Ron Parham - Senior Director, IR Gert Boyle - Chairman Tim Boyle - President and CEO Tom Cusick - SVP and CFO Brian Timm - EVP and COO Peter Bragdon - SVP and General Counsel.

Bob Drbul - Nomura Securities International Christian Buss - Credit Suisse Lindsay Drucker Mann - Goldman Sachs Mitch Kummetz - Robert W. Baird & Co. Jim Duffy - Stifel Nicholas Corinna Van Der Ghinst - Citigroup Global Markets Andrew Burns - D.A. Davidson Camilo Lyon - Canaccord Genuity.

Greetings, and welcome to the Columbia Sportswear First Quarter 2014 Financial Results. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Ron Parham, Senior Director of Investor Relations for Columbia Sportswear. Thank you, Mr. Parham. You may begin..

Alright, thanks, Bob. Good afternoon and thanks for joining us. Earlier today, we issued two press releases. The first covered our strong financial results for the first quarter of 2014 and upward revised financial outlook for the full year.

The second announced the signing of a definitive agreement to acquire prAna Living LLC in a $190 million cash transaction subject to customer conditions and regulatory approvals.

As is our standard practice, shortly after these press releases crossed the wire, we filed an 8-K containing a detailed CFO commentary on the Q1 results and revised outlook as well as additional color on the pending prAna acquisition. The CFO commentary can be found on our Investor Relations website at investor.columbia.com.

On today's call to discuss these announcements and answer your questions are Columbia Sportswear's President and CEO, Tim Boyle; Senior Vice President and Chief Financial Officer, Tom Cusick; Executive Vice President and Chief Operating Officer, Brian Timm; and Senior Vice President and General Counsel, Peter Bragdon.

I'll ask Chairman, Gert Boyle to cover the Safe Harbor language..

Good afternoon. This conference call would 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 the 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 Annual Report on Form 10-K for the year ended December 31, 2013 and subsequent filings with the SEC.

Forward-looking statements 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 to change in our expectations..

Thanks, Gert. Since we have a lot of information to get through today, I'll turn it over to Tim for his prepared remarks and then we'll open the call to your questions for the remainder of the hour.

Tim?.

Thanks, Ron. Welcome, everyone, and thanks for joining us this afternoon. We're very excited about each of the announcements we issued earlier today. These announcements individually and together reflect a company that's reigniting profitable, sustainable growth following two consecutive years of flat sales.

I'm proud to say that during these two challenging years, we've managed expenses responsibly, executed a massive North American ERP implementation and strengthened our financial position. Most of our existing brands are experiencing growth as a result of better aligning their products and marketing communications with consumers' needs and passions.

Additional growth is coming by leveraging our strength and the financial position and global operating platform to add a new brand to our portfolio that brings equally passionate consumers in complementary market segments representing long-term profitable global growth opportunities. I'll take a few minutes to review our strong first quarter results.

Then I'll elaborate on our pending purchase with prAna before opening the remainder of the call to your questions. We're very pleased with our first quarter results which were stronger than we anticipated in our mid-February outlook.

First quarter global sales growth of 22% reflects our strategic emphasis on North America wholesale and direct-to-consumer channels and our new joint venture in China. It also demonstrates how our business is operating geographically by channel, by brand and by product category. More than half of the first quarter growth came from the U.S.

with the reminder from our China JV which is included in our Latin-America Asia-Pacific or LAAP region. Our U.S.

and Canadian businesses were especially strong during the quarter as cruel weather extended consumer demand for cold-weather footwear and apparel driving strong wholesale reorders and enabling our direct-to-consumer business to post another quarter of very strong growth driven by increased traffic and strong conversion rates. Our U.S.

direct business posted modest growth in the quarter providing further indication that our business in those markets is stabilizing and positioning us for renewed growth in the second half of 2014.

In China, our new JV turned in a successful first quarter lifting the LAAP region to a 41% growth rate as its incremental sales more than offset macroeconomic and political challenges that we faced for more than a year in Argentina and Venezuela.

The Korean market has become more competitive in promotional resulting in a small decline for the first quarter. However, we still expect full year sales to increase in that market. In Japan, we've been growing consistently in a local currency basis but the weaker yen has caused a year-over-year decline in reported U.S. dollar sales.

Now the country is adapting to an increase in the national consumption tax from 5% to 8% coming into effect April 1. Both Korea and Japan have posted strong growth over the past several years. Our brands remained strong in both buckets and we continue to view them as vital components of our long-term global growth strategies.

Looking at our business by channel, our global wholesale and direct-to-consumer channels each posted strong growth in the first quarter driven primarily by North America. All three of our major brands grew during the first quarter led by a 25% global increase in net sales of the Columbia brand.

First quarter sales of Columbia footwear increased at a faster rate than Columbia apparel on the strength of winter boots and trail footwear while Mountain Hardwear and Sorel each posted single-digit growth.

While our first quarter benefited from the extended demand for winter styles, we were also delivering wholesale customers advanced spring orders.

In addition to meeting scheduled deliveries we worked with our North American customers to arrange earlier delivery on nearly $14 million worth of orders originally scheduled for delivery early in the second quarter. This pull forward was done to mitigate potential risks associated with our U.S. ERP cutover that began in late March.

On balance with more full price wholesale sales, fewer closeouts and less commercial activity, gross margins increased 250 basis points to 46.5%, a record level for any first quarter in our history. Our focus on inventory reduction and improved inventory turns continues to free up working capital.

Inventory was down 11% from one-year ago and 17% lower excluding the incremental inventory held by our new China JV. During the second half of the year, we expect inventory levels to increase at rates lower than anticipated sales growth.

We continue to manage discretionary expenses very effectively generating 250 basis points of SG&A leverage in the quarter. SG&A dollar growth in the quarter was primarily related to incremental expenses of the China JV and planned investments to expand our direct-to-consumer operations.

Looking ahead, our fall 2014 order book continued to strengthen over the past 60 days particularly in North America where channel inventories of Columbia and Sorel products are very clean.

Our upward revised 2014 outlook now anticipates global top line growth of 16% to 18% and operating margin of approximately 8.25%, excluding any anticipated financial effects of our pending purchase of prAna.

We continue to expect our North American direct-to-consumer sales to grow at a double-digit pace in 2014 including plans to open an additional 17 stores comprising of 11 outlets, six Columbia-branded stores and two Sorel pop-up stores.

The new outlet stores will help us manage excess inventories more profitably while protecting brand integrity in our wholesale channels. We generated 43.5 million in cash from operations during the first quarter ending with a record 568 million in cash and short-term investments.

We're very excited with our prospects of putting a portion of that cash to work that add product to our brand portfolio. In prAna, we see a brand and an organization that has very clear visions and values and very passionate consumers who share those values as a foundation of their lifestyles.

In addition we have retracted the company based on the strength of the management team and we're confident that they will be great partners to pursuing the brands potential.

The prAna brand was founded in 1992 in Carlsbad, California as a yoga and climbing brand that inspired to reflect the values and lifestyles of people who express themselves through these activities.

Over the past 21 years, the values of social and environmental responsibility, community, service and optimism have come to resonate with an increasing number of consumers around the world and those are the same values upon which the prAna brand is positioned.

The resonance of that positioning is evident in prAna sales growth momentum which has compounded at a rate of more than 30% between 2010 and 2013 and put it on pace to surpass $100 million in sales in 2014.

The revised 2014 guidance, I said earlier, does not include any anticipated effects from the pending acquisition of prAna which we expect to close during the second quarter subject to customary conditions and regulatory approvals.

You can find more detail on our Q1 results and our updated outlook including the anticipated impact of the prAna acquisition in Tom's CFO commentary available on our website.

Finally, I'm very pleased to report that we're three weeks into what has thus far been a very smooth ERP implementation in North America following many months of preparation and testing by a very dedicated cross function of global business transformation project team.

We're very proud of the exceptional efforts of the team which have enabled us to quickly resume receiving and shipping inventory, invoicing customers, collecting receivables and paying vendors with volumes typical for this time of the year.

I'm also pleased to note that sell-through of our spring products across North America wholesale and our direct-to-consumer channels are ahead of where they were at this time last year, despite the cooler weather and the winter Easter.

We're seeing increased sales across the full spectrum of product categories from rainwear to PFG and from footwear, sportswear to fleece. In summary, 2014 is off to a strong start.

We intend to build on that momentum as we approach the fall shipping window and to extend the momentum into 2015 across each of our existing brands, geographies, channels and product categories.

We look forward to completing the purchase of prAna in collaborating with '13 to unlock prAna's global brand potential as an additional growth engine in 2015 and beyond.

Over the past several years we've been focused on renewing top line growth and improving the profitability of our core business by fixing our direct business in Europe, improving our North American wholesale business, investing in an expanded direct-to-consumer platform and establishing a joint venture in China.

We're proud of the results we posted today which indicate significant progress on those initiatives while simultaneously enhancing our global infrastructure with a new ERP platform.

We believe we have several profitable growth engines and loads of opportunity to increase our profitability towards our long-term goal of above industry average operating volumes. That concludes my prepared remarks.

We want to use the rest of this hour to answer your questions but we'll need to limit the call for that timeframe, so I can head down to California to meet with our new teammates at prAna. Operator, could you help us facilitate the questions..

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. (Operator Instructions). Our first question comes from the line of Bob Drbul with Nomura. Please proceed with your question..

Hi. Congratulations on the acquisition..

Thanks, Bob..

Did Gert chime in on the prAna brand at all?.

Absolutely..

Yes, at the top of the hill that's where you were..

Congratulations. And I have just a couple of questions on the Columbia business for a second, Tim.

I guess as you look at the inventory levels and then the first quarter gross margin performance, when you look at the updated guidance for the full year, do you expect to have any down quarters in gross margin? And sort of given the strength that you saw right now and the inventory levels, the 50 basis points for the full year seems a little conservative.

Can you just talk to that a little bit?.

Yes, Bob, this is Tom. So my I guess is we look at the second half of the year, we're anticipating gross margin to be roughly flat with last year and that's predominately due to the fact that we're comping against more difficult direct-to-consumer and wholesale comps given the phenomenal winter we had last year.

That's really the main driver for the flat gross margin..

Okay..

And I guess there's one other significant point. Obviously, we've got some significant headwinds with the yen and the Canadian dollar from a hedge rate perspective..

Okay. And on the increased top line visibility, Tim, you mentioned the order books strengthened a little bit.

Can you elaborate in terms of – in the channels or the partners sort of what happened? Like what was the demand that you did see on the increased orders and the timing in terms of like before October or later in the year, just how to think about it from that perspective?.

Well, we've been fairly pragmatic about accepting orders beyond October, so the bulk of our business increase has really been in those key shipping months prior to October. And it really has been across the board. We've seen customers converting prior to other programs over to our branded merchandize.

We've also seen an increased amount of purchasing across the board. And remember that last year retailers were so cautious in terms of how they approached winter-sensitive merchandize that they were as conservative as we were. Sorel, by the way, has been an incredibly strong brand for us.

We had a very small increase in the first quarter primarily because we ran out of inventory, so we expect all the brands really to do quite well in the back half..

Got it.

And my last question is, so with the acquisition of prAna at 190 million and your cash balance is still very heavy, would you anticipate any other sort of shareholder friendly initiatives with that cash for the remainder of '14?.

Bob, as you know, we've been incredibly focused on fixing the issues that we had within the company and the brands and we think we've gone a long way towards that, we have nowhere competed that.

We still have subpar operating margins and we want to get those things out, and so our focus is going to be on heavy emphasis on the brands that we already have and continuing the expansion geographically as we've seen in Europe.

So that's going to be the focus, although – the balance sheet is strong enough that should there be an opportunity that we think fixes nicely in our collection as prAna does with the management team that we think is as strong as prAna, we would look at it..

Okay, great. Thanks very much. Congratulations, Tim..

Thanks..

Thank you. Our next question comes from the line of Christian Buss with Credit Suisse. Please proceed with your question..

Yes. I was wondering if you could provide some color on how you see the mix of your business changing with prAna between spring, summer and fall and the winter.

Would love to get some color on the prAna business and how that flows seasonally?.

Certainly. Well, the prAna business itself is very balanced and much less weather-sensitive than really of the Columbia businesses including Columbia brands. So it's smaller, so the impact won't be significant right away but we expect that that brand will be more than likely quite balanced across seasons as it has already been.

Columbia's focus and efforts on the Columbia brand and Sorel brand are historically very winter-focused but I got to admit, our (indiscernible) business has really been very strong this year and that's primarily a spring business..

That's very helpful.

Could you provide some color on the demographics of the prAna customer relative to the Columbia customer? And then if you can also provide some color on the distribution network for prAna versus what Columbia has, and if there's sort of opportunities there for synergies from a distribution standpoint?.

Certainly. Well, the primary difference between the prAna customer and the Columbia customer is gender. I want to say prAna is nearly not greater than 70% female and that's one of the real keys for us in terms of approaching the brand and why it was so interesting to us is the female consumer there.

The distribution of the product is primarily in specialty and other sporting goods operations. I would expect that that would continue. Our focus is going to be on expanding our specialty store business and continue to increase our better sporting goods business.

So those expectations in terms of distribution ought to continue in those areas, although we do think we can add significantly to our international business with prAna as Columbia's business is over 40% outside the U.S. and prAna has a small position outside the U.S.

So we think expanding those customer bases, more sales to women obviously with women's products and international will be a real strong growth vehicle for prAna..

Thank you very much and congratulations on a great start to the year..

Thank you..

Thank you. Our next question comes from the line of Lindsay Drucker Mann with Goldman Sachs. Please proceed with your question..

Thanks. Good evening, guys..

Hi..

I wanted to first ask on the inventory in the quarter just to clarify.

The big gap you have in sales versus inventory, is the vast majority of that stronger sell-through versus what you bought or is there any sort of operational – how much of that might be operational efficiencies, improvements that we can expect to carry through for the rest of the year?.

Yes, Lindsay, this is Tom. I would say it's really driven by two factors. One being that the great sell-through in Q1 of fall '13 product and then just better overall management of inventory and better inventory utilization. So those are really the two main factors from my perspective..

And the better inventory management, is that just execution-based or have you guys implemented – is it new tools that have allowed you to manage better?.

I would say predominately at this point it's better business process and now with the ERP implementation, now we'll be able to get better leverage from the system itself. It's been predominately a function of business process to-date..

So that was my next question on the ERP system.

I mean how should we think about over a two to three-year horizon where your inventories versus sales will be going from there or gross margin opportunity, things like that?.

Yes. This is Brian. I'm just going to say, Lindsay, our premise for investing in this ERP was really to get better inventory utilization and higher operating margins from our inventory investment. So we're literally two or three weeks into the process here in the U.S., longer in Canada.

But our expectation is that if you look at our inventory turns, historically they've been poor and this tool is going to help us to improve that.

We're also going to have better visibility on the operations of the business with these tools and be able to make better decisions on the inventory which will allow us – we hope to have higher gross margins. So that's our premise for investment here and I can't tell you exactly when it's going to happen, but not too – it can't be too soon for me..

Got it. And then just one last sort of housekeeping piece. For prAna, should we be thinking about if the transaction ultimately closes, would you be excluding the purchase accounting amortization from that in your comparable earnings results? And then also just – having read your CFO comments, how do we think about sort of momentum for U.S.

sales in the back half based on your fall order book? Can you give us any better visibility into that guidance? Thanks..

Yes, so as it relates to prAna, we will be including obviously their results and ours from the date of close forward and that all the purchase accounting amortization will be included in our operating results, but we will comment on specifically what that amortization is so the investment community could understand the with and without elements of our results.

And then as it relates to the U.S. business in the second half, of that approximate 55 million that we plan to recognize, the majority of that is U.S. business and then that coupled with the double-digit growth in our fall wholesale business, the second half in the U.S. wholesale business including prAna should be very strong for us..

Okay. Thanks, guys..

Thank you. Our next question comes from the line of Mitch Kummetz with Robert W. Baird. Please proceed with your question..

Yes, thanks. Let me just follow-up on Lindsay's last question, because – I guess given where your full year guidance is excluding prAna, you're looking for about 15% to 17% sales growth over the balance of the year. I'm just hoping to get a little bit more color on the cadence of that growth across the quarters..

Yes. So we would expect the first half and the second half to grow at fairly comparable rates now.

90 days ago we thought the first half was going to grow at a little bit slower pace than the second half, but the toggle really is the cadence of our international distributor business that ships between mid-June and mid-July and a higher percentage of that business is anticipated to ship in the second quarter.

So that's really what is driving the more balanced growth rate first and second half now as compared to 90 days ago..

And would you expect to see stronger growth in Q3 versus Q4 given that that's an easier comparison both wholesale and retail and that's where you'll probably benefit the most from the [sell-in] (ph) of your strong fall product?.

Yes, it's probably a little too early to call the Q3, Q4 spread. We're really trying to stay away from giving specific quarterly guidance. At this point I would say we're planning the first and second half to be fairly comparable in terms of growth rates..

Got it. And then again, when I pull out China from your guidance, I mean it looks like you're expecting all-in kind of 8 percentage growth for the year, top line growth ex-ing out the benefit from the China transition.

I'm just trying to reconcile that with the strength of your fall orders which I know you're not giving the backlog, but you said they were up double digits.

So I guess the delta would be your assumptions around things like cancelation rates and reorders and maybe what's happening on the direct side with regard to ecommerce or comping in your own stores.

I mean how are you thinking about those variables? I mean how conservative are you being around those variables as it relates to your guidance to kind of tie the order book in with the overall sales outlook?.

Yes, so it's really a function of spring and fall wholesale and again, the distributors whether those ship in that spring business between Q1 and Q4 and then the direct-to-consumer business and then reorder and cancel rates are really driving the deltas there and that's why we no longer publish our order book as it adds confusion given the multiple inputs here..

Maybe if I can ask you a different way, I mean are you being more cautious on things like cancelation and reorders relative to where they were last year which I would imagine were pretty good compared to kind of historical levels given the strength of the winter season?.

Yes. So we planned the second half based on a normal winter weather pattern. So if the winter is better, I would expect sales and gross margin more so to be positive impacted. And if winter is not normal, to the downside, then there will be some downside risks. So, we plan for a more normalized cancel on reorder rates..

Got it. That's what I was looking for. All right, thanks..

Thank you. Our next question comes from the line of Jim Duffy with Stifel. Please proceed with your question..

Thanks. Good afternoon, everyone. Congratulations on the great start to the year and the transaction. .

Thanks, Jim..

With respect to prAna, I'm interested in hearing a little bit more about where you see the growth opportunities for the brand? Do you see it as of sales growth agenda or do you expect to continue to open retail stores from an international standpoint? Tim, which are some of the markets which you think are most ready for the concept? Any help you can provide there would be hopeful..

Sure. We expect that the cadence that the management team has already put in place in terms of opening additional wholesale customers will continue. Again, that's been primarily focused on specialty sporting goods stores. I think over the long term, there's an opportunity in new department stores, but we haven't really attacked that as of yet.

And they'll be some direct-to-consumer, but frankly it will be I think at the end of the day the growth will primarily come from wholesale. When we think about outside the U.S., obviously the first order of business is Canada and that's going to be a significant opportunity for us there.

And then I think there is opportunities for us in South America, in some of our Asian markets and in Europe where they have had some exposure in the market there, but we think we can expand that business there. And of course we don't want to get too far ahead of ourselves because we've got our own challenges in Europe.

But I think the brand is really spot on for the female consumer, and I think there is a real opportunity for us to grow this business quite well..

Good to hear. Shifting gears a little bit, pretty strong quarter from the China JV and it seems a more optimistic view on the contribution for the year.

Can you provide an update on how that transition has gone and some of the traction that you're seeing there?.

Yes, let me give you just sort of a high level overview and maybe Tom can chime in here if we've got some specifics. But the business there has successfully transitioned to Shanghai where it's been operated.

We still have a portion of the staff growing the businesses based on Hong Kong and there's a portion that's actually commuting back and forth from Hong Kong to Shanghai, but we moved into the offices there and our business is now operated out of Shanghai. We're excited about the potentials there.

If we look at how we've operated the business from a merchandizing standpoint, we've had less specific involvement with merchants in China than we intend to. We think we can add significant opportunities to the business by just being closer to the consumer in that market as opposed to assuming that they're going to just take USA merchandize directly.

So, I think there's lots of opportunities to be more specific around how that consumer in China looks at our products. And then we're looking obviously always at making sure that our stores are fresh and refreshed on a constant basis.

Some of them are 10 years old in the market, so our expectation is that over time we're going to have a really terrific business there. And lastly, I guess I would point out that the marketing spend in China is significantly higher than it is globally for the rest of our brands and approximating 10%.

Tom, you have some…?.

Jim, on the slight uptick in the anticipated earnings accretion that's really a function of slightly lower expense outlook. A significant part of that G&A expense is that shared services model where we're relying on the JV partner and those expenses have been adjusted downwards slightly..

Okay. And then Tom, a housekeeping item.

Can you speak to the contribution to gross margin in the quarter from the consolidation of the JV?.

Yes, it's not overly significant. I would say it's a very low single-digit millions of dollar number, and what I'm speaking to specifically is the combination of the deferred profit related to the licensed revenue that was historically recorded below the line and separately in licensing income..

So you've got into the delta there from the change in accounting…?.

Correct..

Got you. All right, thanks very much..

Yes..

Thank you. Our next question comes from the line of Kate McShane. Please proceed with your question..

Hi. Good evening. It's Corinna Van Der Ghinst for Kate. I was hoping you could provide a little more color on the outperformance in the U.S.

this quarter? Were there specific channels or markets that exceeded your expectations more than others? And also if you could talk about your ability to fulfill reorders on the cold-weather side this quarter since I think in the past you guys have said that you generally had limited ability to chase within the season..

I'm not sure I caught the last question but let me get started and if I missed something, you'll remind me. So basically the first quarter as you know was obviously a heavy environmental impact due to weather and of course our company strength is in cold weather apparel and footwear.

And as the weather continued to be helpful to us, we just got to the point where we were not marking down inventory. Our customers were selling merchandize closer to full price even beyond Christmas which is very unusual. Even to a point for us where we actually ran out of inventory in the Sorel brand.

So all of those things helped to have a high level of sales and a high level of gross margin on those winter products. We have very little opportunity to fill back in at those late times, so we probably lost lots of sales but that's okay. We're more than happy to be clean rather than long on inventories..

In addition we pulled forward approximately $14 million of spring orders into Q1 that were scheduled for shipment later in April to get in front of the ERP go live. So that's another factor..

Right. But even if I back that out, it still looks like you guys are at double-digit growth for the year and that's pretty impressive. Okay, that pretty much answers my question of pretty much on the inventories for chasing inventories into the post-Christmas period.

But then also with the acquisition of prAna, I was just wondering how this impacts your women's strategy for the Columbia brand or do you view this as an incremental new customer?.

Yes, I'm sorry, the question is whether or not it impacts the Columbia brand? And I would say one of the reasons that we were very interested in the prAna brand is that there is almost no overlap. The customer, the consumer for prAna which is mostly women, we didn't feel we could even approach with our current brand portfolio.

So we would expect zero cannibalization from the Columbia brand frankly..

Okay, great. Congratulations..

Thank you..

Thank you. Our next question comes from the line of Andrew Burns with D.A. Davidson. Please proceed with your question..

Good afternoon and congratulations on the quarter and the acquisition. Just had one quick question in terms of weather. Your clearly benefiting cold-weather products but I was encouraged by the comments on the spring assortment and sales holding up there.

Could you perhaps elaborate a little bit on particularly the strength you're seeing there?.

Certainly. Our spring products are in fact more warm weather and it's been really gratifying to see the strength of our PFG brand and how well that's done even in periods of time when it's been colder than normal. It's really a strong endorsement of that product and how well it's been selling.

But we've also had great rainwear sales and fleece sales have held up actually quite nicely too. So we're pleased with that. Our footwear business, especially in the hiking category, and this would be globally, has been very strong. We've had a tremendous amount of business on a specific hiking shoe in Europe with one of our biggest customers there.

So, we're not cooking on all cylinders yet but there is certainly a lot of great momentum seasonally for the product and then geographically..

Okay. Thanks and good luck..

Thank you. Our next question comes from the line of Camilo Lyon with Canaccord Genuity. Please proceed with your question..

Thanks. Good afternoon, guys. Really nice job on the quarter. I wanted to go back to the prAna acquisition. I want to get your thoughts on the opportunities to incorporate footwear offering given your strength in your home brands with footwear.

And also if you could talk about any opportunities to improve there either margins, whether it's from supply chain efficiencies, buying power, anything of that sort and what do you think that their margin structure could ultimately go to?.

Well, we haven't even considered a footwear opportunity. The brand needs to get bigger. We need to continue to simplify our approach, so we're going to really encourage the management at prAna to manage their business independently of our (indiscernible).

But we're going to really encourage the personality of the prAna brand to expand with the management down there. There may in fact be a footwear opportunity at some point in time but we haven't even considered it and it would be added at a time when we thought it was appropriate.

As it relates to margins, our company has a significant sourcing operation globally and we would expect that we would weigh in on helping where appropriate. But we haven't really delineated any specific gross margin improvement as it relates to our sourcing operations..

From what you can tell already, are there any obvious efficiency that you can help them achieve or is this purely just benefiting from the high pace of growth that they're now enjoying as they sort of open up more distribution both domestically and internationally?.

Well, I would say if we're going to contribute anything it's just the strength of our balance sheet.

They've been owned by a private equity firm for a number of years and we would expect that our strong balance sheet would allow them to be more creative and be – we're comfortable, in fact more than comfortable with the management team and we would expect that we would be able to utilize more of our assets on the balance sheet to continue to provide great growth that they've seen..

Okay, great. And then just moving onto the guidance and how the Chinese JV layers into that. The first quarter definitely had some nice improvement from that part of the business going direct.

Could you still help me understand why that wouldn't continue into the future quarters and why you wouldn't see a comparable benefit from that?.

Yes, so when we look at the year taken as a whole, the China component and the licensing piece that gets moved into gross margin coupled with the fact that their gross margin taken as a whole is greater than the corporate average is the single biggest driver for gross margin expansion for the full year coupled with channel mix with a higher percentage direct-to-consumer and wholesale business in a smaller component of distributor business, lower margin distributor business.

And then there is a fairly sizable offset there with our hedge rates given the weakness in the Canadian dollar and the yen. So that's what nets us down to the 50 basis points for the full year.

And then as we look at Q2, for example, that quarter will be much more heavily weighted to our distributor business because the majority of our distributor shipments will ship in, in the second quarter which will way down the margin on an overall basis in Q2..

Okay.

And I would assume you would get also a sales [work] (ph) as you go direct in that country, so not really haven't seen slowdown into too much, I would have thought that there would have been a bigger lift realized from China that we would see in Q2 to Q4?.

Yes, Q2 is China's smallest quarter of the year as well..

Okay, that's helpful. Thank you..

Thanks..

Thank you. (Operator Instructions). Our next question comes from the line of Robby Ohmes with Bank of America Merrill Lynch. Please proceed with your question..

Hi. This is (indiscernible) for Robby. Thanks for taking the question..

Hi..

Can you guys just talk about the outdoor market in China? And then how you guys feel about the inventory levels? Have those improved at all?.

Well, we think the outdoor market in China is continuously growing. The China market is enormous, obviously, not only from a population standpoint but geographically. So we're very bullish on that area. It is a competitive and becoming more competitive out there.

We've seen some of our competitors expand the amount of inventory that they have for sale beyond what the consumer can accept. So there has been some amount of inventory there just from a general market standpoint.

But we feel very strongly about that market and it slowly continuously becoming more wealthy and really gravitating towards outdoor products not only for specific use of outdoors, but I don't know it's becoming an increasingly more comfortable way for people to dress. So we're excited about it. There are challenges.

It's becoming more competitive, but we think with our balance sheet and our strong partner there, the JV, that we have significant opportunities to continue to grow the business..

And then can you talk a little bit about the Sorel brand. You guys said you sold out it.

And then kind of the outlook in Europe there, are you still closing doors or do you feel comfortable with your distribution?.

Well, let me just talk to you about the Sorel comments because those were primarily North America with the tremendous in cold-weather that we had in North America, we literally ran out of inventory at Sorel to supply our wholesale customers and also for direct-to-consumer customers.

As it relates to Europe, we have a high degree of confidence in our new team there. They are really focused on simplifying the business, concentrating on a smaller set of markets and a smaller set of key customer that can really drive the business.

So, I'm very pleased with the work that our team there has done so far and my expectation is that over time, we're going to be very pleased with the decisions we made there in Europe..

And then can you give any color around your direct-to-consumer comps in the quarter? And then I think you're planning to finish with 75 outlet doors in the U.S. at the end of the year.

Do you have any sense of how many you operate longer term? Could you go to 100 plus like some of your competitors?.

Let me answer the question a couple of different ways or split into a couple of pieces. We don't give comp information because we don't consider ourselves a retailer. We consider ourselves to be maybe a wholesale customer with this additional set of assets to help us manage our inventory levels.

I'm going to ask Tom to specifically talk to the numbers, but I can tell you that we are cautious in terms of our opening. We believe that there are more opportunities for us in the outlet space. We also believe there is opportunities for us in branded stores. So let me give you – I don't think we have time to give you the numbers on the outlet stores.

And as the business grows, we'll probably need more but we don't have specific plans to add any significant amount soon..

Yes, so your 75 number was correct for the U.S. and Canada combined. We'll end up in the U.S. with 74 outlets and a couple of additional in Canada as well exiting this year. And as it relates to – we're very pleased with our direct-to-consumer results in the first quarter. We saw great growth in both traffic and conversion..

Great. Thank you..

Thank you. (Operator Instructions). There are no further questions at this time. I'd like to turn the floor back to management for closing comments..

All right, thank you very much. Again, we're just through with the addition of prAna to the company's brand collection and we're also very thrilled with the results of the hard work that we've done here over the last several years in managing our business during the tough time. So, we look forward to talking to you in July with more good news..

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