Columbia Sportswear Company (COLM) Q2 2008 Earnings Report, Transcript and Summary

Good afternoon. My name is Jumaria and I will be your conference operator today. At this time, I would like to welcome everyone to the Columbia Sportswear Second Quarter '08 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. I'd now like to turn the conference over to Mr. Ron Parham, Director of Investor Relations. Please go ahead, sir.

All right. Thank you, operator. Good afternoon and thanks for joining us on today's call. With me today are Columbia's Chairman, Gert Boyle, Columbia's President and CEO, Tim Boyle, Chief Operating Officer and CFO, Bryan Timm and General Counsel, Peter Bragdon. We will start today's call with prepared remarks, reviewing the results of the second quarter and provide color around our full year and third quarter revenue and earnings guidance, that was also included in today's earnings announcement. Then we will open it up to your questions. Before we begin, Gert has an important remainder.

I'd like to remind everyone that this conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operations. Please bear in mind that forward-looking information 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 quarterly report on Form 10-K for the year ending December 31, 2007, and subsequent filing the SEC. Forward-looking statement in this conference call are based on our current expectations and beliefs and 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 the change in our expectations.

All right, thanks Gert. Tim, I'll hand it off to you.

Thanks Ron. Welcome everyone and thank you for joining us this afternoon. By now I'm sure you've had a chance to review the earnings release and financial schedules that we issued earlier this afternoon covering the results of our second quarter and our revised guidance for the remainder of 2008. We are going to focus most of my comment on our strategic initiatives and let Bryan review the financial highlights. But I do want to take a moment to lay the context for our discussion. My mother has always told me at dinnertime to eat the foods on my plate that I didn't like first, so I could finish with a good taste in my mouth from the foods I did like. It was good advice and I think it is great advice now approaching today's conference call. The weak US and European retail environments have been well documented and we were clearly affected by those headwinds. Second quarter net sales declined $5.5 million or 3% compared with last year's second quarter. On a regional basis, this decline is isolated to the US where net sales decrease $21.5 million or 18% to $95.6 million. Looking at the top line on a global basis, by category the decline from last year's second quarter was isolated in sportswear, which was down $8.9 million or 7%. From a brand perspective, the second quarter net sales decline can be primarily isolated to the Columbia brand, which was down $6 million or 3%. Thus the net sales decline is almost entirely due to lower sales of Columbia brand in the US and that decline can be attributed to the unexpectedly high volume of cancellations we received on our spring order book during the quarter. Nearly all of our largest retail partners reported negative sales comps through the quarter and most of them have stated their intentions to continue managing their consolidated inventories lower over the course of 2008. To add further insult, most of the Northern half of the US experienced a late arrival of spring weather causing an added delay in consumer purchases of shorts, t-shirts and sandals, which comprised a significant portion of our seasonal spring assortments. This nationally resulted in delayed sell through at retail and coupled with our customers' increased emphasis on reducing their inventory levels triggered order delays, fewer fill in orders and more cancellations than we expected. In our EMEA direct business, second quarter net sales declined high single-digits reflecting the economic headwinds and the product and sales challenges we described in previous quarters. Our new European management team continues their hard work to reestablished healthy alignment in our EMEA direct markets and to return that important region to sustainable growth as soon as possible. Because the second quarter is typically our lowest volume quarter, the lower than expected net sales meant that we were not able to fully absorb the increased investments we are choosing to make in demand creation and expansion of our retail store network. Although we controlled our spending to be well within our plans for the quarter, the 3% decline in our top line resulted in a net loss of $1.8 million or $0.05 per share compared with net income of $10 million or $0.27 a share last year in our previous guidance for earnings per share of approximately 3%... $0.03. We currently have no evidence to suggest that the US or European retail or consumer environment will improve noticeably before 2009. As a consequence, we have revised our full year 2008 revenue guidance to a 3% decline from 2007 and our full year's earnings per share guidance to approximately $2.60 to $2.70 per share. That takes care of the hard to swallow topics for today. Now, let me turn to the portion of our results that taste better and go down a little easier. Looking outside the US, each of our other three geographic regions reported net sales growth during the second quarter on a GAAP and on a constant dollar basis. EMEA sales increased 13%, including a 9% benefit from foreign currency exchange rate differences. Canadian sales increased 18%, including an 11% exchange rate benefit, and LAAP sales increased 20%, including a 3% exchange rate benefit. Looking at the EMEA region as a whole, strong double-digit growth in net sales to our independent distributors more than offset high single-digit net sales declines in our EMEA direct markets. The increased sales to EMEA distributors reflects earlier shipments of our Fall '08 products in this year's second quarter compared with the shipments of our Fall '07 line, most of which occurred in last year's third quarter. So, although we experienced Fall '08 sales to EMEA distributors to be up from last year on a full season basis, the strong double-digit growth in sales to EMEA distributors we reported in the second quarter will be partially offset in the third quarter, while lower shipments compared in the last year's third quarter. Men's Omni-Shade and Techlite products, both performed well in the US markets that experienced warm weather through the second quarter and they have shown increasing momentum as warmer weather has spread to other markets. In particular, our Techlite launch was highly concentrated in water sandals, which naturally rely on warm weather that drive consumer participation in water sport activities. Our sales and demand planning groups are working together to use that knowledge to formulate more strategic delivery flows for future seasons in order to shorten the sell-through cycle and increase turns and profitability for us and our retail partners. The Spring '08 Omni-Shade apparel and Techlite footwear launches in the US were our first attempt at executing an integrated product launch around seasonal marketing initiatives. While we were pleased overall with our team's performance, we also identified several ways in which we believe we can improve the consistency of our execution across key markets, as we evolve our go-to-market strategy to a global scale. We are gearing up for a similar effort in Fall '08 built around our waterproof breathable Omni-Tech outerwear and our winter footwear launch featuring Techlite cushioning technology. Our strong balance sheet improved further during the second quarter with cash and short-term investments up 62.9 million from one year ago to 327.4 million compared to 264.5 million and we remain free of any long-term debt. We delivered on our plan to reduce inventory levels on a year-over-year basis, ending the quarter at 272.9 million versus 309.7 million last year, a decrease of 12%. We continue to normalize our inventory levels and based on our current sales expectations and our Fall 2008 purchase plans, expect our inventory levels to trend down during the third quarter. Inventory levels at the end of 2008 compared with December 31, '07 will depend on the volume and timing of sales of Fall '08 products versus the volume and timing of receipts of Spring '09 purchases. Our strong balance sheet gives us the confidence and flexibility to continue our investment in strategic initiatives during this economic cycle to position the company for sustainable profitable, long-term growth. We remain committed to investing in enhanced marketing and demand creation efforts, building an expanded retail footprint, and continuing our renewed commitment to innovation across our broad line of our outdoor apparel, footwear and accessories. We see these strategies as critical ingredients to successfully elevating and differentiating the Columbia brand in the minds of consumers around the world. We believe these investments will begin to produce an increasingly positive impact on consumer demand and sell through, when the current macro economic uncertainties begin to ease. I'll now hand off to Bryan for additional financial highlights.

Thanks, Tim, and good afternoon everyone. Tim covered the highlights on our top line and key balance sheets items. So I'll take up on gross margins and quickly work down the rest of the income statement and cash flow. Second quarter 2008 gross margin decreased 120 basis points compared to last year's second quarter to 40.2%, primarily due to increased discount and close out product sales and higher production costs. These unfavorable factors were partially offset by the favorable gross margin effect of our US retail expansion, some increased ASPs internationally and improved foreign currency hedge rates. SG&A expenses increased $12.1 million over last year's second quarter to $91.3 million or 42.8% of sales. This SG&A increase was in line with our previously communicated plans to increase our marketing investments to support our brand and to fund the start up costs of our new retail stores. The 660 basis point increase compared to last year's second quarter was amplified by the top line short fall in our smallest volume quarter. Operating loss for the second quarter was $4.3 million versus operating income of $12.4 million in last year's second quarter. We reported a net loss of $1.8 million or $0.05 per diluted share in the second quarter of 2008, compared with net income of $10 million or $.27 per diluted share in the second quarter of 2007. Tim already touched on our improved cash and inventory positions. Our cash flow was also benefited from a 6% reduction in consolidated accounts receivable at June 30 to a $172.6 million. Capital expenditures were $14.2 million, during the second quarter of 2008, primarily reflecting our US retail expansion. During the second quarter, we repurchased approximately 107,000 shares in aggregate price of $4.4 million. Through June 30, 2008, we've repurchased a total of 7.7 million shares or $360.7 million since the beginning of the program in 2004, leaving us approximately $39.3 million for future purchases under the current $400 million authorization. Also today, we announced that Columbia's Board of Directors approved a third quarter dividend of $0.16 per share. Now turning to financial guidance. Please keep in mind this information is forward-looking in nature and is therefore subject to certain risk factors. I should also reiterate Tim's comment that our visibility is currently hindered by the unpredictability of the US retail environment. We believe that we have appropriately factored in what we currently know and what we currently sense about the market, but we've also learned much in the last 90 days, how quickly things can change. With that as a backdrop, based on Tim's earlier discussion of the headwinds we are experiencing in the US and EMEA-direct markets, combined with our planned retail expansion and the estimated effect of foreign currency exchange rate differences, we now expect full year 2008 revenues to decline approximately 3% from fiscal 2007. We now expect full year 2008 consolidated gross margins to contract approximately 50 basis points from 2007 levels. The assumptions behind this projection include an increased proportion of discounted sales and higher production costs. We expect these pressures to be partially offset by increased contribution from our retail operations, some increased ASPs internationally and favorable foreign currency hedge rates. As Tim noted, we remain committed to investing in incremental demand creation during 2008 in support of our brands. Together with initial investments and incremental operating cost of our new retail stores, we expect full year 2008 SG&A expenses as a percentage of consolidated net sales to increase by approximately 440 basis points compared with 2007 levels. Based on the above projections, we expect to generate operating margins of approximately 10% and diluted earnings per share of approximately $2.60 to $2.70 for the full year 2008. We are currently planning approximately $45 million in capital spending during 2008, with approximately $30 million of that related to our retail expansion and $15 million related to maintenance CapEx and to a lesser extent distribution capacity projects. Looking specifically at Q3, we expect net sales to decrease approximately 4%. We currently expect Q3 operating margin contraction of approximately 330 basis points, primarily due to a 310 basis point increase in SG&A expenses related to our strategic initiatives. As a result of these assumptions, we currently expect third quarter earnings per share of approximately $1.44. I'll conclude by remarks by reiterating the unanimous commitment of our management team to use our very strong balance sheet to investing our brands and our operations to create sustainable, profitable long-term growth platforms, despite our lowered sales and earnings expectations for 2008. We are working diligently around the world to make these strategies successful, so that our investors can begin to see the expected benefit in our financial performance as soon as possible. I'll now hand the call back to Tim for his closing comments.

Thanks Bryan. Before we turn the call over to your questions, I like to take a couple of minutes to emphasize the point that Bryan just finished on. The second quarter was clearly disappointing and our view of the US market is that it'll likely remain difficult for the rest of this year at least. We feel confident about the investments we are making in new long-term growth platforms and the financial flexibility provided by our fortressed balance sheet to make these investments during an otherwise difficult economic cycle. We talked a lot about increased marketing and retail expansion as the two distinct elements of our strategy, but just focusing on these two elements over simplifies the organizational and operational opportunities we have identified and have began to pursue over the last 18 to 24 months. Ultimately, every element of our strategic plan is intended to elevate and differentiate Columbia's brands in the minds of consumers around the world and to re-energize demand for our brands. In the consumer marketplace, strong brands with innovative products and emotional connections with consumers have proven to command higher price points and to attracted superior retailer partners. We started our transformation with a renewed emphasis on product innovation that solves real customers'... consumers' needs and enhances their experience in the outdoors. These innovation serve as the fuel for our expanded demand creation efforts that will seek to communicate with consumers on a more inspirational and aspirational level in order to build stronger, emotional connections. Our first line retail stores in key markets will provide stages on which we can showcase the breadth of these innovative products using in-store merchandising tools that convey the core brand and performance messages at the point of sale. For our retail partners, we will have more innovative products to offer and an improved seasonal flow cadence to keep our product assortments fresh at retail and entice consumers with continued innovation and newness. Taking together over time, we believe these strategic investments are necessary to elevate and differentiate our brands and thereby change the composition of our business. We are already beginning to see the early indications of the potentials of these investments and are confident that they will eventually develop our business worldwide. Finally, today's call would not be complete without a little dessert. Compliments of Tour de France and Team Columbia. Most of you know that athletic and team sponsorships have never been a significant component of our marketing strategy. The Team Columbia idea was first brought to our attention in mid-April by John Stan, one of our Board members. After contemplating the opportunity, we decided that a connection to professional cycling had the potential to speak to a large cross-section of our consumer base, especially in Europe where cycling enjoys a nearly fanatic following, much more than we are familiar with here in US. Team Columbia competes in hundreds of men's and women's races held in countries all over the world year around. Add to that the fact that cycling enthusiasts tend to be people who also enjoy a wide variety of outdoor sports that are at the heart of Columbia's brands and Columbia's heritage and you understand why the deal made sense to us. When we finally agreed to terms in early June, about three weeks before the start of the tour, none of us could have imagined the overwhelming flood of positive publicity Team Columbia has generated around the world for the Columbia brand. Team Columbia has given our brand an immeasurable boost, not only in the US, but especially where we need it most right now in Europe. Coincidentally, our three biggest market opportunities in Europe are France where the Tour de France takes center stage for three weeks, in UK, the homeland of four stage winner and Olympic gold medal hopeful Mark Cavendish, and Germany, the home of today's stage winner, number 18 stage, Marcus Burghardt. Team Columbia has claimed five stage victories, the most by any teams so far in this year's tour. The excitement about Team Columbia has extended well beyond Europe. By our latest count, over the last three weeks alone, over 10,000 articles in roughly 80 countries have featured the successes of Team Columbia. Not included in those numbers are the thousands of conversations in the bloggersphere that we have enabled a glimpse, but not attract numerically. We have also received a huge number of calls and e-mails asking about the availability of Team Columbia apparel. In response to that interest, we were working to have an assortment of half bike styles in stores beginning in November. I'm looking forward to congratulating each of the Team Columbia riders on their personal accomplishments and thanking them for the positive impact they brought to this year's tour. We look forward to watching many of the individual team members compete for their country at next month's Olympic games and to follow Team Columbia through future professional cycling seasons. It is our belief that the strategic investments we have been making, coupled with catalysts like the one provided by Team Columbia are re-energizing our brands and will produce improved financial results in the years ahead. Thank you very much for listening. We will be happy to field any questions. Operator, can you help us? Question and Answer

[Operator Instructions]. Your first question will come from the line of Bob Drbul with Lehman Brothers.

Hi. Good afternoon.

Hi, Bob.

Tim, just a couple of question on the cancellations in the inventory, can you just discuss your ability to react to these cancellations, like how much is this inventory has or will quickly be sort of remarketed to different accounts, your plans to just sort of dispose of the cancellations? And I guess the bigger question then I have is what sort of adjustments have you made now on when you looked at where your backlog was at the end of March versus where are you today, how are you planning the Fall business from the cancellation risk perspective that you now really see out there?

Great. On the first question, Bob, we've remarketed virtually all the cancelled merchandise from the second quarter cancellations. So, they haven't shown up in... because we haven’t shipped them yet, but they are basically virtually 100% sold, so the remarketing effort was quick and efficient, but that's baked into the guidance for the future. We've also gone through an exhaustive review of our entire fall book and we believe that the guidance we've given today is a result of the quarter order by order book at what our expectations are for the balance of the year.

Tim, can you quantify a little bit in terms of the magnitude of the adjustment that you're making on from an order perspective with the factories?

Well, I'm sorry. We have basically no ability to canceling factory orders. So this... the guidance we've given is a function of the inventory that we own and our expectations for liquidation.

Okay. And on the cancellations, can you talk about the breadth of cancellations, was it one retailer, was it one channel, was it several retailers, just how that whole thing unfolded for you?

It really mirrored the company's volume across all channels and was probably... could arguably be centered in most of our customers that are publicly held. So that the announcements that they have been talking to their investors about in terms of management of their inventories was quite impactful to us in this quarter.

And then one final question from me is on Mervyns, can you talk about the exposure that you guys have to Mervyns and how you are managing it?

It's virtually zero. So they are our customers, but our financial exposure is virtually zero on any order business, which is very, very low. Any orders, which are low, already big... our expectations are baked into the guidance.

Okay. Thank you very much. Good luck.

Your next question will come from the line of Kate Mcshane with Citigroup.

Hi, good afternoon. I think you said last quarter there would be an additional 350 basis points to seven [ph] SG&A this year and this quarter you said there would be I think 440 basis points, so can you walk us through what changed with that guidance?

I am going to ask Bryan to answer that question.

Sure. I know when we spoke three months ago, Kate, I mean we talked a lot about the absolute dollars in terms of SG&A build. And I think three months ago, our expectation at that time was maybe about $50 million up in absolute dollar build over SG&A. Now in our current expectation, that number has probably dropped to about $45 million and again most of that being variable component, which is really a reduction in sales. So again, from a basis point perspective, again with the lack of sales or sales coming off the... our previous expectation by $68 million or so, that's obviously changed the basis points from a percentage standpoint.

Okay, so it's deleveraging and not increase in spend?

Correct.

Okay. And then second question I had, you mentioned in your prepared comments that higher production costs impacted your COGS during the quarter. Is that... are we talking about higher sourcing cost in terms of material and labor or are we just talking about transportation? And if we are talking about higher sourcing costs, are you planning to increase prices to your retailer and if you haven't, when do you plan to do so?

All right. Well, with respect to higher production costs, really you could take out a couple... in a couple different ways. Number one, yes, you're right, raw material certainly increased. Obviously, with the oil prices and whatnot, some of our freight rates have also increased. But really what I was trying to get at is more related to just our overall sourcing base in Asia pretty much a fixed costs for us and those costs are basically spread on a unit basis over the production and obviously the production volumes is certainly seen in our inventory levels from a year ago in the second quarter have dropped significantly and therefore giving really a higher cost per unit in the second quarter. So, that's also what I would expect for the balance of the year. With respect to our ability to pass those on in our prices, we've already gone to market for Fall and we've also already gone to market for Spring '09. So we are up there right now giving pre-cost for the Fall '09 book of business and we will have to see what kind of increases ultimately develop there and whether or not we have the ability and price elasticity to pass those on to our customers.

Just of just on, Kate, I mean our expectation is that any price increases that we get will be passed on to our customers.

Okay, thank you.

Your next question will come from the line of John Shanley with Susquehanna.

Thank you. Good evening everybody.

Hi, John.

What is the level of order backlog for both domestic and international at the end of 2Q?

John, we announce our order backlog twice a year, once at the end of first quarter for Fall and once at the end of third quarter for Spring. So, we haven't announced… and we would announce it out Q3... end of Q3.

Based on the cancellations and everything else that you just outlined for us, would it be a fair assessment to anticipate that the order level would be down to some more degree?

Well, I wouldn't necessarily assume that. We've basically given guidance which contemplates our expectations for the balance of the year.

Okay. All right. Based on that third quarter guidance you just gave us, it appears that the fourth quarter results would be down about 45% on a operating and profit basis. Would this cause you to rethink some of the company's strategic initiatives that you just outlined for us, specifically the retail expansion plants?

Absolutely not. Now we feel that the best use of the company's balance sheet which is quite significant is to take advantage of the strengths that we have in times like this and to make investments where we think they are appropriate to re-energize the business. So we are planning on continuing our investments as planned.

Okay.

John, if I could interject too, as it relates to just other, I mean Tim's talking about more the strategic investments that we are making, which again center around our retail expansion and really the additional marketing spend that we have this year for demand creation. But again as we look down the rest of the company's operating cost structure, we're certainly looking for those levers that we can call to pull back as we see the short fall on the top line. So, we've done that to a small extent in the second quarter, some personnel cost reductions and whatnot, and we'll continue to assess that as we go through the balance of the year and obviously when we see our first snap shot of what we believe our Spring '09 book of business is going to be.

When you would get that, Bryan? Would that be before or after MAGIC?

We wouldn't have the bulk of the Spring orders in until the end of September.

September, okay. Turning to the retail stores for a second, what's the level of productivity that you need to justify the rents that I am sure you going to be paying in like the North Michigan store that was just announced as well as the Mall of America big unit that was just announced. Can you give some idea of what your productivity would be in order to meet the pro forma that you have laid out in terms of those stories contribution to the company's bottom line results?

Yeah, John, this is Tim. We've baked those results into the guidance that we have given you in a lumpsum form. We are not sure exactly when those things are going to come online, so we've baked in our best estimates. And we would expect that over time those stores would be highly productive. We don't intend to release financial metrics on those things on the stores because the expectation is they, even though they will be important for brand building and they will be a contributor to the business, we don't expect that they are going to be a high percentage of revenues.

Are you still planning for 15 outlet stores and five first-line and three mountain hardware stores for this year, Tim, is that the game plan?

Yes, I think that those numbers are roughly correct. The 15 mini outlet stores and five Columbias and three mountain hardware, if that maybe that they move up or down one or two depending on our ability to complete construction and inventory... excuse me, availability of real estate, et cetera, but those are roughly correct.

Okay, good enough. Thanks a lot, appreciate it.

Thanks, John

[Operator Instructions]. Your next question is from Sam Poser of Sterne Agee. Sam Poser - Sterne, Agee & Leach: Good afternoon. I have a quick question on the SG&A [inaudible] how do you see it right now?

Sam, your phone cut off there, so we couldn't hear your full question. Sam Poser - Sterne, Agee & Leach: I am sorry. The SG&A increase, I guess the $45 million, how does that break down?

This is Bryan, Sam. I apologize, but for whatever reason I'm not picking up your question whatsoever, but I'm going trying to interpret what I believe I heard the question to be. The Incremental average here is incremental SG&A expense for 2008 that roughly is split between advertising being one major component, the other major component being really be ramp up cost with our retail expansion.. Sam Poser - Sterne, Agee & Leach: Can you hear me?

[inaudible] incremental SG&A spend for 2008, that roughly is split between advertising being one major component, the other major component being really the ramp up cost with our retail expansion. Sam Poser - Sterne, Agee & Leach: So, that's... can you hear me?

It's really rough. Sam Poser - Sterne, Agee & Leach: I will dial back in and try to ask... get back on.

Okay. Sam Poser - Sterne, Agee & Leach: Thank you.

Your next question will come from the line of Sara Hasan with McAdams Wright Ragen.

Hi. Could you talk a little bit about your balance sheet in particular? Your cash balance that continues to grow? It just looks a little like you are almost hoarding it, and I'm just wondering why?

Well, I know Bryan has some comments he wants to make, but I can tell you in periods of economic uncertainties such as we are certainly going through today, a very strong, even fortressed balance sheet is a real comfort frankly, number one. Number two, it allows us to make decisions even though they may in the short-term be somewhat painful, but allows us to make decisions and strategic initiatives... invest in strategic initiatives which for the long-term are going to be good for the business. So, I'm comfortable with the balance sheet composition as it is. We are mindful that it is the responsibility of management to have returns on all parts of the assets of the company, and we believe that today we are using them correctly. But Bryan may have some additional comments.

Well, the only other comment I'd like to made are just really around at the end of Q2, our balance sheet position. Again I think we commented 90 days ago that we expected our inventory levels to trend down certainly in Q2, which happened. But again please note that we did end up coming short on our expectations to the top line of about $18 million this quarter. So again I think from a working capital perspective we are encouraged from what happened at the end of Q2, but again I think as we look out for the balance of the year, yes, we would continue to believe inventories to trend down, but I'm not sure that at the end of the year, if there is necessarily a big build of cash over that at was December 31st, 2007.

Okay. And are you looking at acquisition opportunities in difficult times like this, or do you feel like you kind of have your hands full?

Well, I think frankly the best use of the company's assets and it's most important assets, the time of its managers is to really be focused on the business today, and that will frankly be the highest return for the company. But there are... in times like this, a strong balance sheet attracts opportunities, and we would certainly look at those and measure them as to how well they would... they would fit with our current operating model. But I can tell you that the company is very focused on fixing those issues that we see right now in the business.

Okay, and then just, may I ask how is morale within the company?

Well, you know things... times like this are difficult and it requires management to be strong and to have a solid plan, and I think when you walk around the buildings here today, you know we are a global company, we have significant... I wouldn't say ebullious [ph] but people understand what the plan is and where we are going, and so they take great amount of pride and a great amount of solace in the fact that the company has got a plan for fixing the business, that's number one. Number two, we always talk about the balance sheet and the fact that it allows the company to be doing things, you don't require desperation. And the Team Columbia thing doesn't hurt either. That's been a significant morale improver.

Good. Thank you.

Thanks.

Your next question will come from the line of Howard Tubin with RBC Capital Markets.

Hey, guys. Thanks. Can you give us any more specifics or any more detail surrounding your marketing plans for the Fall season?

Yes, Howard. As you know we announced that we've added... we've changed the advertising agency that the firm has been using, we put together a new agreement with a new advertising agency based in the Bay Area. So, the plan is to increase the amount of spend on direct marketing to consumers and to re-energize the brand through basically a slight adjustment in our messaging to consumers, still going to include a healthy component [inaudible] but it's also going to include basically the concept of fighting to take back the outdoors for everyone, and that's going to be the overriding theme of the new campaign. It launches here in probably another two, three weeks, and I think it will show consumers how the brand really is in addition to being a broadly popular brand, it also has as number of athletes who might be considered regular people. So that's the primary focus of the ad campaign, but additionally, as you know, the Team Columbia initiative here has just been spectacular in terms of brand awareness with a very passionate group of outdoor enthusiasts. So, I would say that in concert the expectation is that the brand awareness and the thoughts about the brand are going to be considerably higher in the second half.

Got it. Great, thanks. And then just one follow-up on the follow-up on the balance sheet question, any thoughts maybe buy stock back more aggressively over the next couple of quarters?

Well, we as a habit don't... don't comment on our future plans as it relates to share buybacks, but I think you can see that the company is... there are obviously a number of ways to utilize cash appropriately and that's one of them.

Okay. Thanks.

Your next question will come from the line of Sam Poser with Sterne, Agee. Sam Poser - Sterne, Agee & Leach: Hi, can you hear me better now?

That's better, Sam. Sam Poser - Sterne, Agee & Leach: All right, thank you. What was the cost of the Team Columbia deal?

I am sorry, what was the cost? Sam Poser - Sterne, Agee & Leach: The cost.

Oh, I am sorry. Well, we have an agreement with the owner of the team which stipulates that we have… that stipulates we be confidential in terms of the cost. But I can tell you it's been the most expensive deal the company has ever done, but it's been highly rewarding. Sam Poser - Sterne, Agee & Leach: Good. And then I just need... I just want to verify once again I've one other question With the... you had mentioned in another... somebody asked this question that you really can cancel your factory orders, so your guidance... I just want to clarify, your guidance is based then on the potential discounts that you are going to... that you will be giving to your retail accounts with the excess of inventory due to the cancellations?

So, yes, the guidance includes our planned liquidation of Spring '08 product that was cancelled in the second quarter and that's already been sold. So, that's a known number and then it's our expectation that some of our sales at full-price, our re-order sales and cancelled sales, which still has to be liquidated. Sam Poser - Sterne, Agee & Leach: Okay. And did you take into your account any of that guidance in that thought process, sort of the fast changing atmosphere in the United States as you had mentioned is going on, and three months ago, you wouldn't have expected what happened today, have you taken into... have you been very conservative in that thought processing this could still get worse kind of idea or are you seeing what you are seeing and taking that today, does that make any sense?

Makes perfect sense. We've spent a lot of time on it. We've basically analyzed our order book exactly as you've described. Sam Poser - Sterne, Agee & Leach: Okay. And then just one last thing on the marketing, you had mentioned on the last call that you, and it's in your head, you think you are an authentic outdoor brand, and you really don't like the word fashion, but I mean people are going to buy those the jerseys for the cycling as a fashion piece. If it's authentic and there is fashion attached to it or style, I mean are you working closer to sort of to get the two closer together without... do you understand what I am saying, you know making it more stylish fashion? You don't like the word fashion but --

We consider that our products have to be appropriate for the time and have to be covered right and have to be desirable, so those are all parts of parcels of what we put into the... into our product mix. The cycling jerseys themselves are not made by us nor are they sold by us. They are sold by a firm that has licensing rights, it does that. That's their only businesses is cycling jerseys. So, those will be bought by enthusiastic. Lots of people buy them and wear them around but they aren't going to be impactful on our revenues at all. We are going to offer what we call half-bike apparel which would be fan apparel or training apparel. So, a biking enthusiastic could wear some of our terrific outdoor products while he is training and some of them will covered and embellished, close to the uniform, but they are not going to the cycling jersey. Sam Poser - Sterne, Agee & Leach: And then I'm sorry, one another thing. With the new outlet store, I mean is there a chance that you may increase the opening of those outlet stores because it would be clearly be a more profitable way of liquidating of some of this excess... of this excess inventory, or the potential excess inventory?

We think we have an opening scheduled which is appropriate for our investment in talent here and for the... besides the market and so we are going to be sticking right to the plans as announced. Sam Poser - Sterne, Agee & Leach: Okay. Thank you, very much

Thanks, Sam.

[Operator Instructions].

All right. Well, thank you very much for listening to us and we look forward to joining you in October for our third quarter conference call.

Ladies and gentlemen, thank you for participating in today's Columbia's Sportswear second quarter '08 financial results conference call. You may now disconnect.