholesale business is relatively on par with that overall consolidated look of things. So it gives you a picture of 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 with some of the shipments going out a little bit more in the port.

And is it just because you have the PFAS materials already out, or 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 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.

Yeah, and keep in mind, with that order book in hand, the assumptions that we place on top of that are cancels, reorders, replenishment. 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've taken a middle-of-the-road approach to how we plan the business. Understood.

Thanks, and congratulations on the results.

Thanks.

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

Hi, this is Alex Douglas on for John. Thanks for taking our question. So my question was just about, you know, how should we think about modeling inventory dollars for the balance of fiscal 24? And then related to that, just more of a clarifying point, like where are you guys at with some of the inventory models clearance measures, are those completely done, or do you anticipate that bleeding into Q3 at all?

Let me give you a very high-level approach, and Jim can modify that if necessary. We think that we can get the business to three turns annually, which means we can run the business on a lot less inventory than we have been. And so the goal is to continue to liquidate inventories profitably to get ourselves in the right level of inventory to be in the area of three 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.

Yeah, I think just to add to that, TIF speaks to three times turns. Yeah, 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 2.2 times. I would anticipate we are forecasting for that to improve over the course of the balance of this year. Certainly won't be at three times 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 decreasing at the end of the year. And as it relates to clearance activity in the second half, you know, we are in much healthier shape as we sit here today in comparison to where we were a year ago. And 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 remained on hand that had 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.

Thank you. Once again, everyone, if you have any questions or comments, please press star, then 1 on your phone. Your next question is coming from Jim Duffy from Stiefel. 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 cause 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.

You know, I guess I would say if there's an overall trend, it's that consumers tend to be very cautious in their spending.

And, you know, it actually helps us in many respects since the values that we have in our merchandise are much greater than many of our competitors.

Okay. And Tim, I wanted to ask just about the state of the North American outdoor channel. It's been a challenged channel for many brands. Given the state of the marketplace, what are the, you know, based on what you see right now, what are the prospects for more normalized or more buoyant demand trends from that key channel?

Yeah, you know, it's difficult, Tim, 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. But regardless of what the impact is on the reduced demand, we've got a balance sheet which will allow us to make investments when others can't and to operate the business in a meaningfully different way than other competitors. So our expectations are that we're going to be the a survivor and continue to grow, gain market share based on our ability financially to make these investments.

Helpful. Thanks. 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. And 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 you know, what you would think would be typical going into the actual spring season.

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

Yeah, it's 90% plus, Jim, which is pretty typical as Tim touched on at this point in time.

Excellent.

Well, thank you, guys. Definitely. Thanks.

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.