Greetings. Welcome to Columbia Sportswear Fourth Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Andrew Burns. You may begin..

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's fourth quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on our Investor Relations website, investor.columbia.com.

With me today on the call are Chairman, President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President and Chief Administrative Officer, Peter Bragdon.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis.

However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information.

We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or any 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 for management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in earnings release and appendix of our CFO commentary and financial review.

Following our prepared remarks, we will host a Q&A period, during which we limit each caller two questions, so we you can get to everyone by the end of the hour. Now, I'll call the call over to Tim..

Thanks, Andrew, and good afternoon, everyone. I'm incredibly proud of the financial performance and accomplishments that our global workforce delivered in 2022. For the year, net sales grew 11% to a record $3.5 billion. On a constant currency basis, net sales increased 14%.

I'd like to thank our dedicated employees whose tremendous efforts enabled these results. We achieved these results, while navigating numerous supply chain challenges. We know there's a strong demand for our products, and our recent financial performance could have even been higher absent the product delivery delays we experienced.

Columbia and SOREL had to charge with both brands generating record net sales and double-digit constant currency growth in 2022. Geographically, we have broad-based momentum. Our largest market, the US, grew 12%. On a constant currency basis, International growth highlights include Europe Direct surging 31% on the year and Canada growing 19%.

By channel, our growth in 2022 is relatively balanced with both our wholesale and DTC business generating double-digit constant currency growth. Our global DTC e-commerce business grew 10% constant currency and represented 18% of total net sales. I believe these results are proof that our strategies are working.

Looking at the current environment, the threat of a recession is weighing on the market. In these times, our strong financial position is a strategic advantage. We exited year with over $400 million in cash and no bank borrowings. We're entering 2023 in a position of strength with positive momentum in many markets around the world.

The Columbia brand's iconic innovation, value proposition and democratic product offering are enabling us to capitalize on the popularity of outdoor activities. Differentiated innovations like Omni-Heat Infinity and the recently introduced Omni-Heat Helix are separating Colombia from the competition and fueling its growth trajectory.

SOREL's function first fashion footwear is resonating with consumers. We believe SOREL is on its way to $1 billion in sales and becoming the next global footwear force. Our products have earned us a loyal base of consumers and we're making focused demand creation investments to create even deeper consumer connections and unlock growth.

We have amazing strategic wholesale partners and a powerful direct-to-consumer business that's helping us create the marketplace in the future. As we begin the year, one of our top priorities is to reduce our inventory position and align it with demand.

I'm confident in our ability to perform this task effectively and profitably over the course of the year. Our business model, strong financial position and strategies are well-suited to manage this process. Our product offering includes a large percentage of evergreen styles that do not change season to season.

This reduces our exposure to promotional pricing. Given our strong balance sheet, we can be patient as to when and where we sell our product. We expect to continue utilizing our fleet of outlet stores to profitably liquidate remaining excess inventories. Columbia Sportswear is positioned to deliver another year of profitable growth in 2023.

The top end of our financial outlook contemplates 6% net sales growth and a 12.2% operating margin. I will provide more details on the key drivers and assumptions influencing this outlook later in the call. I will now review our fourth quarter 2022 financial performance. Net sales grew 4% or 8% on a constant currency basis.

This was within the financial outlook we provided in October and reflects strong execution in a challenging environment. Gross margin contracted 180 points and was -- assuming 180 basis points and was roughly in line with our outlook.

The largest driver of contraction was higher promotional activity in the marketplace as we lapped an exceptionally low promotional environment in the prior year. SG&A expenses increased 5% and represented 34.6% of net sales compared to 34% and in the prior year.

We incurred $35.6 million in non-cash prAna impairment charges during the quarter, which impacted diluted earnings per share by $0.43. Diluted earnings per share decreased 15% to $2.02. I will now review fourth quarter and full year net sales growth by region and brand.

For this review, I'll reference constant currency net sales growth to illustrate underlying growth in each market. All regions outside the US were unfavorably impacted by foreign exchange rates. US net sales increased 2% in the fourth quarter and 12% for the year.

In the quarter, we generated high single-digit percent DTC growth balanced across our brick-and-mortar and e-commerce businesses. US wholesale net sales decreased mid-single-digit percent.

Wholesale performance in the quarter was unfavorably impacted by a greater portion of Fall 2022 orders shipping in the third quarter this year relative to last year. Looking at the third and fourth quarters combined, second half US wholesale net sales increased high single-digit percent, reflecting healthy retailer demand for our products.

With that said, we know [ph] supply chain disruptions resulting delivery delays tempered our Fall 2022 performance. We were unable to maximize early-season full price sales, and we experienced higher order cancellations resulting from the late receipts of inventories.

As we move into Spring 2023, our on-time delivery percentage is greatly improved and is approaching pre-pandemic service levels. US Fall 2022 retail sell-through trends were generally positive. With the season almost complete, sell-through is tracking roughly in line with Fall 2021, which was exceptionally strong. Turning to our international business.

Latin America/Asia Pacific region or LAAP, net sales increased 11% in the quarter and 13% for the full year. China was up mid-single-digit percent for the quarter led by strong dtc.com performance. For the year, China declined mid-single-digit percent, primarily reflecting the impact of government efforts to contain COVID-19 outbreaks.

I'd like to thank our team in China who overcame numerous supply chain and COVID-related challenges. I'm encouraged by the emerging momentum I see in this market as we started 2023. I believe the investments in talent and operational improvements we've made over the last several years position us to accelerate the business as China reopens.

We know we have powerful brand recognition in China and that this market represents one of our largest geographic growth opportunities. Japan increased high single-digit percent in the quarter and high-teens percent for the full year. For the quarter, net sales growth was led by DTC as traffic recovered and consumers embrace Columbia's products.

Korea grew low single-digit percent in the quarter and high single-digit percent for the full year. There is sustained interest in outdoor products and activities in that market, and we are positioned for growth -- continued growth in 2023.

Our new leadership in Korea is focused on managing the marketplace to optimize our DTC store fleet and retail partners distribution to further elevate the brand and drive productivity across all channels. The LAAP distributor markets were up low 80% for the quarter and high 70% for the full year.

Growth in the quarter reflects higher Fall 2022 and Spring 2023 orders as well as favorable timing of shipments. With robust growth in 2022, our LAAP distributor business has returned to pre-pandemic sales levels. Europe, Middle East, Africa region, or EMEA, net sales increased 32% for the quarter and 26% of the year.

Europe Direct grew low 30% in the quarter and for the full year, including strong demand across all channels. I'm extremely proud of our team and the progress they've made growing our business in Europe, while improving profitability.

If you'll remember in 2015, Europe Direct represented just over €100 million in annual net sales and generated an operating loss. In 2022, we surpassed €300 million and its profitability is accretive to our consolidated operating margin. Our products, marketing and marketplace strategies are yielding powerful results.

Europe Direct is expected to be one of our fastest-growing markets in 2023. Our EMEA distributor business was up high 30% in the quarter and up low-teens percent for the full year. Growth in the quarter was driven by favorable timing of Fall 2022 and Spring 2023 shipments compared to last year.

As we previously noted, we've paused taking any new advanced orders for the Russian market for early last year. Our outlook for our EMEA distribution business does not include sales for Russia, but contemplates healthy growth in other distributor markets which will help offset a portion of these lost sales.

Canada net sales were up 23% in the quarter and 19% for the full year. In the quarter, growth was led by wholesale, which benefited from favorable time Fall 2022 shipments compared to last year. We are well-positioned for continued growth in Canada. Colombia and SOREL have high brand awareness and excellent market positions.

In fact, Colombia has been voted the number one trusted sportswear brand for seven years in a row in the University of Victoria Brand Index. Looking at performance by brand. Columbia brand net sales increased 13% in the fourth quarter and 16% for the full year. During the quarter, growth was relatively balanced across apparel and footwear.

Following last year's launch of Omni-Heat Infinity, we were able to build on the momentum this season, launching an expanded collection for Fall 2022. Our worldwide marketing campaign focused on how the technology works and why it matters. One campaign featured a partnership with Eagle Star [ph] quarterback, Jalan Hertz.

Jalan’s timely content was also featured in a number of NFL broadcast pods. Good luck in the Super Bowl Jalan. We also utilized micro to macro influencers like YouTube sensation Dude Perfect [ph] in the campaign.

The Dude Perfect team visited the Columbia store at the American Dream Mall, tested out the Omni-Heat Infinity jackets on the slopes and the content was featured on the Jimmy Kimmel show. The Omni-Heat Infinity technology received numerous accolades during the quarter.

Several styles, including the Platinum Peak and Ballistic Ridge jackets were featured in this season's best of lists from Outside Magazine, Gear Patrol [ph] and Ski Magazine. We successfully introduced Omni-Heat Helix, our new disruptive poly fleece visible technology.

Helix was a small targeted launch in our DTC business for Fall 2022, and we're excited to build on this unique technology in the seasons ahead. On the product collaboration front, we saw the successful launch of our newest Star Wars collection, inspired by The Clone Wars animated series.

Our latest collaboration includes references to Obi-Wan Kenobi and Anakin Skywalker among others. The collection incorporates Omni-Heat Infinity thermal reflected technology to help fans overcome the harsh winter elements wherever in the Galaxy they are. Shift to our emerging brands.

SOREL brand net sales decreased 9% in the quarter and increased 11% for the full year. In the quarter, net sales were unfavorably impacted by a greater portion of Fall 2022 orders shipping in the third quarter as well as higher order cancellations. Early season sell-through was challenged given delivery delays.

As product availability improved, consumer demand for the brand was evident on sorel.com, which generated robust growth in December. Growth categories, including sneakers and sandals, were top performers in the quarter. SOREL's consumer base is passionate about the brand.

The SOREL team remains laser-focused on bringing a relentless growth of compelling products to this unstoppable consumer. In 2023, the brand is exciting product partnerships and shop-in-shops planned with key retail partners. We expect SOREL to be our fastest-growing brand in 2023.

While supply chain constraints help that growth in 2022, we are confident that SOREL can grow even faster in the years ahead. prAna net sales decreased 6% in the quarter, but were up 1% for the full year.

Sales declines in the quarter were driven by softness in the wholesale business, which was impacted by late product deliveries partially offset by DTC growth. The clients, the HBO Max reality series sponsored prAna debuted in January.

Hosted by Jason Momoa, and product ambassadors, Chris Sharma and Meagan Martin, the series features climbers taking on various challenges as they compete for $100,000 prize and a prAna sponsorship. We believe this series has a unique opportunity to raise awareness for prAna as we reestablish the brand's roots in key activities like climbing.

The prAna team remains focused on repositioning the brand in the marketplace to energize growth. Mountain Hardwear net sales decreased 9% in the quarter, but increased 5% for the year. Similar to our other emerging brands, net sales were impacted by late product deliveries, which drove higher order cancellations.

I will now discuss our initial 2023 financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements.

We remain focused on achieving the long-term growth algorithm we laid out at our Investor Day in September. As we noted, growth will never be perfectly linear and we are not immune to near-term macro headwinds. Our 2023 outlook contemplates 3% to 6% net sales.

The positive momentum we’ve experienced in 2022 is expected to be tempered by consumer spending headwinds and retailer caution as they manage their inventory positions. While our initial 2023 outlook is below the three-year growth CAGR we outlined at the Investor Day, our confidence in our long-term growth opportunity has not wavered.

Since our IPO in 1998, we've generated a 9% net sales growth CAGR and look to improve this into the future. We anticipate gross margin expansion of 60 basis points to approximately 50%. We expect SG&A expenses to grow faster than net sales growth.

While others are cash constrained and limiting their investment spend, we're using our strong financial position and profitability to strengthen our competitive position. We will continue to invest in our strategic priorities to support the long-term profitable growth.

On the digital front, we're investing in consumer data and analytics that will ultimately fuel membership enhancements and build stronger connections with our consumers. More broadly, we're investing in digital capabilities across the business to be more agile and adaptive.

When it comes to supply chain capabilities, we are investing in people, processes and systems to improve supply and demand planning, drive inventory efficiency and support growth. This outlook contemplates maintaining our demand creation spend as a percent of sales at 5.9%, consistent with 2022.

We may adjust this level of band [ph] depending on market conditions. We expect operating margin to be in the range of 11.6% to 12.2%. Operating margin performance will not always be linear year-to-year and we remain firmly committed to improving operating margin over time.

This operating performance leads to a diluted earnings per share range of $5.15 to $5.55. We anticipate strong operating cash flow of at least $500 million in 2023 as our inventory levels normalize. In summary, I'm confident we have the right strategies in place to unlock the significant growth opportunities we see across the business.

We are investing in our strategic priorities to accelerate profitable growth; create iconic products that are differentiated; functional and innovative; drive brand engagement with increased focused demand creation investments; enhance consumer experiences by investing in capabilities to delight and retain customers; amplify marketplace excellence that is digitally led omni-channel and global; and to empower talent that is driven by our core values.

That concludes my prepared remarks. We welcome your questions.

Operator, could you help us with that, please?.

Absolutely. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Bob Drbul with Guggenheim. Bob, please proceed..

Thank you. Good afternoon, guys..

Good afternoon..

Two questions. I'll stick to the request, Andrew. On 2023, Tim, can you talk more about your order book visibility, the cancellations that you had in the spring, just sort of how much of the book is termed up for sort of Fall of 2023. So that's my first question. And then the second question is just could you spend a little more time on China.

Curious in terms of monthly trends or the reopening trends and how you feel like category inventories are overall and sort of how you think about 2023 in aggregate within the guidance that you gave us today. Thanks..

Certainly, yeah. Thanks Bob. Well, as it relates to the order book, as you know, we concluded our spring much earlier in the year, and we're in the process of shipping it now. In fact, we're in great shape. We've brought our service levels nearly back to pre-pandemic levels, and we're shipping like crazy right now.

We've had no substantial cancels and don't expect any, the spring book.

As it relates to the fall book, that's also nearly complete, and we're buying -- well, we're matching the fall order book against our inventory levels that exist today, style-by-style, color-by-color, and we've done some purchasing to map to balance the book and our inventory so that they're in sync. And we don't expect fall cancels.

Frankly, the only reason we receive such significant cancels this year versus prior periods is because our deliveries from Asia were significantly later than they had been in past periods. So we're expecting great things.

We're approaching the business appropriately from an investment standpoint and we're excited about the possibilities that are before us. As it relates to China, if you remember, we've been pretty open that we've underperformed there historically. We've come from a great position and we lost our way a bit.

The team that we have there today is exceptional in building a great business. And so we expect that, that business will -- once we get fully opened here, and that's where we're headed, certainly, that the business is going to really, really grow.

And I'm convinced it's going to be, if not the greatest geographic sales area we have certainly among the best. So in general, as it relates to 2023, I'm bullish. We've always said that we expect high levels of growth. We're a growth company.

And I think this gives us the opportunity with our balance sheet and weakness of certain of our competitors that will have a great opportunity to grow in 2023 and beyond..

Great. Thanks, Tim..

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

Good afternoon. Thank you very much for taking my question. Tim, it's great to hear that you're bullish for 2023. In the CFO commentary, it talks about Colombia, the brand itself being up high-single-digits for the year as part of the guidance. And then you have some other commentary saying that footwear is going to grow faster than apparel, excuse me.

Within Colombia, the brand growing high-single-digits, can you maybe parse out how much do you think apparel is going to grow this year versus footwear overall?.

Laurent, this is Jim. We do anticipate that footwear as a category is going to outpace the growth of apparel. And that would be inclusive of both the SOREL brand and Colombia.

And then when you think about the high single-digit rate of growth for the Columbia brand, by and large, is that -- that’s the case across all markets except the EMEA distributor market, which, of course, we'll be lapping the Russia shipments that we had in 2022 that we did not have contemplated in our outlook for 2023..

Okay. Very helpful. And then -- it's good to see, Jim, that you have first half commentary, your top-line is expected to be mid-single-digits.

So in line with the full year, any puts and takes we should we think about first quarter, second quarter is like any shifts there that we should think about? Because, I think, you're calling out gross margins to be down in the first quarter. Just curious to know -- sorry, Andrew, it's three questions now.

But how do we think about gross margins being down in the first quarter? Can it be in the magnitude of 100 basis points to 200 basis points?.

Yes. I think the way I would think about Q1, Q2, the key call out is what we've included in the CFO commentary, and that's that we would expect gross margin to be down in Q1, that in part being reflective of the fact that we're lapping the exceptionally low promotional levels from a D2C perspective last year.

Aside from that, Laurent, I would expect that the first quarter from a growth standpoint should outpace the second quarter related to what Tim was describing earlier the fact that our spring inventory receipts for 2023 are much more timely than they were a year ago. And so we're getting those wholesale shipments out sooner as well.

So that will drive a little bit of a timing variance on the top-line. But those should be the biggest variables. And then also included in the CFO commentary, we did make a comment that Q2 is typically our lowest volume quarter. And given that being a low volume quarter, we do anticipate Q2 being roughly breakeven.

So that will -- if you do the math, you kind of back into what that would imply in terms of Q1 earnings..

It was helpful. Thank you so much, gents..

Yes. Thanks, Laurent..

Up next we have Mitch Kummetz with Seaport Research. Please proceed..

Yes. Thanks for taking my questions. Maybe just a continuation on the gross margin discussion. So you expect it to be up 60 bps for the year. I would imagine that better freight has a big impact on that.

So is there any way, Jim, you could just kind of walk us through the year-over-year impact in timing of the freight improvement that you expect to see over the course of 2023?.

Yes. We -- just big picture, Mitch. We've been looking back at 2022, inbound freight had nearly a 200 basis point -- 170, 180 basis point impact unfavorably to our gross margin. Part of 2021, the tail end of 2021 was also impactful from an unfavorable standpoint.

So the weight of the inbound freight is probably a little bit more heavily weighted Q1, Q2, Q3, and then it will start to abate a bit in Q4 and normalize. So that's the way I would think about that.

I think the offsets to keep in mind why you're only seeing 60 basis points of gross margin improvement relative to what those inbound freight benefits are, are the fact that we are continuing to lap the early part of last year in which the promotional environment was extremely low. And so we anticipate that normalization.

And then with the elevated inventory levels that we have and as we work through that inventory through the combination of our outlet channels and from a wholesale closeout perspective, that will have some impact on margin as well. So those are effectively the two major offsets to the inbound freight benefit..

Okay. And then secondly, on the late deliveries, the delays -- delivery delays and order cancellations that kind of became of that.

Is there any way to either kind of quantify the impact that, that had on the fourth quarter or maybe back half combined? Or maybe better yet, I mean, as you lap that, and I think, Tim, you said that you’re not expecting any order delays or any real cancellations for Fall 2023 as you lap those delays with an order book that doesn't have cancellations to it.

Is there any way to kind of quantify kind of what you pick up as you lap that kind of easy comparison?.

Well, I think the easiest way to think about it in terms of the incremental cancellations that we incurred above and beyond what we expected. I think if you just look at the high end of the revenue guidance that we provided in October relative to where we landed.

The delta there is going to be entirely related to cancellations in North America across our US and Canada business.

Aside from that, trying to quantify the full effect of cancellation, it'd be tough to get that into that level of detail, obviously you’re seeing in the inventory balance because by and large, the increase in our inventory is effectively that cancellations plus to some degree, earlier receipt of our spring inventory.

And then as we get into this next year, Mitch, we're planning for kind of more of a normalized shipping pattern knowing that from a supply perspective, as Tim touched on, we're in much better shape going into 2023 now..

Okay. Thanks. Good luck..

Okay. The next question is coming from Paul Lejuez with Citigroup. Paul, please proceed..

Hey, thanks. It's Tracy Kogan filling in for Paul. My two questions. I guess the first is on your inventory.

If you could just give us a little more detail there on where you think you have too much in terms of brands and categories? And then I guess, secondly, what are you seeing on the AUC side for this year, the product costing side? And are you expecting any additional price increases? Thanks..

Yeah, I'll let Jim talk about the specifics around the inventory, but I can tell you maybe begin with the costing expectations. About half of our inflationary pressure was inbound freight. So we've seen healthy degree of moderation. In fact, even rollbacks costs there. So that's a tailwind for us.

Additionally, there appears to be a moderation in these cost increases we were experiencing in raw materials in the components of our products. Labor rates have also increased some substantially, but those are not going to roll back.

So, I think our expectations are that the price increases at the higher rate that we saw them in 2021 and 2022 will moderate, and there'll be some opportunity for us to expand our gross margins as we've guided. Jim can talk a little bit about the components of the current inventory..

Yeah. Tracy, to talk through the composition of inventory a bit. And certainly, we're more elevated than where we ordinarily like to be from an inventory perspective. I think when you get under the hood of our inventory and look at the actual composition of the inventory, we're still comfortable with overall quality.

There's certainly more of it, but by and large, the predominant side of it, its current future season-based inventory, we're much earlier received on the spring season. We are carrying over a fair amount of inventory as we've previously spoken about.

There's a large proportion of our product lineup that is evergreen product that carries over season to season. And much of that has been offered as part of our Fall 2023 product mix that we've sold into our wholesale customers. So we're in good shape as it relates to having sold in a lot of that inventory already.

And then to the degree there is aged or excess inventory that's remaining, we've adjusted our inventory buys for our outlets and shifted that back more towards moving through excess and liquidation as opposed to made for product.

And then more specifically around composition of inventory, the focal point in terms of where we're seeing the growth in that is predominantly in North America. And I think that's a good thing in that we've got -- that's where we've got the greatest ability from an outlet perspective to be able to move through that inventory profitably..

Great. Thanks very much..

The next question is coming from Mauricio Serna with UBS. Please proceed..

Hi. Good afternoon. Thanks for taking my questions. I just wanted to ask if we could get maybe a little bit more detail on the US growth expectation for the first quarter, maybe in terms of the wholesale versus D2C.

What are you seeing also like in the D2C trends of your business so far? And maybe you could provide a little bit more detail on the rationale of what cost you guys to take that impairment charge on the prAna business? Just a little more detail on that would be very helpful. Thank you. .

Yes, certainly. Well, when I think about the first half of 2023, I'm mindful that we had some of our largest customers had almost no Columbia inventory in their stores during the first several months of 2022. Our deliveries were that impacted.

So the expectations are that we'll have a nice solid Q1 few of these stores up to where they should be, and we'll have a good start up to Q3. Our DTC growth should be solid as well. Although if you remember, we're really focused on being a wholesale company. So we don't give a lot of detail around a normal retailer would give.

It's just not as much a focus for the company as the wholesale portion of the business. And then as it relates to the rationale of the prAna business, we're very bullish on the prAna brand. And as you know, we talked a lot about the reset going on in their product.

We just believe it's taking longer than we anticipated and wanted to make sure that we were prepared to give ourselves the time to turn that brand around..

Yes. And I'd just add, there's a lot of factors that go into the impairment. Some of it is what Tim is describing in the form of the brand's underperformance in our minds relative to the plan that we set upon acquisition.

And then to a degree, looking at market multiples, looking at interest rates, certain of those factors have also influenced the impairment charge that we took in the quarter..

Got it. Thank you very much..

Okay. The next question is coming from Alex Perry with Bank of America. Please proceed..

Hi. Thanks for taking my questions here. Just first, can you maybe talk through what is embedded in your guidance in terms of wholesale versus D2C? I think at the Investor Day, you talked about modest 1H wholesale growth. Is that sort of the case and how you're thinking about the full year? Thanks..

Yeah. I think to the degree we provided detail from a channel perspective, it's a little bit higher level, Alex, but we are anticipating after an incredibly solid year from a wholesale perspective in 2022 that the D2C business would outpace wholesale growth in 2023. So, a couple of factors there.

One, continued investment in what we're making in from a digital and e-commerce perspective. And then as you think about the brick-and-mortar side of our business, we did add a fair amount of new stores in 2022.

So we'll be lapping the opening and the annualization of those stores in 2023 plus we've got a handful of new stores also planned from a growth standpoint..

That's really helpful. And then I think a lot of people have asked about your sort of balance sheet inventory, but I wanted to ask sort of about your -- how you're thinking about channel inventories.

How are you sort of viewing that both for you and others that you compete with? Do you feel like channel inventories are in a good place? Or do you think that retailers will be carrying over inventory into sort of Fall 2023? Thanks..

Yeah. So we monitor something in the range of 85% of our North American retail customers' inventories, so we can gauge how we're doing there from a sell-through perspective on our brands.

And what we're seeing is generally average to slightly better than average sell-through performance when you compare with prior periods, including pre-pandemic prior periods. So we can't see visibility on other brands, but as it relates to ours, we're in a good position and when that would be approximately where we've been in the past.

So weather plays a big portion in the second half business and the residual inventories. So, as you can see in the great cold weather that's going through North America today, it's making up a very big impact on the liquidation for our retailers.

So our expectation is once the winter is done, that will be a good, solid, clean position with our merchandise..

Perfect. That’s very helpful. Best of luck going forward..

Next question is coming from Alex Douglas with Cowen. Alex, excuse me. Please proceed..

So I just wanted to go back to the question on Fiscal 2023 gross margins and maybe how that's broken down. Is there any more detail that you could provide on maybe specifically the impacts from freight and promotions and maybe kind of cadence throughout the year would be very helpful? Thank you..

Yeah. And if you reference the CFO commentary we provided, there's a bullet point list there, but I can speak a little bit in terms of the relative weighting of these. So, lower inbound freight costs, that will be a -- we anticipate, we've built into our guidance a very significant element of benefit there.

And in 2022, I mentioned it was about 180 basis point headwind to us in gross margin. And that was also a headwind to us in the latter part of 2021.

And with freight rates being down basically where they were in advance of the escalation we saw in those costs, we should be getting most of that back in 2023, and that's built into the outlook that we've provided.

To a lesser degree, there is some favorable channel mix shift as our D2C business is anticipated to outpace growth across the rest of the business. And then the big offset in here is going to be the expectation around promotional levels coming back down to more normalized levels and is also working through getting our inventory clean.

So, there's a sizable benefit from an inbound freight standpoint it's going to be offset to a pretty good degree given promotion levels and clearing through the inventory..

That’s helpful. Thank you..

We have reached the end of the question-and-answer session. And I will now turn the call over to management for closing remarks..

Great. Thank you very much for listening in. We're looking forward to a great 2023 and being able to update you as we go along during our next quarterly call. So thanks for listening. We'll talk to you soon..

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