Columbia Sportswear Company Stock

Greeting. Welcome to the Columbia Sportswear Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Matt Tucker. You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's second quarter results. In addition to the earnings release, we furnished an 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 and Chief Executive Officer, Tim Boyle; Co-President, Joe Boyle and Peter Bragdon; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Richelle Luther.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a Q&A period during which we will limit each caller to 2 questions, so we can get to everyone by the end of the hour.

And now I'll turn the call over to Tim.

Thanks, Matt, and good afternoon. In the second quarter, we're pleased to have again delivered net sales growth exceeding our quarterly guidance driven by strong growth in international markets, partly offset by continued headwinds in the U.S. Our reported earnings and profit margins include the impact of U.S. tariff refunds recognized during the quarter. Without this onetime item, our underlying performance was largely in line with our expectations, with sales being the high end of our guidance and gross margin slightly below plan on higher promotional activity while operating margins and loss per share landed roughly at the midpoint of our guidance range. International business, which represents over 40% of our sales, continues to lead our growth up 9% year-over-year.

While our U.S. business remained challenged this quarter and declined 4%, we saw sequential improvement despite consumer discretionary spending coming in under mounting inflationary pressure. We saw this pressure translate into soft traffic in our U.S. DTC brick-and-mortar business during the quarter, resulting in higher discounts and lower sales than planned.

Despite these headwinds, we were pleased to see positive and better-than-expected growth in our U.S. DTC e-com business, driven by our emerging brands. We're also encouraged by improving metrics in Columbia brand U.S. e-commerce, including new customer acquisition, which we view as indicators of progress on the Accelerate strategy.

Additionally, we're seeing encouraging signs of the traction the Columbia brand is making with target consumers, including improvements in unaided awareness and purchase intent among professional elite and dynamic active consumers in North America. We're also realizing stronger growth rates with newer and more elevated products and collections aimed at these target consumer groups.

That said, we know it will take more time and work to bring the newness, innovation and elevated style to our product portfolio at the level we need in order to continue shifting consumers' perceptions of the brand in the U.S. and put us back on a path of sustainable long-term growth.

As a reminder, Accelerate is a multiyear strategy that we launched into the marketplace nearly 1 year ago based on key shifts about consumer, brand, product, marketplace and marketing.

While the foundational shifts of Accelerate are starting to show tangible signs of paying off, we have continued to refine the strategy.

The Columbia brand is now focused on 5 strategic pillars: one, own the trail with a focus on both hike and trail run; two, dominate warm, our on-mountain warm and innovation story, including but not limited to ski and snowboard; three, Power PFG, expanding our leadership in both fishing performance and lifestyle; four, fuel outdoor lifestyle with product that has outdoor DNA, but is designed for everyday wear with elevated style; and five, accelerate footwear, which is an opportunity embedded across each of the previous 4 pillars and a stand-alone growth priority in its own right.

These 5 pillars are nested in the original shifts of the Accelerate strategy, providing a click down for more focused execution with our consumers. These pillars leverage our authenticity and heritage in the outdoors and the reputation for quality and durability that consumers have long known us for. They also incorporate many aspects of the playbooks that have already been driving the healthy and sustainable growth of our international businesses.

But we also know that today's consumers are expecting even more in terms of credibility, style and relevance. Performance credibility in their favorite outdoor activities style in their everyday wear with an outdoor function and esthetic and relevance within the outdoor culture and communities to which they belong.

In support of these 5 brand pillars, we're also sharpening our approach to segmenting our product construct with performance and innovation-led product designed for end-use activities, specifically hike trail run, and snowboard and FISH and with style-led product designed for consumers looking to incorporate versatile outdoor function and elevated aesthetic into their everyday life.

Executing across our 5 brand pillar means executing an offense that encompasses all seasons, climates and geographies where Columbia is present and where people can enjoy the outdoors with footwear and apparel that both fulfill their performance needs and make them look and feel great. I'm excited to see these strategies continue to come to life in the marketplace over the coming seasons as we execute against these strategic pillars and the broader accelerate work. I can feel the energy and excitement from our teams to focus on these strategic priorities that are both clear and aligned across the Columbia brand organization, both here and around are. I'm also excited to share that in addition to the positive consumer response to the engineered for whatever brand platform, our marketing team continues to gain recognition and accumulated awards for our Expedition impossible campaign. Following the Gold Clear award we highlighted last quarter in late June, expedition impossible racked up an incredible 10 awards at the Con Lion Film awards Festival, which is widely considered to be 1 of the most competitive and prestigious award events in the marketing and communications industry globally with competition against some of the world's largest and most famous brands. Columbia's awards spanned across social media, public relations, brand strategy and direct marketing, making us the single most awarded company at this year's event. Of particular note, expedition impossible on the Grand Prix award in brand experience and activation, and we also won the Dan Widen Titanium award the culmination of the festival and its marquee award, which has been compared to winning the best picture at the Oscars.

I want to congratulate our team once again for this well-deserved recognition and for the continued impact of this work is creating for our brand. This launching late last year, Expedition Impossible has garnered an incredible amount of media coverage and thousands of creative submissions from consumers or flatter the from around the globe. We're excited for the fun adventure to continue through next week. On August 4, we will reveal who, if anyone, reached the Edge of the Earth.

Another major marketing highlight for Columbia brand in Q2 was our campaign that pitted Columbia Global Brand Ambassador, Robin Irwin, against crocodiles. The crocs proved to be no match for Robert, thanks to the vastly superior traction, cushioning and dryness provided by his footwear, the Columbia Tellurix titanium [indiscernible]. The campaign was both authentic to the Columbia brand and resonated with Robert's large and loyal following, attracting more than 3.7 million views and over 300,000 likes across digital platforms. the Tellurix, 1 of our most technical and premium footwear offerings in the height category sold out during the quarter and is poised to scale in future seasons on strong consumer demand. We also saw strong sell-through of additional items featured on the Rob's look page of columbia.com during the quarter and look forward to more fun and creative moments from our partnership with Robert in the future.

The success of Tellurix was part of another key ingredient this quarter for the Columbia brand. which is the momentum we're seeing in footwear, including high single-digit percent growth globally in Q2. This growth was driven by several styles with particular strength in more technical footwear, beating our proprietary Omnimax technology, including the Tellurix and Peak Freak franchises in hike, the Konos in trail running and the dry Tortuga in fish. The growing strength of our footwear business was also reflected in the media recognition that our products received this quarter, among several product awards received by Columbia, some of the most notable including the Tellurix being featured among the best lightweight hiking boots by wired and among the best outdoor sneakers of 2026 by women's health.

Additionally, within PFG, the Wire and cast back TC shoes were included in best summer gear lists by outdoor life and saltwater Sportsman, respectively. When Footwear also recently took first place on a different type of podium. Earlier this month, Columbia sponsored athlete, Gabriel Rueda took first place overall to prestigious UTMB Val d'Aran Ultra-Trail race in Spain, besting in elite field of competitors over 163 kilometers and 10,000 meters of elevation gain. In a sport where elite runners often change shoes multiple times during an event, Gabriel not only started the race in a pair of Columbia Kono's Speed Trail ATR, our highest performance trailer shoes, but he completed the entire race and cross the finish line in exactly the same pair. Originally hailing from a small village in Argentina, Gabriel's path to becoming an elite trail runner is truly inspirational and his success is equally inspiring to us as it validates Columbia as an emerging force on the trail running scene, including at the sports highest levels. Big congrats to Gabriel and look forward to seeing him on many future users.

Now I'll provide an update on our spring wholesale order book, which provides encouraging indicators of the progress we're making under the Accelerate strategy. Although we are still taking orders, the book is nearly complete, and current indications point to a low to mid-single-digit percent growth with broad-based contributions to this growth across our brands, including the Columbia brand in the U.S.

Additionally, we're seeing growth across account types and tiers, including our higher-priority brand-enhancing partners.

From a product perspective, we're pleased to see footwear growth outpacing apparel with solid growth in both categories. It's also particularly encouraging to see strong adoption of new apparel and footwear styles including growth in key styles targeting younger dynamic active consumers consistent with our Accelerate strategy.

Turning back to the second quarter financial performance, I'd like to remind everyone that the second quarter is our lowest volume sales quarter and small year-over-year changes in sales and expense timing can have a material impact on reported results. Net sales increased 2% versus the prior year to $614 million, driven by growth in international distributors and global e-commerce, partially offset by an expected decline in wholesale, primarily due to a lower U.S. 26 order book versus the prior year.

During Q2, we began receiving refunds of the U.S. EPA tariffs with the majority of cash we received in June. As such, during the quarter, we recognized approximately $78 million in refunds and interest in our financial statements based on EPA tariffs previously paid. From an accounting perspective, we recognized $60 million in Q2 operating margin primarily as a reduction to cost of sales and $2 million of interest income with $15 million as a reduction to inventory.

As a reminder, we absorbed the impact of IEEPA tariffs on our gross margins last year. Including the impact of tariff refunds, second quarter gross margin expanded 920 basis points on a reported basis to 58.3%. Excluding tariff refunds, gross margin contracted by 50 basis points versus the prior year, driven by continued headwinds from incremental U.S. tariffs and increased discounting.

SG&A expense increased 2%, reflecting higher DTC expenses, including some unplanned store impairment charges, partly offset by lower personnel costs, resulting from our prior year actions taken as a part of the profit improvement program. This overall performance resulted in EPS of $0.52, excluding the impact of tariff refunds, our loss per share of $0.41 would have fallen roughly in line with the midpoint of our Q2 guidance range. Inventories remained healthy and are down 6% and versus the prior year in dollar terms with units down 7%. We continue to maintain our fortress balance sheet exiting the quarter with $625 million in cash and short-term investments and no debt.

Looking at net sales by geography. U.S. net sales decreased 4%, declining slightly more than expected due to soft traffic within our DTC stores. Relative to the prior year, the lower sales were primarily driven by a high single-digit percent decline in U.S. wholesale, resulting from a lower Spring '26 wholesale order book. COLM's performance was slightly ahead of plan due to stronger-than-expected quarter conversion. US DTC net sales were down slightly in the quarter, primarily reflecting the impact of store closures as well as softer traffic, which was largely offset by improved conversion.

E-commerce grew low single-digit percent and exceeded plan driven by our emerging brands. While Columbia brand U.S. e-commerce was down low single-digit percent for the quarter, we're encouraged with improving underlying metrics as we reposition e-comm as the pinnacle expression of the brand.

From our review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency growth to illustrate underlying performance in each project. LAP net sales increased 13% and China net sales increased mid-single digit percent driven by solid growth in DTC e-com. This was partly offset by single-digit percent declines in wholesale due to shipment timing and in DTC stores, reflecting soft traffic amid a more challenging macro environment.

A key highlight in the quarter was our strong performance during China's 618 shopping event with robust growth versus the prior year, coupled with an improved markdown rate. Our China team executed a successful spring brand campaign titled Its Nature's Fault which encourage consumers to embrace nature and its imperfect perfection, creating significantly higher social media engagement and impressions versus the prior year. We also continue to create energy through grassroots and events with our height society, including events that combine the increasingly popular activities of hiking and fishing which we believe only Columbia can authentically do.

Japan net sales increased low double-digit percent, rebounding nicely from a challenging first quarter. This reflected growth in both wholesale and DTC despite weak outlet store traffic amid a softening macro environment.

In addition to adverse weather in the month of June due to heavy rates. Key growth drivers included our Thrive Revive channel on the footwear side, which sold out in the quarter as well as cooling apparel, including our Omni-Freeze Zero technology.

Korea net sales increased low double-digit percent, reflecting double-digit percent growth in both wholesale and DTC e-com. DTC brick-and-mortar grew low single-digit percent and beat plan but with higher promotional activity due to lower traffic and increased consumer price sensitivity amid rising inflation. Product highlights included robust growth in tooling apparel, channel footwear styles and our PFG Bahama shirt, which was supported by a well-executed retail activation celebrating the style's 30th anniversary.

Our LAAP distributor markets delivered mid-20% growth driven by the Fall '26 order book and earlier fall shipments reflecting continued momentum in these diverse global markets, driven by robust growth in Columbia brand apparel.

EMEA net sales increased high single-digit percent overall. Europe direct net sales increased low double-digit percent showing continued momentum in both wholesale and DTC, abet with a higher promotional activity in DTC mid weaker traffic due to macro headwinds and unfavorable weather. The Europe team drove energy for the Columbia brand through a successful spring marketing campaign leveraging the engineered for whatever platform across digital, social and out-of-home media, delivering more than 650 million impressions on digital and social channels alone. We also continue to build strong connections with local outdoor communities through our Hike Society. In Q2, we hosted Hike Fest events in France and the U.K. that sold out within minutes creating considerable buzz and user-generated content for our brand among target consumers. Our EMEA distributor business increased mid-single-digit percent versus the prior year, driven by increased spring and Fall '26 orders, partially offset by later fall shipments.

Canada net sales decreased high single-digit percent in the quarter, primarily reflecting declines in wholesale due to unfavorable shipment timing and lower Spring '26 orders. This was partly offset by growth in DTC with higher e-commerce sales, partly offset by lower brick-and-mortar results due to worker traffic and softening consumer environment.

Looking at second quarter performance by brand. Columbia net sales increased 1%, with international growth more than offsetting declines in the U.S.

Turning now to our emerging brands, all of which are expected to grow at '26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace.

SOREL net sales decreased 14% driven largely by later wholesale shipment timing versus the prior year, which was partly offset by growth in DTC e-com. As a reminder, Q2 typically represents less than 10% of SOREL's annual business. We continue to anticipate a stronger fall 26 season for SOREL, with growth expected in both wholesale and DTC for the second half.

As announced last month, we're also thrilled to welcome Joe Vernachio back to Columbia Sportswear's family as the President of SOREL brand. We know Joe well from his prior tenure as President of Mountain Hardware. He brings extensive industry experience as a proven, consumer-focused and collaborative leader. I'm confident that Joe is the right leader at the right time to drive the next phase of SOREL's growth and further unlock the brand's tremendous potential.

PrAna net sales increased 14%, reflecting double-digit percent growth in wholesale and high single-digit percent growth in DTC e-com with flattish growth in DTC brick-and-mortar on lower traffic, which was offset by better conversion. We remain encouraged by the momentum building in prAna brand with healthy growth in both new and retained customers, particularly among its target younger consumer. A key highlight during the quarter was the opening of prAna's third full price store in La Jolla, California, which has gotten off to a great start, enhanced by a steady stream of elevated in-store experiences.

Mountain Hardware net sales grew 6% year-over-year, driven by double-digit percent growth in DTC channels. This was partly offset by a low double-digit percent decline in wholesale due to substantially lower closeout sales versus the prior year, which more than offset low single-digit percent full price growth. A major highlight in the quarter was Mount Hardware's fourth collaboration with Stussy, which surpassed each of the prior collections in sales with remarkably strong sell-through. We were also excited to see the new Kazam ultralight trail backpack launch in Q2 and immediately become a top 10 style in terms of sell-through.

We'll now discuss our financial outlook for the third quarter of 2026 and the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures relating to those statements.

While we remain focused on execution and what we can control, the operating environment remains highly dynamic, particularly around the major external factors affecting our business that we spoke about 3 months ago, involving tariffs in the U.S. and the conflict in the Middle East. The outlook for U.S. tariffs policy remains highly uncertain.

While the administration continues to signal its intention to bring tariffs back to rates similar to the IEEPA levels, if and when that will happen remains unclear. As such, our financial outlook now assumes that the current 10% to 12.5% tariff rates remain in place through the end of this year. Additionally, our second half outlook contemplates a $15 million benefit to our cost of sales from the IEEPA tariff refunds previously received. However, we expect this tailwind of gross margin will be largely offset by accommodations to our factory partners that have navigated this period of uncertainty with us.

That said, from a timing perspective, we expect to incur a net headwind to our gross margins related to these accommodations in Q3 and a net tailwind to our gross margin in Q4 related to the remaining refunds.

Turning now to the ongoing contact to the Middle East. While the direct measurable impacts to our business have remained relatively contained, including the order cancellations from our distributor in that region that we spoke about last quarter, the macroeconomic headwinds and supply chain disruptions related to the conflict are of greater concern and have begun to materialize. The prolonged period of elevated global gasoline prices stemming from the conflict is putting pressure on discretionary spending and consumer sentiment, particularly among lower and middle-income consumers, which could impact consumer demand in the second half. Additionally, we now anticipate meaningful shifts in the timing of fall '26 shipments from the third quarter to the fourth due to longer logistics lead time resulting from supply chain disruptions as well as discrete delays stemming from capacity constraints within a note of our global supply chain. These delays are expected to shift all of our anticipated second half growth to the fourth quarter creating greater risk to our outlook given the macroeconomic headwinds impacting operating environment. For the third quarter, we anticipate sales in the range of down 1.5% to flat versus the prior year. This will result in slight SG&A deleverage and when combined with our anticipated decline in gross margin, resulted in earnings per share of $1.15 to $1.35.

Now turning to our full year outlook. We are increasing our full year margin and earnings guidance ranges to pass through the impact of second quarter tariff refunds. We continue to expect underlying results to land within the ranges we previously provided, including some benefit from our revised tariff rate assumptions.

That said, our underlying sales and margin outlook for the second half has incrementally moderated versus 90 days ago based on the macroeconomic and supply chain headwinds we have discussed. For full year net sales, we're maintaining our prior guidance of 1% to 3% growth versus the prior year. We now expect reported gross margins of 52.1% to 52.3% and or up 160 to 180 basis points versus the prior year. We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year-over-year, but at a slower rate than the net sales growth. Based on these assumptions, we're raising our reported operating margin guidance to 8.5% to 9.3% for the year. We're also raising our reported diluted earnings per share guidance to the range of $4.40 to $4.90. In addition to the factors already discussed, this reflects an incrementally higher full year tax rate assumption of approximately 25%.

In closing, we're pleased to have delivered first half results that were in line to slightly better than our planned overall. Despite navigating external headwinds and other impacts to our business that were unforeseen when we started the year.

While the operating environment has become more challenging since our last call, I remain encouraged by the strength and resilience of our international business, the signs of progress we are seeing with our Accelerate strategy and the stability provided by our fortress balance sheet. Thank you again to our global workforce who are instrumental in the execution of our strategies and our business success.

That concludes my prepared remarks. Operator, could you help us facilitate the questions?

[Operator Instructions] The first question comes from Bob Drbul with BTIG.

I was wondering if we could just unpack a little bit like the commentary around the second half outlook some of the supply chain disruptions and better clarity or visibility on your delivery schedules with the product. Can you just talk about has there been any change around the order book with your better visibility? And so when you look at the wholesale plans and the acceleration that you had talked about previously, has that changed much? Could you quantify that a little bit in the North American piece specifically?

And I guess the second piece of this is the Spring '26 order book firmed up probably earlier than I can remember, right? And so that's pretty encouraging. And the guidance that you gave or the expectations around the order book, is that primarily -- I mean is it broad-based? Is North America in that sort of mid-single-digit range as well? If you could maybe give a little more color around that, that would be helpful.

Sure. Absolutely. So first of all, related to the change in the Q3, Q4 shipping numbers, we're basically talking about a percent 1 way or the other. And it's not a function of any cancellations or any adjustments. These are both known and expected logistic issues around -- which were impacted both by the conflicts in the Middle East and the disruption to shipping as well as a certain topic in our -- from our consolidation nodes as we discussed. So we're confident that the numbers are going to be coming through as we've got planned. And then you mentioned the Spring '26 order book, but you're talking about Sprint 27, right?

Yes, '27, sorry. Yes.

Yes. And yes, basically, Growth across all the brands and all the geographies, including the North American U.S.A. business. So we're starting to see the results of accelerate and really exciting good stuff happening that way.

And Bob, given Tim's comments and that we've not seen any changes in our order book for Fall '26, we would still contemplate growth for U.S. and North America in the back half of the year for the wholesale business. Of course, with the shift that we're seeing that's going to be much more back-end weighted where we'll probably see a decline in Q3 and increase our growth in Q4.

Okay. Great. And just, Jim, on the other -- the second piece of the IEEPA tariff refunds, how does that go into play? Or sort of how and when will that play out in the gross margin line. Is that second half '26? Does that flow into '27?

Well, we received the refund as Tim touched on in the prepared remarks. Having said that, what we realized in the P&L was about a $60 million benefit to operating margin. That left about $15 million of what we received in refunds on the balance sheet as a credit to inventory that will be realized over the balance of this year relatively ratably between Q3 and Q4. And of course, that we've indicated, there is an offset related to factory accommodations that will likely take place in Q3. So you'd expect the Q3 margin headwind and a Q4 margin tailwind related to all that.

The next question comes from Laurent Vasilescu with BNP Paribas.

I wanted to follow up on Bob's question about the shift. Is it fair to assume -- should I -- should we assume like about -- last quarter, you talked about a $10 million shift this quarter, should we assume it's a $30 million shift from 3Q into 4Q? And if that's the case, what region would be impacted? Is it Europe because of the Middle East. I'm just trying to better understand what's the supply chain bottleneck that is leading to this shift?

Yes. Sure. Thanks for the question, Laurent. As it relates to the size of the shift, it's north of the $30 million that you referred to. In fact, if we were to adjust for the timing shift that we're seeing Q3 and Q4 in growth in terms of relatively equivalent in the 4% to 5% range, Q3 being a little bit slower growth than Q4 within that. And then as it pertains to the regions, this is a global impact, but I would say that the predominant of it is more North American focused. And certainly the Middle East is a contributing factor to this. I think the other element of it is upon the invalidation of the IEEPA tariffs by the Supreme Court. We did see a bit of a rush on the supply chain and capacities. And so that's part of what's contributing to this is importers are trying to get products into the U.S. at that lower 10% rate relative to the risk of a higher rate longer term.

The other thing I might mention as it relates to just the timing and flow of wholesale shipments is we were a bit earlier in our shipment last year for fall 25 weighted to the third quarter, some of the effect that Fall '25 being early Fall '26, certainly be later as we see it today. And then also keep in mind when you think about the higher rate of growth in the fourth quarter, we did have a shortage of inventory as we curtailed some production for Fall '25 last year. So that's going to provide a bit of a favorable comp as you think about the rate growth in the fourth quarter.

Super helpful. And then as a follow-up, my second question is on China. On a constant currency basis, grew mid-single digits. I think in the -- in your CFO prepared commentary, it talks about 3 driven by China, but also to Europe direct. Maybe can you -- for the audience, can you share what you're seeing in China? I mean, I think it's been a little bit buffer tougher for a lot of names out there. Curious to know, is it due to the typhoons, warm weather? Just curious to know what you're seeing? And how do we think about China overall growth rate for this fiscal year?

Yes. China for us, as you know, we've talked a lot about it being the biggest opportunity for us in growth. We have the typical weather and other disruptions that happen every year. We still think it's an enormous opportunity for us. And we're still quite small there by comparison to others. So that's why we're so confident that our business is going to get bigger there, especially when you consider the growth rates in our e-com businesses across multiple platforms. So I'm still very bullish on China and looking forward to greater things there.

Yes. I'd just add, Laurent. The 618 event that we just came through in Q2 that Tim touched on, we saw robust growth as a part of the selling in on that from a dot-com or online perspective. And as it relates to growth on the year, we still anticipate China being 1 of our fastest-growing markets. And I think I commented on last quarter, we anticipated double-digit growth on the year. And I think we're more or less tracking to that same level. And obviously, some of the strength of the order book that we've got for the wholesale business in the back half.

The next question comes from Paul Lejuez with Citigroup.

It's Tracy Kogan filling in for Paul. I was hoping you guys could talk about how you're U.S. store business trended by month in 2Q and what you're seeing quarter-to-date? And then I was wondering if your gross margin guidance for 3Q also assumes you're more promotional.

As it relates to the store performance, the single biggest thing we would comment on some of this was covered in the prepared remarks that Tim provided, but is the softness that we saw from the traffic standpoint. And that was most notable beginning in the mid to latter part of April. I think largely coincided with the inflationary pressure that the consumers under from a fuel and food price standpoint and that we really saw that decline in traffic happen in an hold relatively steady throughout the quarter, Tracy, so I would describe it as that there was increasing deterioration as we went through the quarter as much as it was a step function down at a point in time then kind of holding relatively constant in that going forward. And then as it relates to how we're thinking about gross margin in Q3 and frankly, for the balance of the year. You'll note that we did pass through the benefit of the refund. The other thing we've done in our outlook on the full year is we had reduced our assumptions in the latter part of the year. We've previously assumed that, i.e. best equivalent tariffs will be in place. we're now assuming that the current tariffs that we know in the 10% to 12.5% range would be there. So the offset to that is essentially an assumption around the consumer environment a bit more pressure and the continuation of these promotions, not to mention with fuel prices going up in the anticipation of some incremental freight charges from predominantly an outbound standpoint.

The next question comes from Mitch Kummetz with Seaport Global.

Can you talk a little bit about what DTC and at-once assumptions are embedded in your back half outlook?

Yes. Mitch, I presume you're talking about the U.S. business. By and large, I would describe, we've cautioned a bit more risk here today with what we're seeing from a macro standpoint in addition to the supply side of things. For the most part, they're consistent with the more recent trends that we've seen in the business. the cancellation side of things like we've touched on, we've not seen anything meaningful in the form of cancellations, but we just note the risk with what we're seeing with the consumer. That's the reason why we're a bit more cautionary today with regard to the range and where we might fall within that range.

And then, Tim, in your prepared remarks, you talked a little bit about new customer acquisition on the Columbia brand side. Could you just maybe elaborate on that? I think you said that you're picking up younger consumers, which I think is part of your strategy with Accelerate. Can you talk a little bit about who you're bringing in? What are these new consumers buying? Are they buying a newer elevated products? What are you learning from this? And is it, to some extent, a proof point that the strategy is working?

Yes, certainly. Well, we can see the age of these consumers in sort of in general, and it's really encouraging to see the results of their purchases as it relates to or more expensive product, especially as it relates to footwear. And we think this is a definite result of the promotional activities not dollar promotional, but marketing promotional activities as it relates to the impact of the accelerating marketing which we've been focusing on, including the explanation impossible that's been so highly lodged by the various groups that measure advertising as well as what we've done with Robert Irwin. And so we just see some great results there, and it's very encouraging in terms of our [indiscernible]. The younger products that we're offering.

And then maybe lastly, just on the strength of the spring order book. I mean do you at this point, sort of anticipate that, that will translate into kind of low to mid-single-digit sales growth in the first half. And I know you're not guiding to next year, but is that how we should think about it if that should be driving that type of growth rate through the first half of next year?

The audio is a little bit weak for us, Mitch, but I think your question was related to the Spring '27 order book. And based on the visibility we have today, we've got, call it, roughly 90% of the orders of 10, and that gives us the indication of the low single to mid-single-digit rate of growth in the first half of next year from a wholesale standpoint. And we're hopeful that we'll continue to take that forward over the course of the next couple of months. And the potential to be on the upper end of that. So we'll look forward to providing an update in October.

Yes, I guess I would also point out that the category that's most encouraging in our spring order book is footwear. We've been talking for a long time about the opportunities there. So it's great to see the business moving forward there, especially in more expensive products.

The next question comes from Jonathan Komp with Baird.

I wanted to ask about the percentage of newness for the Columbia brand. If you think about the D2C business and also your wholesale partners, how that might look in the fall and spring of next year? And maybe related to the spring commentary, have you shared what units and pricing look like within the order book that you referenced?

Well, as it relates to newness, probably the most exciting item that we have for Fall '26 is our amazed of collection, which literally is not new, it was debuted last year, but it doubled in terms of revenue for Fall '26. So that's just an example of how when we move forward with a really interesting product and market it properly that we can be incredibly successful. And I guess it's also important to point out, 1 of our very really basic items, the Bahamas shirt, which celebrated its 30th anniversary this year. When we promoted it and told stories about its heritage, the volumes spiked, and that's going to be a really big part of the future of our business is reenergizing some of our more important classic heritage items and that would include the Tamiami shirt, which is a 20-year anniversary this year, and we'll be promoting that as well. So when we talk about the percentage of newness, we really talk about both reinvigorating and established products as well as adding new. And the new, I would say, is going to be a smaller percentage of the total, but important.

And then, Jon, as it relates to the latter part of your question on dollars and units for the Spring '27 order book. There are no meaningful changes that I would describe in terms of pricing. So that low to mid-single-digit percent. Think about that post relatively on an equivalent basis, both in dollars and in units.

Okay. That's really helpful. And then maybe just a broader question, Jim, as you think about the multiyear potential to build back to a double-digit operating margin. There's obviously a lot of moving parts currently with the tariff uncertainty and then some of the accommodations to your factory partners. So I'm wondering, as you think about that multiyear build back of recovery, is that any more clear to you today? Or do you have any broader perspective on appropriate time lines to think about that?

Yes, there's nothing new to provide in terms of the time line. I think the way we would describe this and the way I certainly think about it is there's been a lot of groundwork laid over the better part of the last few years. We've touched on the profit improvement program and some of the cost savings and efficiencies that we're building in the business from that vantage point and importantly, the Accelerate strategy that we've been working on for quite some time as well. And this really -- our ability to get back to and achieve double-digit and percent and above operating margins is really dependent upon getting that top line turning the right direction on a more consistent basis. Certainly, we're encouraged with what we're seeing from an order book standpoint for both Fall '26 and Spring '27, and that gives us that confidence as we look forward. But I can't -- today pinpoint the time line that we're necessarily seeking to get back to that, but just a lot of great work being done across the company.

Up next is Mauricio Serna with UBS.

Great. A couple of questions on sales. Just to confirm, for U.S. wholesale in the back half, is the expectation still to be low to mid-single-digit growth? And how should we think about that in Q3 versus Q4. Maybe could you talk a little bit more about what you're seeing in sell-through of the core Columbia product over the last quarter?

I can start out, Mauricio, and then I'll have Tim jump in here a bit as well. As it pertains to the Fall '26 order book and last quarter, we indicated directional the order book both globally and in the U.S. and from a U.S. standpoint across the brand portfolio. This is hold true for the Columbia brand as well that we still contemplated low single-digit to mid-single-digit percent growth. And as we sit here today, we've not taken anything different than we ordinarily would expect at this point in time of the season from a cancellation standpoint. Of course, this is all dependent upon our in-season execution, getting things into the marketplace, the consumer and so forth. So I just -- that would be the overarching caveat. And as it pertains to the Q3, Q4 flow of that, we anticipate Q3 is going to be down due to the later shipments and then you expect growth in the fourth quarter.

And then I'll shift it over to Tim, as it relates to your question on, I think, sell-through that we're currently seeing in the marketplace.

Yes. As you might remember, our Spring '26 when we book was disappointing, it was down from prior periods. And so we shipped in a smaller quantity merchandise. But as it relates to sell-through, I would say the newest products that we have, we're very high sell-through as well as, as I mentioned, the Bahamas, which is a classic that we remarketed and reinvigorated as a great new product sales were terrific. And then our order book conversion actually was stronger than we had thought it was going to be. So that having been said, it's never as good as we'd like it to be, but we're pleased with the results, and there's -- it bodes well when you have a growing Spring '27 order look after being down in '26.

Got it. Very helpful. Just a quick follow-up on gross margin. Trying to understand like the commentary of slightly higher promotions. Is that across all regions or U.S. only? Or like just trying to understand that part of both in stores and e-commerce, how to try to figure out that part? And then just as you think about '27 order book, and the spring order book. Anything that you can tell us about the input cost, just given the elevated oil prices? How are you thinking about that part of the puts and ticks for next year?

Yes. It relates to gross margin and promotion discount activity in the third and fourth quarter. it's too difficult to probably parse that down by geography, Mauricio. But what I would say is I would anticipate to the degree we do have that. And of course, we're trying to maximize the revenue and profitability. So we'll do that which is needed to stimulate demand and velocity of sales.

With that said, that would -- to the degree that occurs is more likely in the brick-and-mortar channel and within the outlet side of that, which is for us, more of a U.S. concentration in terms of where the outlets are located. Certainly, we're continuing our efforts in terms of being less promotional and making sure that columbia.com is the best representation of the brand and really elevating it through the Accelerate strategy. So I think that answers the first part of your question.

And to come back to the second part, as it relates to input costs and what we've seen, particularly from an oil standpoint, looking out to next year, as we've taken the vast majority of the Spring '27 order book that we're discussing here today. most of the input cost to that had been staged or procured prior to oil price increases. And so only modestly, would we expect to see input cost pressure in Spring '27. Of course, as we get into the Fall '27 season and see oil prices continue to hover in the $90 to $100 range as of late, that's certainly going to be a headwind that we're going to need to address. We're still in the midst of finalizing the product line and going to market here for Fall '27 in the next couple of months. So it would be premature for me to get ahead of that in terms of describing what impact that might have and the mitigations and actions we're taking to make sure that we're maintaining product margin.

Up next is Peter McGoldrick with Stifel.

Just there, you mentioned promotions only to what is needed to stimulate demand, as we think of things becoming more promotional in DTC, should we contemplate that as a reaction to in-season lower traffic? Is there any level of channel inventory imbalance or any pushback from the consumer representing some sensitivity to paying full price?

I think it's a combination, I was saying that the inventory side of it, I would not emphasize I think inventory is generally speaking, at least for us and across the channel from everything we've seen, is pretty darn clean at this point in time. And so to the degree there's that need to stimulate the demand. I think it's a combination of what you saw in Q2 with traffic declines and making sure we're capitalizing on those consumers that are coming through the doors. And then to some degree, Peter, is we are seeing a lot more pressure on the consumer, but I don't think that's any surprise with just seeing where fuel and food prices and everything else are. And apparel and footwear is generally viewed as a discretionary goods. And so it's going to be -- there's more elasticity with that. And so we're dynamically adjusting price to ensure that we keep the volume moving.

Yes. Peter, I just would point out that the weather tends to be much more impactful than almost any economic indicator.

Appreciate that. Yes, I guess following up on the pricing aspect and bigger picture, now that we have some better visibility to input costs on the tariff side, can you help us think about the go-forward philosophy on marching the price range higher as you balance Columbia's value proposition against the cost reality. Should we expect any change to how you're approaching price in future seasons?

Well, I would hope that we have more solid information on tariffs, but we're never really 100% sure how that will play out. The focus for us has been markets where tariffs are less impactful in the international markets.

Yes. And I think with that, Peter, certainly, we're developing product for the dynamic active consumer. I think looking at opportunities where from an overall mix of product with good, better invest and particularly on the better best side of the equation, and that's where we're looking to grow with the dynamic, active and professional lead but that -- those are areas where we think there's opportunity to take some price in the mix of our overall business over time.

The next question comes from Tom Nikic with Needham.

Just wanted to follow up on some of the questions around pricing and promos, et cetera. Have you seen any kind of downward pressure across -- on pricing across the competitive landscape? Like our competitors kind of reinvesting tariff refunds back into pricing or anything like that? Or has some of your expectations around promo activity, more just a function of what you're seeing in your own business?

No, I would say based on the seasonal nature of the products, we're really talking about natural normal liquidation of spring product that happens at this time of the year. and new product coming in, which are seasonally correct outerwear insulated products. There's been no activity that we've seen that would be outside of the normal. And again, the tariff rates are not unusually low. So we hope that they will stay that way.

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

Thanks, operator, and thanks, everybody who joined the call today. While we're facing increasing external headwinds impacting the business as we head into the second half, I really believe that Columbia Sportswear companies like our products are engineered for whatever, with the momentum and resilience we're seeing in our international businesses and the signs of progress we're seeing with the Accelerate strategy, combined with our fortress balance sheet, I'm confident that we have the right strategies and competitive advantages to navigate these headwinds and continue on our path back to sustainable long-term growth. I look forward to updating you all on progress again in a few months.

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

Greetings. Welcome to the Columbia Sportswear Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Matt Tucker. You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's second quarter results. In addition to the earnings release, we furnished an 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 and Chief Executive Officer, Tim Boyle; Co-Presidents, Joe Boyle and Peter Bragdon; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Richelle Luther. This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call, to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review.

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

Thanks, Matt, and good afternoon. In the second quarter, we're pleased to have again delivered net sales growth exceeding our quarterly guidance, driven by strong growth in international markets, partly offset by continued headwinds in the U.S. Our reported earnings and profit margins include the impact of U.S. tariff refunds recognized during the quarter. Without this onetime item, our underlying performance was largely in line with our expectations with sales beating the high end of our guidance and gross margins slightly below plan on higher promotional activity, while operating margins and loss per share landed roughly at the midpoint of our guidance range.

International business, which represents over 40% of our sales, continues to lead our growth, up 9% year-over-year. While our U.S. business remained challenged this quarter and declined 4%, we saw sequential improvement despite consumer discretionary spending coming in under mounting inflationary pressure. We saw this pressure translate into soft traffic in our U.S. DTC brick-and-mortar business during the quarter, resulting in higher discounts and lower sales than planned.

Despite these headwinds, we were pleased to see positive and better-than-expected growth in our U.S. DTC e-com business, driven by our emerging brands. We're also encouraged by improving metrics in Columbia brand U.S. e-commerce, including new customer acquisition, which we view as indicators of progress on the ACCELERATE strategy. Additionally, we're seeing encouraging signs of the traction the Columbia brand is making with target consumers, including improvements in unaided awareness and purchase intent among professional elite and dynamic active consumers in North America.

We're also realizing stronger growth rates with newer and more elevated products and collections aimed at these target consumer groups. That said, we know it will take more time and work to bring the newness, innovation and elevated style to our product portfolio at the level we need in order to continue shifting consumers' perceptions of the brand in the U.S. and put us back on a path of sustainable long-term growth.

As a reminder, ACCELERATE is a multiyear strategy that we launched into the marketplace nearly 1 year ago, based on key shifts about consumer, brand, product, marketplace and marketing. While the foundational shifts of ACCELERATE are starting to show tangible signs of paying off, we have continued to refine the strategy. The Columbia brand is now focused on five strategic pillars: one, own the trail with a focus on both hike and trail run. Two, dominate warm, our on-mountain warmth and innovation story, including, but not limited to, ski and snowboard; three, power PFG, expanding our leadership in both fishing performance and lifestyle; four, fuel outdoor lifestyle with product that has outdoor DNA but is designed for everyday wear with elevated style; and five, accelerate footwear, which is an opportunity embedded across each of the previous four pillars and a stand-alone growth priority in its own right. These five pillars are nested in the original shifts of the ACCELERATE strategy, providing a click down for more focused execution with our consumers.

These pillars leverage our authenticity and heritage in the outdoors and a reputation for quality and durability that consumers have long known us for. They also incorporate many aspects of the playbooks that have already been driving the healthy and sustainable growth of our international businesses. But we also know that today's consumers are expecting even more in terms of credibility, style and relevance, performance credibility in their favorite outdoor activities, style in their everyday wear with an outdoor function and aesthetic, and relevance within the outdoor culture and communities to which they belong.

In support of these five brand pillars, we're also sharpening our approach to segmenting our product construct with performance and innovation-led product designed for end-use activities, specifically hike, trail run, and snowboard and fish, and with style-led product designed for consumers looking to incorporate versatile outdoor function and elevated aesthetic into their everyday life. Executing across our five brand pillar means executing an offense that encompasses all seasons, climates and geographies where Columbia is present and where people can enjoy the outdoors with footwear and apparel that both fulfill their performance needs and make them look and feel great.

I'm excited to see these strategies continue to come to life in the marketplace over the coming seasons as we execute against these strategic pillars and the broader ACCELERATE work. I can feel the energy and excitement from our teams to focus on these strategic priorities that are both clear and aligned across the Columbia brand organization, both here and around the world. I'm also excited to share that in addition to the positive consumer response to the engineered for whatever brand platform, our marketing team continues to gain recognition and accumulate awards for our Expedition Impossible campaign.

Following the Gold Clio award we highlighted last quarter, in late June, Expedition Impossible racked up an incredible 10 awards at the Cannes Lion Awards Festival, which is widely considered to be one of the most competitive and prestigious award events in the marketing and communications industry globally with competition against some of the world's largest and most famous brands. Columbia's awards spanned across social media, public relations, brand strategy and direct marketing, making us the single most awarded company at this year's event.

Of particular note, Expedition Impossible won the Grand Prix Award in brand experience and activation, and we also won the Dan Wieden Titanium Award, the culmination of the festival and its marquee award, which has been compared to winning the best picture at the Oscars. I want to congratulate our team once again for this well-deserved recognition and for the continued impact this work is creating for our brand. Since launching late last year, Expedition Impossible has garnered an incredible amount of media coverage and thousands of creative submissions from consumers or flat-earthers from around the globe. We're excited for the fun and adventure to continue through next week. On August 4, we will reveal who, if anyone, reached the edge of the Earth.

Another major marketing highlight for Columbia brand in Q2 was our campaign that pitted Columbia global brand ambassador, Robert Irwin, against 100 crocodiles. The crocs proved to be no match for Robert, thanks to the vastly superior traction, cushioning and dryness provided by his footwear, the Columbia Tellurix Titanium OutDry shoe. The campaign was both authentic to the Columbia brand and resonated with Robert's large and loyal following, attracting more than 3.7 million views and over 300,000 likes across digital platforms. The Tellurix, one of our most technical and premium footwear offerings in the hike category, sold out during the quarter and is poised to scale in future seasons on strong consumer demand. We also saw strong sell-through of additional items featured on the Rob's look page of columbia.com during the quarter and look forward to more fun and creative moments from our partnership with Robert in the future.

The success of Tellurix was part of another key ingredient this quarter for the Columbia brand, which is the momentum we're seeing in footwear, including high single-digit percent growth globally in Q2. This growth was driven by several styles with particular strength in more technical footwear, featuring our proprietary OmniMesh technology, including the Tellurix and Peak Freak franchises in hike, the Konos in trail running and the Dry Tortuga in fish. The growing strength of our footwear business was also reflected in the media recognition that our products received this quarter.

Among several product awards received by Columbia, some of the most notable, including the Tellurix being featured among the best lightweight hiking boots by Wired and among the best outdoor sneakers of 2026 by Women's Health. Additionally, within PFG, the Whipray and Castback TC shoes were included in best summer gear lists by Outdoor Life and Saltwater Sportsman, respectively. Columbia Footwear also recently took first place on a different type of podium. Earlier this month, Columbia sponsored athlete, Gabrielle Gada took first place overall at the prestigious UTMB Valdoram Ultra Trail race in Spain, testing an elite field of competitors over 163 kilometers and 10,000 meters of elevation gain.

In a sport where elite runners often change shoes multiple times during an event, Gabriel not only started the race and a pair of Columbia Konos Speed Trail ATR, our highest performance trail running shoe, but he completed the entire race and crossed the finish line in exactly the same pair. Originally hailing from a small village in Argentina, Gabriel path to becoming an elite trail runner is truly inspirational, and his success is equally inspiring to us as it validates Columbia as an emerging force on the trail running scene, including at the sports highest levels. Big congrats to Gabriel and look forward to seeing him on many future podiums.

Now I'll provide an update on our spring '27 wholesale order book, which provides encouraging indicators of the progress we're making under the ACCELERATE strategy. Although we are still taking orders, the book is nearly complete and current indications point to a low to mid-single-digit percent growth with broad-based contributions to this growth across our brands, including the Columbia brand in the U.S. Additionally, we're seeing growth across account types and tiers, including our higher priority brand-enhancing partners. From a product perspective, we're pleased to see footwear growth outpacing apparel with solid growth in both categories. It's also particularly encouraging to see strong adoption of newer apparel and footwear styles, including growth in key styles targeting younger, dynamic active consumers, consistent with our ACCELERATE strategy.

Turning back to the second quarter financial performance. I'd like to remind everyone that the second quarter is our lowest volume sales quarter and small year-over-year changes in sales and expense timing can have a material impact on reported results.

Net sales increased 2% versus the prior year to $614 million, driven by growth in international distributors and global e-commerce, partially offset by an expected decline in wholesale, primarily due to a lower U.S. '26 order book versus the prior year. During Q2, we began receiving refunds of the U.S. IEEPA tariffs with the majority of cash owed received in June. As such, during the quarter, we recognized approximately $78 million in refunds and interest in our financial statements based on IEEPA tariffs previously paid. From an accounting perspective, we recognized $60 million in Q2 operating margin, primarily as a reduction to cost of sales and $2 million of interest income with $15 million as a reduction to inventory. As a reminder, we absorbed the impact of IEEPA tariffs on our gross margins last year.

Including the impact of tariff refunds, second quarter gross margin expanded 920 basis points on a reported basis to 58.3%. Excluding tariff refunds, gross margin contracted by 50 basis points versus the prior year, driven by continued headwinds from incremental U.S. tariffs and increased discounting. SG&A expense increased 2%, reflecting higher DTC expenses, including some unplanned store impairment charges, partly offset by lower personnel costs resulting from our prior year actions taken as a part of the profit improvement program.

This overall performance resulted in EPS of $0.52. Excluding the impact of tariff refunds, our loss per share of $0.41 would have fallen roughly in line with the midpoint of our Q2 guidance range. Inventories remain healthy and are down 6% versus the prior year in dollar terms with units down 7%. We continue to maintain our fortress balance sheet, exiting the quarter with $625 million in cash and short-term investments and no debt.

Looking at net sales by geography. U.S. net sales decreased 4%, declining slightly more than expected due to soft traffic within our DTC stores. Relative to the prior year, the lower sales were primarily driven by a high single-digit percent decline in U.S. wholesale, resulting from a lower spring '26 wholesale order book. Columbia's performance was slightly ahead of plan due to stronger-than-expected order conversion. U.S. DTC net sales were down slightly in the quarter, primarily reflecting the impact of store closures as well as softer traffic, which was largely offset by improved conversion.

E-commerce grew low single-digit percent and exceeded plan, driven by our emerging brands. While Columbia brand U.S. e-commerce was down low single-digit percent for the quarter, we're encouraged with improving underlying metrics as we reposition e-com as the pinnacle expression of the brand.

For my review of second quarter year-over-year net sales growth in international geographies, I will reference constant currency growth to illustrate underlying performance in each market. LAAP net sales increased 13%. China net sales increased mid-single-digit percent driven by solid growth in DTC e-com. This was partly offset by single-digit percent declines in wholesale due to shipment timing and in DTC stores, reflecting soft traffic amid a more challenging macro environment. A key highlight in the quarter was our strong performance during China's 618 shopping event with robust growth versus the prior year, coupled with an improved markdown rate. Our China team executed a successful spring brand campaign titled It's Nature's Fault, which encourage consumers to embrace nature and its imperfect perfection, creating significantly higher social media engagement and impressions versus the prior year. We also continue to create energy through grassroots of events with our hike society, including events that combine the increasingly popular activities of hiking and fishing, which we believe only Columbia can authentically do.

Japan net sales increased low double-digit percent, rebounding nicely from a challenging first quarter. This reflected growth in both wholesale and DTC despite weak outlet store traffic amid a softening macro environment in addition to adverse weather in the month of June due to heavy rains. Key growth drivers included our Thrive Revive [ shandle ] on the footwear side, which sold out in the quarter, as well as cooling apparel, including our Omni-Freeze Zero technology.

Korea net sales increased low double-digit percent, reflecting double-digit percent growth in both wholesale and DTC e-com. DTC brick-and-mortar grew low single-digit percent and beat plan but with higher promotional activity due to lower traffic and increased consumer price sensitivity amid rising inflation. Product highlights included robust growth in cooling apparel, channel footwear styles and our PFG Bahama shirt, which was supported by a well-executed retail activation, celebrating the style's 30th anniversary. Our LAAP distributor markets delivered mid-20% growth, driven by the fall '26 order book and earlier fall shipments, reflecting continued momentum in these diverse global markets, driven by robust growth in Columbia brand apparel.

EMEA net sales increased high single-digit percent overall. Europe direct net sales increased low double-digit percent, showing continued momentum in both wholesale and DTC, albeit with a higher promotional activity in DTC amid weaker traffic. Due to macro headwinds and unfavorable weather, the Europe team drove energy for the Columbia brand through a successful spring marketing campaign, leveraging the engineered for whatever platform across digital, social and out-of-home media, delivering more than 650 million impressions on digital and social channels alone.

We also continue to build strong connections with local outdoor communities through our hike society. In Q2, we hosted HikeFest events in France and the U.K. that sold out within minutes, creating considerable buzz and user-generated content for our brand among target consumers. Our EMEA distributor business increased mid-single-digit percent versus the prior year, driven by increased spring and fall '26 orders, partially offset by later fall shipments.

Canada net sales decreased high single-digit percent in the quarter, primarily reflecting declines in wholesale due to unfavorable shipment timing and lower spring '26 orders. This was partly offset by growth in DTC with higher e-commerce sales, partly offset by lower brick-and-mortar results due to worker traffic and softening consumer environment.

Looking at second quarter performance by brand. Columbia net sales increased 1% with international growth more than offsetting declines in the U.S. Turning now to our emerging brands, all of which are expected to grow in '26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace. SOREL net sales decreased 14%, driven largely by later wholesale shipment timing versus the prior year, which was partly offset by growth in DTC e-com. As a reminder, Q2 typically represents less than 10% of SOREL's annual business. We continue to anticipate a stronger fall '26 season for SOREL with growth expected in both wholesale and DTC for the second half.

As announced last month, we're also thrilled to welcome Joe Bernaccio back to Columbia Sportswear's family as the President of SOREL brand. We know Joe well from his prior tenure as President of Mountain Hardwear, he brings extensive industry experience as a proven consumer-focused and collaborative leader. I'm confident that Joe is the right leader at the right time to drive the next phase of SOREL's growth and further unlock the brand's tremendous potential.

PrAna net sales increased 14%, reflecting double-digit percent growth in wholesale and high single-digit percent growth in DTC e-com with flattish growth in DTC brick-and-mortar on lower traffic, which was offset by better conversion. We remain encouraged by the momentum building the prAna brand with healthy growth in both new and retained customers, particularly among its target younger consumer. A key highlight during the quarter was the opening of prAna's third full-price store in La Jolla, California, which has gotten off to a great start, enhanced by a steady stream of elevated in-store experiences.

Mountain Hardwear net sales grew 6% year-over-year, driven by double-digit percent growth in DTC channels. This was partly offset by low double-digit percent decline in wholesale due to substantially lower closeout sales versus the prior year, which more than offset low single-digit percent full price growth. A major highlight in the quarter was Mountain Hardwear's fourth collaboration with [ Susi ], which surpassed each of the prior collections in sales with remarkably strong sell-through. We were also excited to see the new Kazam Ultra Light Trail backpack launch in Q2 and immediately become a top 10 style in terms of sell-through.

We'll now discuss our financial outlook for the third quarter of 2026 and the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures relating to those statements. While we remain focused on execution and what we can control, the operating environment remains highly dynamic, particularly around the major external factors affecting our business that we spoke about 3 months ago, involving tariffs in the U.S. and the conflict in the Middle East.

The outlook for U.S. tariffs policy remains highly uncertain. While the administration continues to signal its intention to bring tariffs back to rates similar to the IEEPA levels, if and when that will happen remains unclear. As such, our financial outlook now assumes that the current 10% to 12.5% tariff rates remain in place through the end of this year. Additionally, our second half outlook contemplates a $15 million benefit to our cost of sales from the IEEPA tariff refunds previously received. However, we expect this tailwind to gross margin will be largely offset by accommodations to our factory partners that have navigated this period of uncertainty with us. That said, from a timing perspective, we expect to incur a net headwind to our gross margins related to these accommodations in Q3 and a net tailwind to our gross margin in Q4 related to the remaining refunds.

Turning now to the ongoing conflict in the Middle East. While the direct measurable impacts to our business have remained relatively contained, including the order cancellations from our distributor in that region that we spoke about last quarter, the macroeconomic headwinds and supply chain disruptions related to the conflict are of greater concern and have begun to materialize. The prolonged period of elevated global gasoline prices stemming from the conflict is putting pressure on discretionary spending and consumer sentiment, particularly among lower and middle-income consumers, which could impact consumer demand in the second half.

Additionally, we now anticipate meaningful shifts in the timing of fall '26 shipments from the third quarter to the fourth due to longer logistics lead time resulting from supply chain disruptions as well as discrete delays stemming from capacity constraints within a node of our global supply chain. These delays are expected to shift all of our anticipated second half growth in the fourth quarter, creating greater risk to our outlook given the macroeconomic headwinds impacting operating environment.

For the third quarter, we anticipate sales in the range of down 1.5% to flat versus the prior year. This will result in slight SG&A deleverage and when combined with our anticipated decline in gross margin, result in earnings per share of $1.15 to $1.35.

Now turning to our full year outlook. We are increasing our full year margin and earnings guidance ranges to pass through the impact of second quarter tariff refunds. We continue to expect underlying results to land within the ranges we previously provided including some benefit from our revised tariff rate assumptions. That said, our underlying sales and margin outlook for the second half has incrementally moderated versus 90 days ago based on the macroeconomic and supply chain headwinds we have discussed.

For full year net sales, we're maintaining our prior guidance of 1% to 3% growth versus the prior year. We now expect reported gross margins of 52.1% to 52.3% or up 160 to 180 basis points versus the prior year. We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year-over-year but at a slower rate than the net sales growth. Based on these assumptions, we're raising our reported operating margin guidance to 8.5% to 9.3% for the year. We're also raising our reported diluted earnings per share guidance to the range of $4.45 to $4.90. In addition to the factors already discussed, this reflects an incrementally higher full year tax rate assumption of approximately 25%.

In closing, we're pleased to have delivered first half results that were in line to slightly better than our plan overall, despite navigating external headwinds and other impacts to our business that were unforeseen when we started the year. While the operating environment has become more challenging since our last call, I remain encouraged by the strength and resilience of our international business, the signs of progress we are seeing with our ACCELERATE strategy and the stability provided by our fortress balance sheet. Thank you again to our global workforce who are instrumental in the execution of our strategies and our business success.

That concludes my prepared remarks. Operator, could you help us facilitate the questions?

[Operator Instructions] The first question comes from Bob Drbul with BTIG.

I was wondering if we could just unpack a little bit like the commentary around the second half outlook, some of the supply chain disruptions and better clarity or visibility on your delivery schedules with the product. Can you just talk about, has there been any change around the order book with your better visibility? And so when you look at the wholesale plans and the acceleration that you had talked about previously, has that changed much? Could you quantify that a little bit in the North American piece specifically?

And I guess the second piece of this is the spring '26 order book firmed up probably earlier than I can remember, right? And so that's pretty encouraging. And the guidance that you gave or the expectations around the order book, is that primarily -- I mean, is it broad-based? Is North America in that sort of mid-single-digit range as well? If you could maybe give a little more color around that, that would be helpful.

Sure, absolutely. So first of all, related to the change in the Q3, Q4 shipping numbers, we're basically talking about 1% one way or the other. And it's not a function of any cancellations or any adjustments. These are both known and expected logistic issues around -- which were impacted both by the conflict in the Middle East and the disruption to shipping as well as a certain topic in our -- of our consolidation nodes as we discussed. So we're confident that the numbers are going to be coming through as we've got planned. And then you mentioned the spring '26 order book, but you're talking about spring '27, right?

Yes, '27, sorry, yes.

Yes. And yes, basically, its growth across all the brands and all the geographies, including the North America and U.S.A. business. So we're starting to see the results of accelerate and really exciting good stuff happening that way.

And Bob, given Tim's comments and that we've not seen any changes in our order book for fall '26, we would still contemplate growth for U.S. and North America in the back half of the year for the wholesale business. Of course, with the shift that we're seeing, that's going to be much more back-end weighted where we'll probably see a decline in Q3 and an increase of growth in Q4.

Okay. Great. And just, Jim, on the other -- the second piece of the IEEPA tariff refunds, how does that go into play or sort of how and when will that play out in the gross margin line? Is that second half '26? Does that flow into '27?

Well, we received the refunds, as Tim touched on in the prepared remarks. Having said that, what we realized in the P&L was about a $60 million benefit to operating margin. That left about $15 million of what we received in refunds on the balance sheet as a credit to inventory, that will be realized over the balance of this year relatively ratably between Q3 and Q4. And of course, as we've indicated, there is an offset related to factory accommodations that will likely take place in Q3. So you expect a Q3 margin headwind and a Q4 margin tailwind related to all that.

The next question comes from Laurent Vasilescu with BNP Paribas.

I wanted to follow up on Bob's question about the shift. Is it fair to assume -- should we assume like about -- last quarter, you talked about a $10 million shift. This quarter, should we assume it's a $30 million shift from 3Q into 4Q? And if that's the case, what region would be impacted? Is it Europe because of the Middle East? I'm just trying to better understand what's the supply chain bottleneck that is leading to this shift?

Yes. Sure. Thanks for the question, Laurent. As it relates to the size of the shift, it's north of the $30 million that you referred to. In fact, if we were to adjust for the timing shift that we're seeing, Q3 and Q4 in growth terms will be relatively equivalent in the 4% to 5% range. Q3 being a little bit slower growth than Q4 within that. And then as it pertains to the regions, this is a global impact, but I would say that the predominance of it is more North America focused. And certainly, the Middle East is a contributing factor to this. I think the other element of it is upon the invalidation of the IEEPA tariffs by the Supreme Court, we did see a bit of a rush on the supply chain and capacities.

And so that's part of what's contributing this is importers are trying to get product into the U.S. at that lower 10% rate relative to the risk of a higher rate longer term. The other thing I might mention as it relates to just the timing and flow of wholesale shipments is we were a bit earlier in our shipment last year for fall '25 weighted to the third quarter. Some of the effect of fall '25 being early, fall '26, certainly being later as we see it today. And then also keep in mind, when you think about the higher rate of growth in the fourth quarter, we did have a shortage of inventory as we curtailed some production for fall '25 last year. So that's going to provide a bit of a favorable comp as you think about the rate of growth in the fourth quarter.

Super helpful. And then as a follow-up, my second question is on China. On a constant currency basis, it grew mid-single digits. I think in your CFO prepared commentary, it talks about 3Q driven by China, but also Europe direct. Maybe can you -- for the audience, can you share what you're seeing in China? I mean I think it's been a little bit tougher for a lot of names out there. Curious to know, is it due to typhoons, warm weather? Just curious to know what you're seeing? And how do we think about China overall growth rate for this fiscal year?

Yes. China for us, as you know, we've talked a lot about it being the biggest opportunity for us in growth. We have the typical weather and other disruptions that happen to it every year, we still think it's an enormous opportunity for us. And we're still quite small there by comparison to others. So that's why we're so confident that our business is going to get bigger there, especially when you consider the growth rates in our e-com businesses across multiple platforms. So I'm still very bullish on China and looking forward to greater things there.

Yes. I'd just add, Laurent, the 618 sales event that we just came through in Q2 that Tim touched on, we saw robust growth as a part of the selling in on that from a dot-com or online perspective. And as it relates to growth on the year, we still anticipate China being one of our fastest-growing markets. And I think I commented on last quarter, we anticipate double-digit growth on the year. And I think we're more or less tracking to that same level. And obviously, some of the strength of the order book that we've got for the wholesale business in the back half.

The next question comes from Paul Lejuez with Citigroup.

It's Tracy Kogan filling in for Paul. I was hoping you guys could talk about how your U.S. store business trended by month in 2Q and what you're seeing quarter-to-date? And then I was wondering if your gross margin guidance for 3Q also assumes you're more promotional?

As it relates to the store performance, I think the single biggest thing we would comment on, and some of this was covered in the prepared remarks that Tim provided, but is the softness that we saw from a traffic standpoint. And that was most notable beginning in the mid to latter part of April, and I think largely coincided with the inflationary pressure that the consumer is under from a fuel and food price standpoint. And then we really saw that decline in traffic happen and then hold relatively steady throughout the quarter, Tracy, so I wouldn't describe it as there was increasing deterioration as we went through the quarter as much as it was a step function down at a point in time and kind of holding relatively constant from that going forward.

And then as it relates to how we're thinking about gross margin in Q3 and frankly, for the balance of the year, you'll note that we did pass through the benefit of the refund. The other thing we've done in our outlook on the full year is we had reduced our assumptions in the latter part of the year. We've previously assumed that IEEPA equivalent tariffs would be in place. We're now assuming that the current tariffs as we know in the 10% to 12.5% range would be there, so the offset to that is essentially an assumption around the consumer environment, a bit more pressure and the continuation of some of these promotions, not to mention with fuel prices going up in the anticipation of some incremental freight charges from predominantly an outbound standpoint.

Speaker 0.

The next question comes from Mitch Kummetz with Seaport Global.

Can you talk a little bit about what DTC and at assumptions are embedded in your back half outlook?

Yes. I presume you're talking about the U.S. business. By and large, I would just describe, we've cautioned a bit more risk here today with what we're seeing from a macro standpoint in addition to the supply side of things. For the most part, they're consistent with the more recent trend that we've seen in the business. The cancellation side of things, like we've touched on, we've not seen anything meaningful in the form of cancellations, but we just note the risk with what we're seeing with the consumer, and that's the reason why we're a bit more cautionary today with regard to the range and where we might fall within that range.

And then, Tim, in your prepared remarks, you talked a little bit about new customer acquisition on the Columbia brand side. Could you just maybe elaborate on that? I think you said that you're picking up younger consumers, which I think is part of your strategy with ACCELERATE. Can you talk a little bit about who you're bringing in? What are these new consumers buying? Are they buying the newer elevated products? What are you learning from this? And is this to some extent, a proof point that the strategy is working?

Yes, certainly. Well, we can see the age of these consumers and sort of in general. And it's really encouraging to see the results of their purchases as it relates to our more expensive product, especially as it relates to footwear. And we think this is a definite result of the promotional activities not dollar promotional, but marketing promotional activities as it relates to the impact of the accelerated marketing efforts we've been focusing on, including the Expedition Impossible that's been so highly lauded by the various groups that measure advertising as well as what we've done with Robert Irwin. And so we just see some great results there, and it's very encouraging in terms of how we're promoting the younger products that we're offering.

And then maybe lastly, just on the strength of the spring order book. I mean, do you, at this point, sort of anticipate that, that will translate into kind of low to mid-single-digit sales growth in the first half? And I know you're not guiding to next year, but is that how we should think about it that, that should be driving that type of growth rate through the first half of next year?

The audio is a little bit weak for us, Mitch, but I think your question was related to the spring '27 order book. And based on the visibility we have today, and we've got, call it, roughly 90% of the orders are in, that gives us the indication of the low single to mid-single-digit rate of growth in the first half of next year from a wholesale standpoint. And we're hopeful that we're continuing to take that order book over the course of the next couple of months and the potential to be on the upper end of that. So we'll look forward to providing an update in October.

Yes. I guess I would also point out that the category that's most encouraging in our spring order book is footwear. We've been talking for a long time about the opportunities there. So it's great to see the business moving forward there, especially in more expensive products.

The next question comes from Jonathan Komp with Baird.

I wanted to ask about the percentage of newness for the Columbia brand. If you think about the DTC business and also your wholesale partners, how that might look into the fall and spring of next year? And maybe related to the spring commentary, have you shared what units and pricing look like within the order book that you referenced?

Well, as it relates to newness, probably the most exciting item that we have for all '26 is our Amaze Puff collection, which literally is not new. It was debuted last year, but it doubled in terms of revenue for fall '26. So that's just an example of how when we move forward with a really interesting product and market it properly that we can be incredibly successful. And I guess it's also important to point out one of our very really basic items, the Bahama shirt, which celebrated its 30th anniversary this year.

When we promoted it and told stories about its heritage, the volumes spiked, and that's going to be a really big part of the future of our business is reenergizing some of our more important classic heritage items. And that would include the Tamiami shirt, which is a 20-year anniversary this year, and we'll be promoting that as well. So when we talk about the percentage of newness, we really talk about both reinvigorating established products as well as adding new. And the new, I would say, is going to be a smaller percentage of the total, but important.

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And then, Jon, as it relates to the latter part of your question on dollars and units for the spring '27 order book, there are no meaningful changes that I would describe in terms of pricing. So that low to mid-single-digit percent, think about that both relatively on an equivalent basis, both in dollars and units.

Okay. That's really helpful. And then maybe just a broader question, Jim, as you think about the multiyear potential to build back to a double-digit operating margin, there's obviously a lot of moving parts currently with the tariff uncertainty and then some of the accommodations to your factory partners. So I'm wondering, as you think about that multiyear build back or recovery, is that any more clear to you today? Or do you have any broader perspective on appropriate time lines to think about that?

Yes. Well, there's nothing new to provide in terms of the time line. I think the way we would describe this and the way I certainly think about it is there's been a lot of groundwork laid over the better part of the last few years. We touched on the profit improvement program and some of the cost savings and efficiencies that we're building in the business from that vantage point. and importantly, the accelerate strategy that we've been working on for quite some time as well. And this really -- our ability to get back to and achieve double-digit 10% and above operating margins is really dependent upon getting that top line turning the right direction on a more consistent basis.

Certainly, we're encouraged with what we're seeing from an order book standpoint for both fall '26 and spring '27, and that gives us that confidence as we look forward. But I can't today pinpoint the time line that we're necessarily seeking to get back to that, but just a lot of great work being done across the company.

Up next is Mauricio Serna with UBS.

A couple of questions on sales. Just to confirm, for U.S. wholesale in the back half, is the expectation still to be low to mid-single-digit growth? And how should we think about that in Q3 versus Q4? Maybe you could just talk a little bit more about what you're seeing in sell-through of the core Columbia product over the last quarter?

I can start out, Mauricio, and then I'll have Tim jump in here a bit as well. As it pertains to the fall '26 order book and last quarter, we indicated directionally the order book both globally and in the U.S. And from a U.S. standpoint across the brand portfolio, this will hold true for the Columbia brand as well that we still contemplated low single-digit to mid-single-digit percent growth.

And as we sit here today, we've not taken anything different than we ordinarily would expect at this point in time of the season from a cancellation standpoint. Of course, this is all dependent upon our in-season execution, getting things into the marketplace, the consumer and so forth. So I just -- that would be the overarching caveat. And as it pertains to the Q3, Q4 flow of that, we're going to anticipate Q3 is going to be down due to the later shipments and then you expect growth in the fourth quarter. And then I'll shift it over to Tim as it relates to your question on, I think, sell-through that we're currently seeing in the marketplace.

Yes. As you might remember, our spring '26 order book was disappointing. It was down from prior periods. And so we shipped in a smaller quantity of merchandise. But as it relates to sell-through, I would say the newest products that we have were very high sell-through as well as, as I mentioned, the Bahama shirt, which is a classic that we remarketed and reinvigorated as a great new product. The sales were terrific.

And then our order book conversion actually was stronger than we had thought it was going to be. So that having been said, it's never as good as we'd like it to be, but we're pleased with the results and there's -- it bodes well when you have a growing spring '27 order book after being down in '26.

Got it. Very helpful. Just a quick follow-up on gross margin. Trying to understand like the commentary of slightly higher promotions. Is that across all regions or U.S. only? Or like just trying to understand that part, both in stores and e-commerce, trying to figure out that part. And then just as you think about '27 order book and the spring order book, anything that you can tell us about the input costs just given the elevated oil prices? How are you thinking about that part of the puts and takes for next year?

Yes. As it relates to gross margin and promotion discount activity in the third and fourth quarter, it's too difficult to probably parse that down by geography, Mauricio. But what I would say is I would anticipate to the degree we do have that. And of course, we're trying to maximize the revenue and profitability. So we'll do that, which is needed to stimulate demand and velocity of sales. With that said, that would -- to the degree that occurs, it's more likely in the brick-and-mortar channel and within the outlet side of that, which is, for us, more of a U.S. concentration in terms of where the outlets are located.

Certainly, we're continuing our efforts in terms of being less promotional and making sure that columbia.com is the best representation of the brand and really elevating it through the ACCELERATE strategy. So I think that answers the first part of your question. And to come back to the second part, as it relates to input costs and what we've seen, particularly from an oil standpoint, looking out to next year, as we've taken the vast majority of the spring '27 order book that we're discussing here today, most of the input costs to that have been staged or procured prior to oil price increases. And so only modestly, would we expect to see input cost pressure in spring '27.

Of course, as we get into the fall '27 season and seeing oil prices continue to hover in the $90 to $100 range as of late, that's certainly going to be a headwind that we're going to need to address. We're still in the midst of finalizing the product line and going to market here for fall '27 in the next couple of months, so it would be premature for me to get ahead of that in terms of describing what impact that might have in the mitigations and actions we're taking to make sure that we're maintaining product margin.

Up next is Peter McGoldrick with Stifel.

Just there, you mentioned promotions only to what is needed to stimulate demand. As we think of things becoming more promotional in DTC, should we contemplate that as a reaction to in-season lower traffic? Is there any level of channel inventory imbalance or any pushback from the consumer representing some sensitivity to paying full price?

I think it's a combination. I was saying the inventory side of it, I would not emphasize. I think inventory, generally speaking, at least for us and across the channel from everything we've seen is pretty darn clean at this point in time. And so to the degree there's that need to stimulate the demand, I think it's a combination of what you saw in Q2 with traffic declines and making sure we're capitalizing on those consumers that are coming through the doors.

And then to some degree, Peter, it is -- we are seeing a lot more pressure on the consumer. And I don't think that's any surprise with just seeing where fuel and food prices and everything else are. And apparel and footwear is generally viewed as a discretionary good. And so it's going to be -- there's more elasticity with that. And so we're dynamically adjusting price to ensure that we keep the volume moving.

Yes. Peter, I just would point out that the weather tends to be much more impactful than almost any economic indicator.

Appreciate that. Yes, I guess following up on the pricing aspect and bigger picture, now that we have some better visibility to input costs on the tariff side, can you help us think about the go-forward philosophy on marching the price range higher as you balance Columbia's value proposition against the cost reality? Should we expect any change to how you're approaching price in future seasons?

Well, I would hope that we have more solid information on tariffs, but we're never really 100% sure how that will play out. The focus for us has been on markets where tariffs are less impactful, i.e., the international markets.

Yes. And I think with that, Peter, certainly, we're developing product for the dynamic active consumer. I think looking at opportunities where from an overall mix of product with good, better and best and particularly on the better, best side of the equation, and that's where we're looking to grow with the dynamic active and professional lite. But that -- those are areas where we think there's opportunity to take some price in the mix of our overall business over time.

The next question comes from Tom Nikic with Needham.

I just wanted to follow up on some of the questions around pricing and promos, et cetera. Have you seen any kind of downward pressure across -- on pricing across the competitive landscape? Like are competitors kind of reinvesting tariff refunds back into pricing or anything like that? Or has some of your expectations around promo activity more just a function of what you're seeing in your own business?

No, I would say based on the seasonal nature of the products, we're really talking about natural normal liquidation of spring product that happens at this time of the year and new product coming in, which are seasonally correct outerwear, insulated products, there's been no activity that we've seen that would be outside of the normal. And again, the tariff rates are they're not that unusually low. So we hope that they stay that way.

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

Thanks, operator, and thanks, everybody, who joined the call today. While we're facing increasing external headwinds impacting the business as we head into the second half, I really believe that Columbia Sportswear Company, like our products are engineered for whatever. With the momentum and resilience we're seeing in our international businesses and the signs of progress we're seeing with the ACCELERATE strategy, combined with our fortress balance sheet, I'm confident that we have the right strategies and competitive advantages to navigate these headwinds and continue on our path back to sustainable long-term growth. I look forward to updating you all on progress again in a few months.

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

Greetings. Welcome to the Columbia Sportswear First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Matt Tucker. You may begin.

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's first 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 and Chief Executive Officer, Tim Boyle; Co-Presidents, Joe Boyle and Peter Bragdon; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Richelle Luther.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review.

Following our prepared remarks, we will host a Q&A period, during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour.

Now I'll turn the call over to Tim.

Thanks, Matt, and good afternoon. In the first quarter, we're pleased to have again delivered net sales and profitability exceeding our quarterly guidance, driven by early spring 2026 wholesale shipments and better-than-expected demand in Europe and the U.S. as well as disciplined expense management.

Our international business, which represents over 40% of our sales, continued to lead our growth, up 16% year-over-year. While our U.S. business remained challenged this quarter and declined 10%, the decrease was largely anticipated based on the decline in our advanced Spring '26 wholesale orders. This also reflected our decision last year to reduce the supply of certain winter products as a precautionary measure in response to U.S. tariff announcements.

Cleaner inventories also drove less clearance sales. That said, I'm encouraged by signs of growing momentum in the U.S., including an increased fall '26 order book, which we expect to enable the wholesale business to return to growth in the second half. It's increasingly clear to me that the Columbia ACCELERATE Growth Strategy is resonating with consumers.

A major highlight for the Columbia brand in Q1 was the Winter Olympics, where the U.S. Curling team thrilled fans at home and around the world, capturing a historic silver medal in mixed doubles, all while competing in distinctive and iconic Columbia kits. This generated billions of views around the world for one of the most watched Olympic events, along with more than 25 million views of Columbia's U.S. Curling jerseys on social media.

Additionally, longtime Columbia and Team USA Freestyle skiing athlete, Alex Ferreira, reached the pinnacle of his sport claiming the gold medal in the men's halfpipe. Alex's performance and victory further demonstrate that Columbia's products meet the highest standards of elite winter athletes.

And he has continued to inspire fans and drive energy for the Columbia brand since returning home. He's been celebrating at events such as the recent U.S. ski and snowboard nationals in Aspen, Colorado.

The Columbia brand also garnered outsized attention at another sporting event of major importance in Q1 crashing the tailgate party at the big game in Santa Clara with Nature Calls, the only beer that uses bear scat in the brewing process. Columbia sent 2 bear ambassadors to the game, and they made their presence known, appearing 4 times on the stadium's Jumbotron and even making it on the live TV broadcast.

This impact was enhanced by influencer partnerships with sports personalities around the event. Social media content from the game itself, generating over 9 million views on social media alongside hundreds of news articles. We're excited that the return to our irreverent roots also continues to see recognition from the media and outdoor community.

The Engineered for Whatever campaign was recently awarded a Gold Clio Award, one of the most respected international awards in advertising, marketing and communication for the launch of our Expedition Impossible Challenge that we spoke to you about last quarter, which has generated over 10 million organic views on social media.

Congrats to the team and stay tuned for more exciting things ahead. Our engineering excellence was also reinforced in Q1 with several product awards from multiple media outlets. Among many examples, a highlight included our women's Arcadia II jacket and our men's Watertight II jacket, both being featured in the New York Times Wirecutter Guide for Best Everyday rain jackets, a testament to the durability, performance and value we build into every design.

Our newer product collections and marketing activations launched under the ACCELERATE Growth Strategy and Engineered for Whatever campaign are increasingly resonating with consumers. This is evidenced by improvements in organic search interest, direct site traffic and customer acquisition rate for the first quarter.

Another first quarter highlight for the Columbia brand is the momentum we see building in PFG, performance fishing gear. As a reminder, we have a long and deep heritage with PFG as pioneers of the fishing apparel and footwear category.

As a brand known for high performance, authenticity and fun, PFG is inspiring the next generation of anglers, supported by investments in sales and marketing, including an always-on social media strategy, a refreshing ground game and the addition of new fishing athletes and ambassadors to the PFG roster.

A key product highlight in the quarter was the Bahama shirt, long known for keeping anglers cool and comfortable and also widely known as the unofficial uniform of country music superstar, Luke Combs. This year, we're celebrating the Bahama's 30th anniversary and expect sales of the Bahama to grow by double-digit percent for the spring '26 season.

The celebration will continue beyond Q1 with additional marketing investments and collaborations with authentic artists and influencers to drive energy for this iconic style. Another PFG highlight on the footwear side is the Dry Tortuga Boot, which saw sales more than triple in Q1. We believe it's the most rugged, durable and comfortable fishing boot on the market and delivers attractive styling that's a standout in the fishing category.

Looking ahead, we're excited about the potential for PFG to build on this recent momentum and take share in this growing market, particularly with younger consumers who are increasingly adopting the sport and lifestyle of fishing. Now I'll provide an update on our Fall '26 order book, which is another indicator of the traction we're gaining with our ACCELERATE Strategy.

Since our last update, the order book continued to trend positively, reinforcing our expectations for mid-single-digit percent wholesale growth globally in the second half. While the overall growth is encouraging, the dimensions of that growth provide further signals of progress under the ACCELERATE Strategy. As a reminder, we launched ACCELERATE roughly 2 years ago.

And given product development time lines, we're now increasingly seeing the new products created under this strategy hit the market, driving growth in the order book and representing an increasing share of Columbia brand sales. In addition to U.S. growth in the Fall '26 order book, we're excited to see double-digit percent sales growth in Columbia's women's business and in footwear.

At a product level on a global basis, we're seeing outsized growth in our most premium and innovative products and platforms, including double-digit percent growth or better in our titanium product and our Omni-Heat Arctic technology as well as meaningfully scaling of our new MTR fleece. Our 2 major product launches from fall '25, the Amaze and ROC lines will continue to scale with orders up more than double versus the prior year.

We're also thrilled to have Amaze featured in triple the number of DICK'S Sporting Goods location this fall as compared to last year. Turning to the current operating environment. While we remain focused on execution and what we can control, the operating environment remains highly dynamic with major external events affecting our business since we last spoke 3 months ago, particularly involving tariffs in the U.S. and the conflict in the Middle East.

First, let me address the tariff situation. Following the U.S. Supreme Court's tariff ruling in late February, the U.S. administration implemented a 10% universal tariff under Section 122, which is set to expire in July. Our prior full year outlook, which was issued prior to the court's ruling, included unmitigated incremental tariff impacts of approximately 300 basis points on our gross margin.

We are now expecting a slight improvement based on the 10% universal tariffs extending through July and the assumption that the U.S. administration will implement new tariffs at or near IEEPA tariff rates following the expiration of the Section 122 rates. We now expect an approximate 200 basis point unmitigated headwind from tariffs to our full year gross margin outlook.

As a reminder, we made the decision last year to absorb nearly all of the fall '25 impact of incremental tariffs and not raise prices. The court's ruling also required the refund of IEEPA tariffs already paid. As of the date they were terminated, we have paid a total of approximately $80 million in IEEPA tariffs.

Approximately $55 million of which has been recognized through cost of sales with the remainder residing in inventory on our balance sheet as of the end of the first quarter. We have already taken action by submitting our refund claims, and we fully intend to pursue every avenue available to secure the refunds that we are owed. We have not yet recognized any benefit of refunds in our financial statements nor have we updated our financial outlook for such refunds.

Turning now to the ongoing conflict in the Middle East, which broke out in late February. First, my thoughts go out to any of our customers, employees, business partners and their loved ones who may be directly impacted by this conflict. Their safety and security is always our first and primary concern. As far as our business is concerned, this conflict has already triggered order cancellations and forecasted order reductions for certain Middle East distributor markets.

While these impacts have not meaningfully changed our full year financial outlook to date, the prolonged nature of the conflict poses further risks. Macroeconomic and supply chain risks are among the areas that could have a more profound effect. These risks, including the potential softening of consumer demand, driven by the ongoing surge in energy prices and the resulting inflationary pressures on consumers' wallets.

Increased oil prices are expected to put pressure on our product input costs with the exposure we're getting in our spring '27 season. Further, the conflicts impact on global supply chains could result in late arriving inventory, increased freight and logistics costs and potential order cancellations.

Due to the high degree of uncertainty associated with the ongoing conflict and resulting impact on the global economy and supply chains, we are not able to incorporate these risks into our updated 2026 financial outlook. Despite these external factors, I am confident in our ability to navigate these risks given our highly experienced leadership team, flexible and resilient global supply chain, fortress balance sheet and high-quality products that provide a strong value proposition for the consumer.

Turning back to our first quarter financial performance. Net sales were roughly flat year-over-year at $779 million, reflecting a balanced performance across channels with both DTC and wholesale coming in flat to the prior year. Gross margin contracted 20 basis points to 50.7%, driven by 310 basis points in incremental unmitigated tariff costs, partly offset by mitigation actions, including targeted price increases.

SG&A expenses increased nearly 1%, reflecting higher DTC expenses, partially offset by lower enterprise technology and supply chain personnel expenses, reflecting cost reductions actions which were taken last year. This overall performance resulted in diluted earnings per share above our guidance range. Inventories remain healthy and are relatively flat versus the prior year in dollar terms with units down approximately 11% year-over-year.

We remain steadfast in our commitment to driving shareholder value, returning meaningful cash to shareholders, including $150 million in share repurchases during the first quarter, which resulted in the retirement of 2.5 million shares and opportunistic acceleration of activity related -- relative to recent periods. We continue to maintain our fortress balance sheet, exiting the quarter with $535 million in cash and short-term investments and no debt.

Looking at net sales by geography. U.S. net sales decreased 10%, but performed better than planned. The decline in sales resulted from a lower spring '26 order book, constrained supply of winter season product, which limited our ability to fulfill consumer demand and lower clearance sales on lean inventory. The U.S. wholesale business was down low teens percent. The U.S. DTC net sales declined high single-digit percent in the quarter.

Brick-and-mortar was down mid-single-digit percent, partially reflective of clean inventories and inclusive of the impact of less temporary clearance stores compared to last year. E-commerce was down low teens percent, driven by the shortage of winter product and lower conversion of consumer traffic. We're encouraged with the early spring 2026 selling, led by key categories, including footwear, outerwear, women's sportswear and PFG.

We continue to see momentum building through our elevated home page, personalized and digital marketing efforts, including improvements in engagement and customer acquisition. For my review of first quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market.

LAAP net sales increased 3%. China net sales increased mid-single-digit percent driven by growth in wholesale from increased spring '26 orders, which benefited from earlier wholesale shipment timing. Highlights from the quarter included a successful airport campaign featuring our Titanium Dry technology and Tellurix performance hiking shoe in China's top 3 airports during the Chinese New Year season, which drove strong full price sell-through for those product lines.

We also launched the Columbia Fishing Club to deepen connections with anglers across China following the success we've had with similar club events and activations based on hiking. We can see the impact that activities like these are having for our brand in China, including strong year-over-year growth in new member acquisition and active purchasers as well as market share gains with younger consumers and women.

Japan net sales declined mid-single-digit percent, reflecting headwinds from softer international tourism as well as later shipment of spring '26 wholesale orders. While it was a challenging start to the year, we are encouraged by recent trends with a notable improvement in business momentum following the recent launch of Spring '26 product. Korea net sales increased high single-digit percent with growth across all channels, driven by the execution of marketplace initiatives.

The Korea team continued to do a great job of leveraging the Engineered for Whatever campaign in Q1 and amplifying consistent high-impact brand visibility across consumer channels, driving strong sell-through for key products such as the Tellurix. I'm also pleased with how the team continues to elevate the marketplace and consumer experience, driving improved productivity in targeted doors. I want to take a moment to thank Jeff McPike for his strong leadership of the Korean business.

This summer, Jeff will be returning to the U.S. to assume the critical role of Vice President, North America Retail. In this role, Jeff will be responsible for leading all aspects of our North America brick-and-mortar business. I'm confident in the ability of the Korea team to continue building on the momentum established under Jeff's leadership.

Our LAAP distributor markets delivered low double-digit percent growth in Q1, reflecting a healthy order book for spring '26. Growth was driven by the Columbia brand in both footwear and apparel, particularly sportswear as our distributor teams continue to do a spectacular job strengthening our brand with active consumers in these diverse global markets.

EMEA net sales increased low 20% overall. Europe direct net sales increased high teens percent, fueled by strong DTC performance and healthy wholesale sales, partly reflecting earlier shipments of spring '26 orders. Results across channels reflected robust demand for winter season product, aided by favorable weather early in the quarter and ample inventory availability.

We're thrilled with the strong start to the year and anticipate seeing that momentum continue with a strong start to our spring season. Our EMEA distributor business increased low 30%, reflecting earlier shipments of orders and a healthy order book for spring '26. Canada net sales increased low single digits in the quarter, driven by growth in DTC brick-and-mortar, reflecting increased productivity from existing stores and strong winter sell-through.

Looking at the first quarter performance by brand. Columbia net sales increased 1% as international growth more than offset expected declines in the U.S. Turning now to our emerging brands, all of which are expected to grow in '26. As a reminder, each of these brands derive a significant majority of their revenue from the U.S. marketplace.

SOREL net sales decreased 12% due largely to reduced supply of winter season products in the U.S. as previously discussed, and lower closeout sales leading to declines across all channels and more than offsetting strong momentum in the international markets.

Encouragingly, we have seen sales trends improve with the launch of spring '26 styles, including healthy growth in sneakers, a priority category that demonstrates SOREL is becoming viewed as more than just a winter brand. prAna net sales decreased 5%, driven by declines in wholesale, partly offset by solid growth in in-line DTC channels.

This included low teens percent growth in e-com, driven partly by a shift in social media strategy that's helping to drive strong brand momentum, including improvement in new customer acquisition, customer retention, revenue per customer and robust growth with younger consumer. Mountain Hardwear net sales were flat year-over-year.

Weakness with winter season product amid unfavorable weather in the Western U.S. early in the quarter was eventually offset by strong momentum with spring '26 product, particularly in e-commerce, driven by a surge in organic search demand. U.S. wholesale grew low single-digit percent in the quarter, led by high-quality specialty retail and digital partners with key product categories of equipment and outerwear driving the growth in Q1.

Looking ahead, we're excited about the recent launch of the dry spell technology innovation, which sets a new standard for waterproof breathability. Additionally, Mountain Hardwear's new Lightness of Being brand campaign will emphasize innovative equipment and technical apparel for the trail elemental protection from the sun and rain as well as seasonal sportswear styles inspired by consumer insights.

We'll now discuss our financial outlook for the second quarter of '26 and for the full year. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to those statements.

While Q1 results exceeded our expectations, we've noted that part of the outperformance was timing related with some wholesale shipments occurring earlier than planned. The partial and likely temporary reprieve of Section 122 U.S. tariffs also presents some favorability to our initial assumptions as discussed.

On the other hand, the impacts associated with supply chain disruptions and inflationary pressure from the ongoing conflict in the Middle East represent key risks that were not contemplated in our initial guidance and that we currently cannot forecast. Based on the information we have today, we are maintaining our full year outlook for net sales growth in the range of 1% to 3%.

We now expect gross margins of 50.3% to 50.5% or down 20 basis points to flat versus the prior year. The improved outlook reflects the termination of IEEPA rates by the Supreme Court and our assumption that rates will remain at current levels through July. Before reverting back to tariff rate levels approximate to the IEEPA rates, subject to the uncertainty of future actions by the U.S. administration.

We continue to expect that SG&A will represent 43.6% to 44.2% of net sales, increasing slightly year-over-year but at a slower rate than net sales growth. Based on these assumptions, we are raising our operating margin guidance to 6.7% to 7.5% for the year, leading to diluted earnings per share in the range of $3.55 to $4.

In addition to stronger gross margins, this range also reflects the benefit of our accelerated first quarter share repurchase activity relative to our prior assumption. For the second quarter, which is our seasonally lowest revenue quarter of the year, -- we anticipate sales in the range of down 1% to up 1% versus the prior year.

This will result in slight SG&A deleverage and when combined with our anticipated decline in gross margin, result in a loss per share of $0.46 to $0.37. In closing, while I'm not satisfied with our overall financial performance in Q1, I'm pleased with the continued strength of our international business and our team's ability to execute and start the year off on a positive note by driving upside to our initial plans.

Further, I'm encouraged by the additional signs of underlying momentum in our business under the ACCELERATE Strategy, particularly with the Columbia brand in the U.S., our largest market. Although the operating environment remains highly dynamic and uncertain, our fall 2026 order book and positive early indicators of our ACCELERATE Strategy provide us with confidence that we're on the right track.

Thanks again to our global workforce who are instrumental in the execution of our strategies and business success. That concludes my prepared remarks.

Operator, could you help us facilitate the questions?

[Operator Instructions] Our first question comes from Bob Drbul with BTIG.

Tim a couple of questions, if I could. I guess on the first part, from the last time you spoke where the order book was to where you are today, were there any surprises around the remaining, I think, 20% that you were booking?

And then I guess just geographically around the order book, can you talk about the trends in Europe? And I guess, just any disruption whatsoever? I know Middle East is a risk that you call out. Can you just talk through those 3 things for us?

Certainly. Well, as it relates to the order book for fall, we were pleased -- we expected it to come in at a number, and we were pleased that it came in north of that number. So we're excited about the strength there. And again, we're cautioning because there are so many unknowns today about the Middle East conflict and the potential for increased tariffs beyond where we've estimated.

Geographically, I think we're in a good place. We had strong reports from many of the markets, including Europe was good despite the fact that they had sort of a tough early winter in Europe as did we here in North America. So it was really quite broad. I might just point to the continued improvement and strength in our international distributor markets, which -- and despite those that are in the middle of the conflict in the Middle East are doing well.

Bob, I would just add, as we look at that order book and we take our advanced orders combined with our anticipation of in-season business for the second half of this year, we do contemplate growth across all geographies led by international and growth across each of our brands. So we're quite encouraged by the order book that's come in.

Great. And then if I could just sneak in one more. On the tariffs, in terms of the application for the refunds, I guess if you are successful in getting those refunds, Tim, what would be the plan with that money that you would do for the business?

Well yes. Thanks, Bob. As we know, the administration may or may not allow us to get the returns timely. We have filed all of the documents required to get the tariffs back, but we clearly haven't contemplated those in our plans for '26. We certainly hope we'll get them back promptly.

As it relates to where -- what we will do with those funds, we have our standard allocation of capital rules that we use, which will follow. Some of our vendors were contributors along the line to helping us sort of in a spirit of partnership, and we want to make sure that those folks are well taken care of.

But we're in discussions. We want to make sure that we utilize it correctly, but we're going to be leaning on our historical capital allocation plans.

Next question comes from Peter McGoldrick with Stifel.

I wanted to ask about your engagement efforts to recruit younger consumers. Can you share any KPIs supporting your progress here and how that's -- how growth is trending with that cohort and how that's embedded in your outlook today?

Well, at the end of the day, it's really the acid test is a larger order book and a bigger revenue. So that's -- we're pleased to see that coming along nicely. But I guess I would say these activations that we've engaged in with our ad agency, An, which would include the Expedition Impossible flat earth challenge and the hacking of the big game in Santa Clara in January.

Those are primarily focused on a younger consumer, and it's great to see the reaction from those people in terms of visits to our website and important connections in that way. So we're going to be leaning on the acid test to make sure we've got growth growing across the business.

Very good. And then I was hoping you could help me think about today's revenue guidance in terms of price and volume. There's an 11 percentage point spread between inventory dollars and units. I'm curious of how to think of that spread flowing through the P&L. Is there anything you could share on like-for-like price increases and mix embedded in the outlook?

Well, the biggest place where we've taken price increases as we've previously communicated, some targeted price increases for both our spring '26 and fall '26 product lines in the U.S. And those have been a high single-digit percent of increase.

And as you look at the comments we've made with regard to our wholesale order book for the fall '26 season, we anticipate the wholesale business being up a low single to mid-single-digit percentage. So certainly implied in that would be that there's less unit volume on that growth. So hopefully that answers your question, Peter.

The next question comes from Jonathan Komp with Baird.

I want to follow up on the momentum you're seeing for the Columbia brand in the U.S. specifically. Could you share any more direct feedback you've had from your wholesale partners and the positive developments you mentioned for the Amaze product, especially at DICK'S Sporting Goods. Is there a potential to replicate that across some of your other partners?

Yes. So the Amaze product for fall of '25 was quite broadly distributed across our better customers and better areas of distribution. So we're thrilled to see the results there. I mean it's primarily a women's product. So that area has been very good and sold through at very high margins.

We've also taken the learnings from Amaze and extended it into our spring '26 product line, where we have a number of products which are following in the amaze learnings, including soft hand on the fabrics, stretch and colors that are very attractive and are complementary to younger females.

We intend to, for Fall '26 to extend beyond those categories of merchandise into some rain and some fleece products where we think we can make the entire Amaze family a much bigger part of our business and frankly, a full franchise where we can be very successful and especially with younger consumers.

Great. That's very helpful. And then, Jim, if I could follow up, apologies if I missed this, but I think for the full year, you brought down the tariff headwind assumption by 100 basis points. You raised the gross margin by 50 basis points. So could you be a little more specific about the difference between those 2, what you're embedding today?

And then as you think about the broader uncertainties not captured in your current guidance, which ones are sort of the biggest swing factors or the biggest incremental risk factors as you sit here today?

Yes, John, the delta between the 100 basis point benefit that we're picking up from the reprieve of tariffs and the gross margin outlook improvement of 50 basis points. There's no one discrete item that I would necessarily point to that's driving that, that we're seeing in the business.

From an overarching standpoint, if you look at the revenue and margin that we achieved in Q1, it was in line or slightly better than where we had anticipated. So it's really just an acknowledgment of the overall macro environment that we're operating in and the potential risks around that.

And I think that part of it is in the latter part of your question as well, just in terms of as we think about ultimately delivering on the guidance that we put before you today. And certainly, we've called out the Middle East risk. The main pressure valve there is just going to be how this weighs on the end consumer worldwide as it relates to gas prices and overall inflationary pressures.

The next question comes from Tom Nikic with Needham.

I want to ask about the U.S. direct-to-consumer channel. You've had, I guess, a bunch of negative quarters in a row. And it seems like there's been a lot of excitement around the new product and great marketing, et cetera. I guess kind of why do we think it's sort of taking so long to get that business back to growth?

And I guess, if we kind of think about, I guess, by channel, like should we think that like digital should turn first or brick-and-mortar should turn first? Like how do we kind of think about the progression about getting U.S. direct-to-consumer growing again?

Yes. I would think that when we talk about our brick-and-mortar channel, you have to remember that we're comparing it against a much smaller number of stores since the bulk -- we had many, many stores that were temporary in the effort to liquidate inventories from the logistics logjam that we had.

Additionally, we had a high percentage of liquidation inventory in those stores, which typically have a lower -- an impact and a lower rate on our gross margins in those stores. And so that's, I think, is the primary way you're seeing the decline in sales in those numbers. we've always considered ourselves to be a wholesale primarily business and retail is used as a steam valve, escape valve for the company to liquidate inventories in the right way.

And so that's the primary use on the outlet channels. On the full-price channel, it's a newer category of retail that we use, and we're still learning our way around that. And we expect that digital is going to be the primary way that we expose our brands to consumers in the best possible light. So that will come, we believe, as the ACCELERATE program becomes more fully established.

The next question comes from Laurent Vasilescu with BNP Paribas.

I wanted to ask, I think you guys called out that there was a shift from 2Q to 1Q. Is it fair, Jim, to assume that it's $20 million shift and should it be just in EMEA? And then second part of the question is really around the call out that there were some cancellations with Middle East distributors.

Is it fair to assume that Middle East is low single-digit percentage of sales and therefore, maybe like $70 million and maybe it was half of it was cut? Just trying to understand that. And then I have a follow-up on the oil input cost.

Yes, you bet, Laurent. So looking at the first quarter from a revenue standpoint, we beat by around $20 million. Roughly half of that was the timing shift that you're referring to. And the majority of that was European based. There's a little bit from a U.S. perspective.

And then with regard to the Middle East distributors, you're a bit high in terms of what that represents in revenue, particularly in the Gulf Coast countries, it's going to be in the -- it's going to be the low single-digit percent range of our total business and the cancellation and forecast reductions that we've taken to date, as we've commented, it's relatively insignificant in the grand scheme of our overall outlook, which you can see that we're holding it. So it's not impacting that.

Very helpful. And then the second part -- second question is really, I think, to Tim's point, about input costs. Most of the products are oil-based derivatives. I think we heard from adidas yesterday calling out that, that could be a potential headwind. We're hearing tonight that it could be an impact for 2027 spring product.

Can you help us frame how do we think about this? If oil hypothetically stayed at $100 throughout the balance of the year for structural reasons, how do we think about that as an increase to your cost of goods sold for at least 1H '27?

I think it'd be a bit premature for us to provide the exact framing on that. We're in the process of finalizing costing and beginning to buy for the spring season. There's no doubt that certain of those -- I should step back for a minute, certain of the raw materials have been already processed and ready in advance of the Middle East.

So this is going to bleed in over some period of time. But there's no doubt that come the spring season, we'll begin to see that pressure. And these things don't calm over the coming months here and it increasingly bleeds into the fall season as well.

And Laurent, we also have other mitigation efforts, including engineering our products in a different way and changing the componentry. So we're not trapped with a single source like that.

The next question comes from Mauricio Serna with UBS.

Just a quick question on the direct-to-consumer business. Could you talk about in the U.S., how that business trended throughout the quarter? Curious to see if you can provide some context of how consumers have reacted to the high single-digit price increases.

And on China, I think you mentioned the growth has been -- you noted wholesale as the primary driver of growth in Q1. Could you talk about the direct-to-consumer business there as well?

Yes. In terms of taking your first question with regard to the DTC business, I presume you're focused on the U.S. side of that. trending in the quarter, as you might imagine, certainly, the January, February was cold, but we did comment on the shortage of inventory that we had.

So that certainly held things back increasingly as we got into the spring season and we're well supplied from inventory, and we were pleased overall with what we're seeing from a demand standpoint in that part of our business, both through our direct-to-consumer business and frankly, through our wholesale business, where the sell-through is outpacing the intake from retailers and where overall stock levels are.

As it relates to the high single-digit price increase and from a price elasticity standpoint, because I think that's essentially where your question is at, it came in more or less where we would have anticipated it being. I think I touched on earlier from an overall revenue and margin perspective on the quarter, we were at or around where we would expect it to be.

Certainly, there's elasticity in our product. I don't think that's any mystery. There are categories of our business where we've got more pricing power, we can pass along more of those price increases and others that less so. And certainly, we're adapting to that on the fly. And then as it relates to the China business, I guess what I would describe there is, yes, we grew 5% in the quarter.

We still contemplate healthy growth out of the China business for the full year. We've got double-digit percent growth that's planned there. Our DTC business was down a little bit in the first quarter, nothing -- not down rather, but certainly not growing the way it had. I wouldn't call out there's anything specific there. We still think that's a healthy business.

Okay. And then just quickly on the commentary, to follow-up on the shipments. There was some -- it sounds like a lot of the impact on the earlier shipments was in Europe. Maybe just wondering if you provide a bit more context of how would that impact the second quarter, third quarter of that region as we think about how we model the next several quarters for Europe?

Well, certainly, the rate of growth that we achieved in Europe in the high teens rate in Q1. Given that shift, you're not going to see that rate of growth come in Q2. But that said, we were very pleased with the spring '26 order book that we took for Europe.

It's in the double-digit percent level of growth. I don't have the fall '26 in front of me, but we'd anticipate our European business being healthy from an overall growth standpoint throughout the full year.

The next question is from Paul Lejuez with Citigroup.

Curious how much you think sales were hurt in the first quarter in the U.S. due to the inability to fulfill first quarter demand and also if that more sales in wholesale, DTC, both any color you can provide there?

And curious what you saw at POS across markets. And maybe if you could provide more specific color on the fall order book that you're seeing in the U.S.

Well, specifically as it relates to the shortage, and again, I wouldn't want to speculate on what revenue would have been had we not had the shortage. What we can share is it was roughly about a $30 million reduction in our planned fall '26 or fall '25 inventory purchases.

And from an overarching standpoint, I would describe that, that was probably more impactful for the wholesale business in Q4 '25 as we were continuing to ship in the season. And then the D2C business would have been a bit more impacted in the first quarter.

And then the order book U.S. for the fall?

Yes. The order book for USA was -- as we said, we're very pleased with it came in slightly north of where we thought it was going to end up. So we're thrilled.

Of course, we have these 2 great -- in addition to a solid growth across the business, we have these 2 great categories of merchandise, the amaze and it's new entrants and then the ROC Pant, which is another great product that's doing very well for us.

I think the only thing I would add to the fall '26 order book is we previously communicated that we had anticipated the order book being up in the low single to mid-single-digit percent range. And as Tim touched on, the order book came in a bit healthier than we had even anticipated. So it's moving more into that mid-single-digit percent range. We're quite happy with how the order book landed.

That was overall, though, right? Not U.S.?

That's U.S. specifically. From an overall from a global standpoint, we're solidly in the mid-single-digit percent range based on the order book we have and what we anticipate the wholesale growth to look like in the second half. And then my comment with regards to the U.S. is initially, our projections were dated back in February that would be up low single to mid-single as we closed out the order book. And I think given the uptake of the ACCELERATE product in particular, that we ended up on the north end of that range.

The next question is from Mitch Kummetz with Seaport Research.

Just a follow-up on the $10 million timing shift. I'm just wondering if -- is that -- is your outlook for the second quarter, does that contemplate that as just being like a true shift?

I would think that with the orders delivering earlier that, that would kind of lengthen the window for reorder potential. And I'm wondering if you factored any maybe stronger reorders into the guidance if that is an opportunity?

Potentially, Mitch. I mean, any time you ship into the -- and you're able to set the floors a little bit earlier and if sell-throughs holds up and the consumer is healthy, then certainly that would bode some opportunity.

That timing shift, just to be clear, though, that's a timing shift relative to what we forecasted and planned for Q1, not necessarily a year-on-year change. I think, by and large, the year-on-year changes in timing shifts are not all that substantial. I mean there's a couple of pockets of it that you're seeing in the European business and so forth. But on the whole for the company, it's not a meaningful driver.

Okay. And then, Tim, I think on the last earnings call, you talked about how depleted channel inventory was coming out of the winter season on seasonal merchandise. I'm curious to get your thoughts if you feel like your fall order book is in line with kind of where channel inventory stands?

Or do you think that maybe retailers have sort of generally under ordered just because they're being conservative? And does that provide more of an at-once opportunity going into the back half of the year?

Yes. I think our retailers ended up quite clean, frankly. And so I expect that we'll be going into a season where we have lots of opportunity. The question is whether or not the consumer shows up in the kind of robust way.

So that's why even though we've got indications across the business that we've got a better year looking at us than what we guided, we just want to make sure that we've got the appropriate conservatism. And frankly, we don't have a lot of extra inventory even if things go -- get wildly better, we just don't have a lot of inventory on a speculative basis.

We currently have no further questions in the queue. I would now like to turn the floor back to Tim Boyle for closing remarks.

Thanks, operator. Thanks, everybody, who's listening in today. I hope that you'll come away with our -- from this discussion today with a better appreciation of the progress that we are seeing and it gives us the confidence that we're on the right path.

There is still much work ahead of us to fully realize our strategic vision and unlock the full potential of our brands. Our financial foundation is solid. Our international business remains robust, and we can now see our U.S. business starting to turn the corner with the traction we're gaining under our ACCELERATE Growth Strategy.

In dynamic times like these, strong companies emerge stronger, and I'm confident that our strengths and competitive advantage will position us to compete and win. I look forward to seeing you all on our next quarterly review in the next few months. Thank you.

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

Greetings. Welcome to the Columbia Sportswear Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Reed Anderson. 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.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release in the appendix of the CFO commentary and financial review.

Following our prepared remarks, we will host a Q&A period during which we will limit each caller to 2 questions, so we can get to everyone by the end of the hour.

Now I will turn the call over to Tim, our Chairman and Chief Executive Officer.

Thanks, Reed, and good afternoon. With me on the call today are Co-Presidents, Joe Boyle and Peter Bragdon; our Executive Vice President and Chief Financial Officer, Jim Swanson; and our Executive Vice President, Chief Administrative Officer, General Counsel, Richelle Luther.

This is our first earnings call for Joe, Peter and Richelle Luther in their new roles. As announced in November, these role changes are part of our ongoing process to advance our succession plans. I'm glad to have such a strong bench of leadership to help grow the company over the coming years.

Now turning to the fourth quarter. We're pleased to have delivered net sales and profitability exceeding our guidance for the fourth quarter, driven by better-than-expected demand in the U.S.

While our U.S. business remains challenged, I'm encouraged with continued growth internationally, combined with early signs of momentum, indicating that the Columbia ACCELERATE Growth Strategy is resonating with consumers, including new and enhanced product collections and differentiated marketing. I'd like to thank our global workforce whose hard work and dedication have enabled us to make this meaningful progress.

Highlights from 2025 include international sales growth, which was strong and broad-based, reflecting wholesale and DTC growth. The launch of Columbia brand ACCELERATE Growth Strategy is beginning to attract younger consumers into the brand with new product collections, such as the Amaze Puff.

The Engineered for Whatever campaign launched in August drove robust consumer engagement with key activations such as Expedition Impossible.

Inventories are healthy and essentially flat as we exit 2025, inclusive of increased tariff costs in the U.S.

The rate of SG&A growth has slowed as we optimize spending to allow us to increase the level of marketing to drive engagement and demand.

We remain steadfast in our commitment to driving shareholder value, returning meaningful cash to shareholders, including $201 million in share repurchases and $66 million in dividends.

We continue to maintain our fortress balance sheet, exiting the year with $791 million in cash and equivalents and no debt.

While we made progress in many areas, our 2025 financial performance was short of my personal growth and profitability goals.

Overall, our full year '25 net sales increased 1% to $3.4 billion as growth in the international markets was mostly offset by continued headwinds in the U.S.

The impact of unmitigated tariffs, brand impairments and increased marketing spend contributed to operating margin contraction and a decline in earnings.

Looking forward, we see positive indicators from each of our brands. For the Columbia brand, the Amaze Puff collection was an outstanding success for fall '25. For Spring '26, we introduced a seasonally appropriate Amaze collection. We're also excited about the potential of the ROC Pant program and recently launched the ROC Lite series.

New for Spring '26, the ROC Lite Short includes a differentiated stretch waistband, the ROC BAND, providing all-day comfort. Throughout our Spring '26 offering, we have invested in a diverse range of new styles across apparel and footwear from high-performance hiking, fishing and trail running products to contemporary outdoor lifestyle products, designed to resonate with consumers in the outdoor communities that we serve.

Another key highlight for Spring '26 is OutDry Extreme, our patented technology delivering industry-leading waterproofness in a post-PFAS world. OutDry Extreme combines enhanced functionality with sustainability as the base material is made from recycled textiles.

As we look forward to the year ahead, our initial full year net sales outlook contemplates growth of 1% to 3%. In addition to Columbia brand growth, all of our emerging brands are expected to grow, led by prAna.

Our initial 2026 operating margin outlook contemplates the expansion from 2025 despite ongoing headwinds from incremental U.S. tariffs. We expect modest SG&A expense growth with the goal of offsetting gross margin contraction.

Turning to fourth quarter financial performance. We delivered fourth quarter results that exceeded our guidance range as stronger-than-anticipated demand in the U.S. more than offset unseasonably warm weather in most direct international markets.

Net sales decreased 2% year-over-year to $1.1 billion, driven by a 7% decrease in wholesale net sales, partially offset by a 1% increase in direct-to-consumer sales. Recall that earlier-than-planned shipments of fall '25 orders shifted some wholesale sales to earlier in the year.

Gross margin expanded 50 basis points to 51.6%, driven by cleaner inventories that contributed to lower promotions, clearance activities and lower inventory loss provisions, which more than offset the impact of incremental U.S. tariffs.

SG&A expense increased 3%, reflecting higher DTC expenses and other nonrecurring SG&A expenses associated with our profit improvement program, partially offset by the effect of cost reduction efforts, lowering expenses in targeting areas of the business. This performance resulted in operating income and diluted earnings per share above our guidance range.

Looking at net sales by geography. U.S. net sales decreased 8%. The U.S. wholesale business was down high teens percent, reflecting earlier shipment of fall wholesale orders from a lower order book. Results were partially impacted by inventory supply constraints as we curtailed fall '25 inventory purchases as a precautionary measure upon U.S. tariff announcements earlier in the year.

U.S. DTC net sales declined low single-digit percent in the quarter. Brick-and-mortar was down low single-digit percent, reflecting the closure of temporary clearance locations and lower mall traffic, partially offset by higher productivity from existing stores and contribution from new stores. We exited the quarter with 8 temporary clearance locations compared to 28 in the prior year. E-commerce was down low single-digit percent as soft traffic and less clearance and promotional activities were partially offset by ongoing efforts to refine our marketing investments for the Columbia brand. We saw modest sales growth in the Columbia brand, offset by declines in emerging brands. The improved photography on the redesigned uscolumbia.com website helped to drive discovery and engagement.

From our review of fourth quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 10%.

China net sales increased low double-digit percent, driven by wholesale and e-commerce growth despite the impact of warm weather on demand for seasonal products. The outdoor category remains robust in China. We continue to drive high levels of brand engagement with young active consumers by emphasizing iconic products and styling as well as premium localized product offerings, including the Transit and Hike 365 collections. During the quarter, we educated consumers about our technologies through an Omni-Heat Infinity roadshow that our team executed in 4 of China's largest cities. In addition, we saw strong engagement from the Sunset Lure PFG campaign launched on TikTok as well as our Titanium Ski campaign.

Japan net sales increased high single-digit percent, reflecting increased fall '25 wholesale shipments shifting into the fourth quarter. Our Japan business remains healthy despite declines in tourism and lower domestic consumer sentiment. Omni-Heat Infinity outerwear and winter boots performed well during the quarter.

Korea net sales increased low single digit percent, driven by wholesale and e-commerce as we gained share in a soft outdoor category. We're thrilled with our team's execution across brand and marketing initiatives that drive digital sales. The team delivered improvements in both conversion and marketing efficiency during the quarter. The Engineered for Whatever campaign is driving brand momentum, including strong engagement from a local brand ambassador partnership that resulted in millions of Instagram impressions and exceptional product sell-through.

LAAP distributor markets delivered high teens percent growth, driven by a strong order book for spring '26, further reinforcing the enduring strength of the Columbia brand in these important markets. Our distributor teams are successfully engaging young active consumers through localized marketing activations and elevated brand retail experiences that showcase our best products and innovations.

EMEA net sales increased 3%. Europe-direct net sales increased slightly as growth in brick-and-mortar retail was partially offset by lower wholesale sales, reflecting earlier shipments of fall wholesale orders. Warm weather across Europe dampened consumer demand for cold weather products. Europe offers strong growth potential and we're determined to capitalize on our brand momentum and drive broader awareness, led by younger active consumers.

Our EMEA distributor business increased low-teens percent, reflecting healthy order book for spring '26.

Canada net sales increased 3% in the quarter, driven by improved store productivity in DTC and wholesale growth.

Looking at fourth quarter performance by brand. Columbia net sales decreased 1% as international growth was more than offset by declines in the U.S., reflecting earlier timing of fall shipments along with the closure of temporary clearance stores and soft consumer mall traffic.

The Amaze Puff collection was our top product story for the fall season. By pairing an incredible product with a campaign that resonated with a focused and engaged audience of stylish young females, we were able to deliver amazing success. Many of the Amaze consumers in our U.S. e-commerce channel were new first-time purchasers of the brand.

The Engineered for Whatever campaign had a profound impact in the fourth quarter, driving and amplifying our messaging and building buzz. We executed the campaign across consumer touch points, including key trade outlets, Thursday Night Football, our social channels, certain of our wholesale accounts and our U.S. branded retail stores.

Since the launch, there have been distinct changes to certain of our brand metrics, including measurable increases in unaided brand awareness and branded search as well as the perceptions of their reference in style. The impact of the campaign underscores the success of Engineered for Whatever and provides us confidence in the direction of the brand and our ACCELERATE Growth Strategy.

We drove large-scale buzz with our activations, which has been a key part of the ACCELERATE Growth Strategy. In December, we executed the Expedition Impossible activation, a marketing campaign that dared flat earthers to find the literal edge of the earth. We promised that anyone who could actually find the edge of the earth, photograph it and send evidence would receive everything owned by the company, LLC, including gear, office equipment and assorted used corporate assets.

The campaign kicked off with an open letter published in the New York Times and on Columbia's social channel, challenging flat earthers to put their beliefs to the test. The campaign engaged online communities playfully interacting with flat earth content and sparking conversation.

We're excited for the upcoming 2026 Winter Olympic Games. It's an incredible honor to be the official uniform sponsor for the USA Curling National team. We've been working closely with USA Curling to support these athletic ambassadors as they compete at the highest level on the Olympic stage.

Lastly, our latest marketing activation combines our passion for the outdoors with Americans' enthusiasm for the biggest game in football. With Nature Calls, the only beer that uses bear scat in the brewing process. We've taken our active engineering excellence to a new level to make even the worst parts of Mother Nature bearable or, in this case, palatable. In a series of short videos that dropped on social media beginning January '26, consumers were introduced to a bear whose GI routines deliver the foundational ingredient in Nature Calls. The campaign culminates with their activation at a tailgate pregame event in Santa Clara, where consumers can enjoy our new favorite beverage, Nature Calls.

Turning now to our emerging brands. As a reminder, each of these brands derive almost all of their revenue from the U.S. marketplace. Additionally, SOREL and Mountain Hard Wear heavily promoted PFAS inventories in the fourth quarter last year in advance of U.S. regulatory deadlines, which impacts year-over-year comparisons.

SOREL net sales decreased 18% due to the earlier shipment of fall wholesale orders along with less clearance activity. Full-price demand for the brand was healthy with demand exceeding supply for key styles. In e-commerce, we continue to acquire new consumers and drive strong traffic. The team had successful launches during the quarter and unveiled the Horizon collection, which delivered particularly strong results from the Callsign style. The team also created brand heat through collabs with Barbour, NEIGHBORHOOD and Aspen.

prAna net sales increased 6%, driven by DTC, reflecting strong momentum for the brand's updated product offering, supported by advanced full-funnel marketing. Our team has been successfully expanding the prAna marketplace by targeting more lifestyle fitness accounts and the active original consumer more broadly. We're very encouraged by positive sales trends in Shay Soft and women's seasonal products during the quarter.

Mountain Hard Wear net sales decreased 5%, driven by lower clearance and promotional activity compared to elevated levels in the prior year. Underlying business trends were healthy with notable strength in outerwear as well as fleece led by our Summit Grid franchise. Ongoing optimization of Mountain Hard Wear's full-funnel advertising approach drove online traffic during the quarter. Additionally, branded in-store environments are continuing to deliver strong results and are poised for growth next year based on the current order book and planned door expansion. The brand also released its celebrated Mythogen kit, a new high-tech snow kit sold exclusively with evo and on its e-commerce site with a launch party at evo Salt Lake City location and a pop-up experience at the Brighton Ski Resort in Utah in the quarter.

I'll now discuss our 2026 financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentation for additional details and disclosures related to those statements.

For the full year, we expect net sales growth in the range of 1% to 3%. Based on recent weakening of the U.S. dollar, foreign currency is expected to be a slight tailwind, contributing 50 to 100 basis points to the top line. With greater than 80% of fall '26 advance global bookings orders in hand, we project second half global wholesale net sales to increase up to a mid-single-digit percent. We were encouraged that our U.S. wholesale business is expected to return to growth in the second half, including growth from all brands. That said, retailers remain cautious as tariff-induced price increases are just now beginning to hit the marketplace.

Gross margin is expected to contract 70 to 50 basis points to 49.8% to 50%. The decline in gross margin is primarily driven by the impact of incremental unmitigated tariff costs. We continue to evaluate and have taken actions to mitigate the financial impact of tariffs through a combination of price increases, vendor negotiations, resourcing production and other tactics.

For both spring '26 and fall '26, we increased U.S. pricing by a high single-digit percent. When combined with our other mitigation tactics, our goal in '26 is to offset the dollar impact of higher tariffs. Longer term, our goal is to restore our product margin percentage to historical levels.

SG&A is expected to increase but at a slower rate than net sales growth. SG&A leverage reflects the effect of previously executed and planned cost reduction actions, partially offset by continuing strategic investments internationally, along with maintaining accelerated marketing spend.

Based on these assumptions, we expect an operating margin of 6.2% to 6.9%, leading to diluted earnings per share in the range of $3.20 to $3.65. This range includes a positive impact of approximately $0.10 to diluted earnings per share due to changes in foreign currency exchange rates.

For the first quarter, we anticipate sales to be down approximately 2.5% to 4%, reflecting overall softness year-to-date. This will result in SG&A deleverage. And when combined with our anticipated decline in gross margin, result in earnings per share of $0.29 to $0.37.

In closing, I'm thrilled with the successful launch of the Columbia brand Engineered for Whatever platform. Over the past few months, we've witnessed brand momentum as consumers embraced our new product collections with even more exciting launches on the horizon.

Engineered for Whatever has not only reenergized our unique brand voice but has provided powerful differentiation in a competitive marketplace. This momentum positions us well for continued success as we execute our vision and continue investing across all of our brands to accelerate profitable growth, create iconic products that are differentiated, functional and innovative, drive brand engagement with increased focused demand creation investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that is digitally led omnichannel and global, and empower talent that is driven by our core values.

That concludes my prepared remarks. Operator, could you help us get questions for the remainder of the hour.

[Operator Instructions] First question comes from Bob Drbul with BTIG.

Peter, Joe and Richelle, welcome, and Peter, let her do her job, okay?

Thank you, Bob.

All right. So I guess the -- the first question, generally, Tim, is when you look at the trends in the business, the initiatives underway, and I would even say, incorporating current weather, can you just talk about like how the business has developed over the last, let's call it, December, January into February. I think you talked about the order book. I think maybe you said 85% complete. I guess your updated thoughts around what remains to be booked and how that might trend given the trends that we're seeing today?

Yes, certainly. Well, I mean we're very encouraged. The bookings have been strong. We were quite cautious in entering the sales period for Spring '26 as were our retailers. The impact of tariffs were not fully known and frankly, still not yet, but we were quite conservative in terms of our approach to winter products for first quarter and our spring business.

So the business could frankly have been a lot better had we been more aggressive. But the trends right now with, of course, the great weather we're having in the first quarter, inventory should be very low in the U.S. And I just see great things happening, including the terrific acceptance of our Amaze collection and other products, which are really leading the fall categories.

And then we've got some really exciting projects underway to create an impact on the brand and the awareness for the brand and its products, which are quite differentiated. We don't think anybody else in our space can do these things. So we're very excited.

Great. And I guess just on the brand advertising, and you talked about the progress that you're seeing. When you consider the marketing, I guess, the level of spend that you put into the business in '25, the needs to continue to invest in marketing in the back -- in '26 generally, do you think you're at the right level? And I don't know if you could give us any more of the metrics around progress for the brand equity, especially here in the U.S.

Yes, I think we could spend more. I don't think we're -- we need to spend a significant amount more than that than what we're spending today. And Jim will remind us what our delta in ad spend has been over the last several years. But I think we've found an efficient way to get noticed. We've found a way to break through the clutter and in a way that's incredibly efficient. So I think we always can use some more, but I think we're in the right spot for right now.

Yes, I think, Bob, just to add a couple of comments on that. We do believe that the incremental investments that we're making in marketing allow us to have a louder voice in the marketplace. I think that's pretty clear from a differentiation standpoint over the last year.

Just in terms of the rate of spend, we were at 5.9% last year. This year, being '25, we finished at 6.5%. So it's one of the major drivers of our increase in SG&A. And if we go into '26, our plan would be to more or less maintain that marketing spend down slightly to 6.4%, but by and large, seeking to maintain the strategic investments that we're fully committed to behind the ACCELERATE strategy.

The next question comes from Laurent Vasilescu with BNP Paribas.

Tim, I want to focus on your business, but over the last 24 hours, there's a lot of news around Eddie Bauer potentially closing 200 stores in North America. Love to get your take in terms of if there's an overlap there. I don't think your guide is -- was assuming a potential liquidation of those 200 stores. Is there any way you can maybe for the audience, like quantify like what's the overlap if Eddie Bauer does liquidate?

Well, we've actually been a supplier for many years at Eddie Bauer when it was more of a typical retail operation. And of course, the brand is well known but it's certainly fallen on hard times. And the brand relied heavily on sort of its existing reputation as opposed to building in marketing efforts and marketing spend to make it a bigger business. It's well known, we don't overlap in every store that they have in centers, but we would expect that as they leave the centers, we'll be in a position to accept more responsibility, more business from outdoors folks who would typically buy that brand. That brand, I would say generally is a notch below the Columbia pricing. So we hopefully will get some of that, but it will be a question as to exactly how much.

Okay. Fair enough. Yes, unfortunate, news, but opportunities for you to gain share.

Jim, I'd love to focus on the -- in terms of the second question, the gross margin. Your CFO presentation is always helpful. I think in 3Q, you had $50 million to $20 million of unmitigated, $20 million for 4Q. If I do the quick math, the 300 basis points of unmitigated for fiscal year '26, I think it's about $100 million.

So I'm trying to understand like what's the cadence here? Like I would think like it crescendos right now, and then it tapers off. For the audience, maybe can you kind of walk us through like how do we think about that $100 million for fiscal year '26 over the coming quarters?

Thanks, Laurent. I think you're thinking about that in the right way from an overarching standpoint. Maybe just to step back for a minute. When you think about the tariff -- unmitigated tariff costs that we incurred in '25 of just over $30 million and an incremental 300 bps, those are stacking. So effectively on a 2-year basis, the impact of these unmitigated tariffs are about 400 basis points. And of course, we're offsetting a fair amount of that through the price increases that Tim spoke to with high single-digit price increases for both spring '26 and fall '26.

Keep in mind, as we get into the first part of this year as we're continuing to sell fall/winter goods, we did not increase price on that. So I think there'll be a disproportionate impact to gross margin, particularly in the front part of the year, Q1 in particular.

You'd note that when you look at the outlook that we've provided for Q1, which is weaker from an overall standpoint, both from a top line and from a gross margin perspective. And as we work our way through the year and particularly in the latter part of the year where there's more effect as it relates to those price increases that we've planned into our margins, while still also allowing us some room in that gross margin outlook for the uncertainty of how consumers react to broad price-based increases and just making sure that we've got some room to move within that.

Next question comes from Peter McGoldrick with Stifel.

I wanted to get a sense of the health of the U.S. market after pulling out some of the onetime items around timing of wholesale shipments and then store closures. The -- I was curious what's embedded in the outlook? Should we expect a return to growth in the fourth -- by the fourth quarter or just the shape of guidance to get to the annual guide of modest declines.

Yes. The annual estimations for the company include a softer first half and a much stronger second half. So as we were saying, we've got over 80% of our fall order book in hand, and we know where our emphasis is going to be, both from a marketing standpoint as well as how that will link to our customers' inventories. So we're excited about the possibilities for the business in wholesale.

And then in retail, we will just continue to improve on our performance there. In terms of all the typical metrics of a retailer where we believe there's lots of room for improvement for the company.

And then, Peter, just in thinking through the puts and takes from a revenue standpoint, as you look at the CFO commentary, you'll note that our U.S. wholesale business for the quarter was down high teens percent. And just to unpack that a little bit, the wholesale shipment timing is -- represents over half of that decline from an overarching standpoint.

And then the balance is effectively the lower orders for the fall '25 season, coupled with we did curtail some inventory purchase that Tim touched on at the height of the tariff announcements that left us a bit light on inventory that we're unable to fulfil some demand.

That's really helpful. And then, Jim, a follow-up on Laurent's question about leaving some room in the gross margin guide. Can you help us think about the puts and takes around the tariff mitigation strategy and the pathway to get gross profit dollars or to offset tariffs at the gross profit dollar line, whether it be pricing or your other mitigation actions?

Well, certainly, the actions that we've taken to date and the most meaningful of them will be the price increases that we've put into the market. And on average, as we've described, a high single-digit percent price increase for both the spring '26 and fall '26 seasons, those aren't stacking as a high single-digit percentage effectively for the year. So that's the major mitigation factor.

We've also had some success as we've worked across our strategic factory groups in doing some degree of tariff cost sharing. And then to a lesser degree, there's also some work that we've done in terms of resourcing and moving production around to achieve the lowest tariff rate that we possibly can. So those are the major movers. And of course, we're certainly focused on the balance of the P&L from an SG&A standpoint.

And to the degree we can't get it through SG&A, we're committed to ultimately driving operating margin leverage, and that is our goal for this year. And then longer term, we're going to stay after it. We know that we need to expand our gross margins. We've got to get our product margins back up to pre-tariff levels and beyond.

Next question comes from Mitch Kummetz with Seaport Research.

I must say, Tim, I did not have bear scat on my bingo card for today's call. I know you've experienced a lot of winners, a lot of order books. When you kind of think about where we are today with where channel inventory is and the order book 80% in and the cold weather that we're experiencing right now across a lot of the country, you've seen things like that in the past. Is there -- do you see much opportunity for the order book to improve from where it is today over the next 2, 3 months?

Yes. I think in my experience, either the weather impact on our company is almost -- is much larger than almost any other category of impact. And when we're talking about the weather that we have ongoing now, I would expect that we're going to get some small lift where retailers will go back and look at their order book, look at their carryover inventory, which should be quite negligible at this point. And they may impact their orders somewhat. But I think we've probably got what we've got for the foreseeable future. There might be 1 or 2 more percent left to be gotten.

But the important thing that retailers are doing now is still trying to gauge the impact of the tariffs and what the flexibility will be on consumers in terms of how they would expect to be buying for next season. So there's still quite a bit of cautiousness out there.

And Mitch, we do take orders through the end of March. So there's still some opportunity to chase, and we're still placing inventory purchases through that period as well. So we look forward to providing an update as we wrap up taking that order book and sharing that in April.

Yes, I guess I would also comment that our footwear order deadlines are later than the apparel deadline. So there's very likely to be in the footwear category more to buy than that.

I appreciate all that color. And then, Jim, on the guide for the year, I'm struggling, I'm trying to pencil it out, and I'm having a hard time kind of reconciling the range you've given for op margin based on the growth in the SG&A. Is there something unique happening on the licensing line? Or am I missing something?

Well, the biggest thing that doesn't lap year-over-year are the impairment charges of $29 million that we took on prAna, Mountain Hard Wear in '25. And so those are not occurring. So that's effectively, I think probably what your issue is, Mitch.

The next question comes from Paul Lejuez with Citigroup.

It's Tracy Kogan filling in for Paul. I think you guys said your fall order books support mid-single-digit growth. And I was just wondering how this breaks out by region and if the U.S. is up a similar amount? And also just wondering what it looks like in units in the U.S. if we're assuming there's a high single-digit price increase in there.

Yes. So the U.S. business has been, frankly, over the last period, our most challenged. So the biggest improvements are happening there. Our international businesses have been quite strong and our expectations are that those businesses will continue to outperform the U.S. business. And then, again, as I said, our back half of the year is going to be much improved over the front half of the year, especially in U.S.

And then, Tracy, just a couple of more comments on that. As Tim touched on, we're incredibly pleased with what we're seeing in the fall '26 order book. From a geographic standpoint, we would contemplate the international businesses outpacing growth from the U.S., and that's going to continue to be the regions that we've described from China, Europe and the distributor business, just continued momentum in each of those markets. And then the U.S. will be a low to mid-single-digit rate of growth.

And then excitingly, I think Tim indicated as well, we do anticipate growth across all 4 brands and the emerging brands growing at a faster rate than the Columbia brand.

Got it. And are you guys pretty much taking price increases in the U.S. only? Or are you taking them globally to offset tariffs?

Yes. The primary impact of price increases is in the U.S.

Next question comes from Mauricio Serna with UBS.

Just a point of clarification. In the CFO presentation, you mentioned something about better conversion of fall 2025 U.S. wholesale orders. Could you just like explain a little bit more what that means?

Yes, certainly. And that was the major driver in terms of the revenue beat in the quarter. The better conversion essentially consists of a combination of looking at our cancel rates, our reorder rates and our replenishment metrics. And from an overarching standpoint, as we look back over the last several seasons, this has been our best-performing season in several across that -- those overall metrics.

I would say there's a couple of different things that are underlying that. One of which, as we've touched on, we did curtail inventory purchases. And so the demand has exceeded supply in certain cases. So that's had an impact as retailers really needed that inventory. So we've seen better conversion on the order book.

And then secondly, I do believe that the Engineered for Whatever campaign, the new product collections that we have in the marketplace is sold through exceptionally well. So that's certainly aided our conversion rate as well.

Got it. And then just like maybe on the U.S. following off, like it sounds -- you've mentioned -- and I'm sorry, you mentioned this, but do you expect the U.S. wholesale to return to growth in the second half, like I guess just curious on like what kind of growth would you be expecting in U.S. wholesale in the second half? And just on the DTC side, like for the DTC business in the U.S., are you considering any new stores, new store openings for the business? And if so, what's the cadence?

Yes. So as it relates to the second half from a wholesale perspective in the U.S., our fall '26 order book is up for the wholesale business. It's up less than the international businesses. So with the overall book being up a mid-single-digit percent, the U.S. is going to touch the low end of mid-single to low single-digit rate of growth in the second half.

And then in terms of looking at our direct-to-consumer business, we have a modest degree of stores planned for opening this year worldwide. In the U.S., our new store openings more or less offset with closures as we've continued to rationalize the fleet and make sure we're closing underperforming stores. So those essentially balance out.

[Operator Instructions] The next question comes from Tom Nikic with Needham.

In terms -- so just kind of follow-up on U.S. wholesale. I think it was flattish in Q3 and down high teens in Q4. So I guess that means something like down high single digits for the season overall. How did sell-through compare to sell-in? And I mean, is it safe to assume that given the improvement in order books for fall 2026 that the sell-throughs in fall '25 were better than sell-in?

Yes. The sell-through was quite good this year, which indicates -- which gave us confidence in our order book for fall '26. And remember, the bulk of our fall '26 order book was taken prior to the great weather that we're seeing right now in much of the United States. So we're confident that we've got a good order book or fall '26, one that we'll be delivering into empty shelves. So we're pretty excited about what the opportunities are.

And Tom, maybe just to add a little bit more color on that. Directionally, you're accurate. When you look at combined second half, the U.S. wholesale business being down high single-digit percent despite the sell-in being lower when we look at the overall sell-in as Tim's touching on, I think we were up slightly. So -- but -- that up slightly, that's up in dollars.

So we're encouraged that despite lower sell-in, our sell-through is actually better and the inventory in the marketplace is quite clean. I think spring '26 will be similar to that in terms of the order book and the softness that we saw in that from a wholesale standpoint, we'll look to capitalize on in-season demand and driving sell-through with the collections and the marketing campaigns.

All right. Sounds good. And just a quick follow-up. So it sounds like for fall '26, U.S. wholesale order book is up, I guess, a little bit less than mid-single digits with high single-digit pricing, which would imply that units are down a little bit. Is that just retailers being cautious and given some of the uncertainty out there? And then how would we think about potential upside if the consumer remains resilient, if inventories are really lean, et cetera?

Yes. I think retailers that we deal with are still unsure about what the elasticity rate is going to be on some of these more expensive products. So you're right in that the units have gone down slightly as the prices have gone up. But we'll have to see what happens. And again, as I said earlier, weather is almost more impactful than almost any other variable.

Okay. We have reached the end of the question-and-answer session, and I will now turn the call over to Tim Boyle for closing remarks.

Well, thank you for joining us today. We're very excited to see our ACCELERATE Growth Strategy truly come to life. The Engineered for Whatever brand platform is driving strong energy and engagement. With this strategy and platform, combined with great new products, such as the Amaze collection, we are building momentum. We look forward to sharing our continued progress when we report our first quarter results. Thanks very much for your support.

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

Greetings. Welcome to the Columbia Sportswear Third Quarter 2025 Financial Results Conference Call. [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 third 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 and General Counsel, Peter Bragdon.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations.

I'd also like to point out that during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review. Following our prepared remarks, we will host a Q&A period during which we will limit each caller to 2 questions so we can get to everyone by the end of the hour.

Now I'll turn the call over to Tim.

Thanks, Andrew, and good afternoon. Overall, third quarter results reflect sustained momentum in international markets, led by double-digit percent sales growth in our Europe direct business. Our strong financial performance in these markets demonstrates our ability to effectively reach younger and more active consumers and highlights the growth potential of the Columbia brand. In the U.S., we're working to restore growth and revitalize the Columbia brand through our ACCELERATE Growth Strategy. The third quarter was an important milestone in this journey.

In August, we launched our new global brand platform, Engineered for Whatever, which celebrates the extremes of outdoor adventures and harkens back to the brand's irreverent spirit of the '80s and '90s. It revives the humor and gritty gear testing that made Columbia a beloved brand around the world. The early response to this campaign has been overwhelmingly positive with millions of consumers already engaged since the launch. We intend to build upon this momentum with an always-on marketing strategy, including a robust pipeline of differentiated activities planned for the months ahead. Revitalizing the brand in the U.S. will take time, but I'm encouraged by the brand energy that we're just beginning to create.

Turning to the topic of tariffs. We estimate the 2025 direct impact of the incremental tariff rates will be approximately $35 million to $40 million prior to any mitigation actions. Please note that we did not make meaningful price changes to our fall '25 product line and still expect to absorb much of the incremental tariff cost this year. Applying the new tariff rates on an annualized basis, we estimate the unmitigated impact would be approximately $160 million. For 2026, we continue to take actions to mitigate the financial impact through a combination of price increases, vendor negotiations, resourcing production and other mitigation tactics. We will balance these actions with our growth strategy, seeking to minimize the impact to consumer demand.

For spring '26, we increased U.S. pricing by a high single-digit percent, and we are maintaining similar price increases for the fall. When combined with our other mitigation tactics, our goal in 2026 is to offset the dollar impact of higher tariffs. Longer term, our goal is to restore our product margin percentages to historic levels.

I will now quickly review third quarter financial performance. Net sales increased 1% year-over-year to $943 million. This was ahead of our outlook, driven by earlier-than-planned shipments of fall '25 wholesale orders. Overall, wholesale net sales increased 5%, while direct-to-consumer was down 5%. Gross margin declined 20 basis points to 50% as higher tariff expenses and foreign exchange headwinds were partially offset by lower clearance and promotional activity. SG&A expense increased 5%, including investments in demand creation to launch Columbia's new brand platform Engineered for Whatever.

During the third quarter, we incurred $29 million in noncash impairment charges related to prAna and Mountain Hardwear. The impairment was largely attributable to the impact of tariffs, and I remain confident in both brands' growth strategies. We are committed to unlocking their full potential. Including the impairments, which impacted earnings by $0.46, third quarter diluted earnings per share were $0.95.

Looking at net sales by geography. U.S. net sales decreased 4%. The U.S. wholesale business was flat as earlier timing of fall wholesale shipments offset the impact of lower fall wholesale orders. U.S. DTC net sales declined high single-digit percent in the quarter. Brick-and-mortar was down high single-digit percent, reflecting the closure of temporary clearance locations and lower sales productivity, partially offset by contributions from new stores. We exited the quarter with 8 temporary clearance locations compared to 42 exiting third quarter of last year.

E-commerce was down low double-digit percent, primarily reflecting soft traffic and demand trends. Results were partially impacted by ongoing efforts to refine and evolve our online promotions and marketing investments.

Overall, U.S. Columbia brand Fall '25 sell-through has started slowly as we await the arrival of cold weather. The sell-through challenges we are facing reinforce our focus on reenergizing the Columbia brand through the ACCELERATE Growth Strategy. While overall trends are tough, we are encouraged by initial sell-through of new product lines such as the Amaze Puff jacket and ROC pants.

For my review of third quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. LAAP net sales increased 6%. China net sales increased mid-single-digit percent. Sales in the quarter were impacted by a warm September, which reduced demand for fall season products. Our team in China continues to do an exceptional job bringing young active consumers into the brand by celebrating iconic styles like the Interchange Jacket and premium localized product offerings like the Transit and Hike 365 collections.

During the quarter, Columbia hosted Hike Party 2.0, a well-attended hiking and music event. In addition to thousands of participants, over 100 Columbia brand influencers were in attendance. Their online content generated millions of impressions. I'm pleased to announce that Columbia China received an award from the prestigious ROI Festival as one of the most creative and influential businesses in the Asia region. The ROI Festival is known as the Oscars of the marketing and creativity Industries in China. Great job China team.

Japan net sales decreased low single-digit percent as DTC growth was offset by later shipments of fall '25 wholesale orders, which shifted into the fourth quarter. Our team in Japan continues to deliver a compelling mix of localized product offerings and global franchises like Omni-MAX, which was the top-selling footwear style in the quarter.

Korea net sales were flat year-over-year. Our team in Korea is making progress, stabilizing the business and revitalizing the marketplace. The team's focus on accelerating digital sales, elevating the brand presentation in DTC and reenergizing marketing is building a healthy foundation for growth. During the quarter, the Korea team launched the Engineered for Whatever campaign with localized creative content that resonated with the Korean consumer.

LAAP distributor markets delivered mid-teens percent growth. Healthy growth across both our distributor regions underscores the enduring strength of the Columbia brand in these markets. Our distributor teams are successfully engaging young active consumers through localized marketing activities and elevated brand retail experiences that showcase our best products and innovations.

EMEA net sales increased 10%. Europe-direct net sales increased low double-digit percent with strength across both DTC and wholesale. We're thrilled that our European team continues to deliver above-market performance, driven by the expansion of our DTC business and growing wholesale through strategic retail partners and brand authenticators. We have immense market share opportunities in Europe, and our team has been unlocking this potential each and every season. Our EMEA distributor business was down slightly as healthy order book growth was offset by earlier shipments of fall '25 orders, which shifted into the second quarter.

Canada net sales increased 7% in the quarter, driven by earlier shipment of fall '25 wholesale orders, partially offset by a decline in DTC sales, reflecting a soft consumer environment.

Looking at third quarter performance by brand. Columbia net sales increased 1% as international growth offset ongoing challenges in the U.S. As we've discussed in prior calls, elevating the style of Columbia's product is an important aspect of the ACCELERATE Growth Strategy. This fall, we took a major step forward with the introduction of the new Amaze Puff women's insulated jacket and men's and women's ROC pant. We supported these launches with elevated in-store presentations, enhanced photo and video assets and breakthrough influencer campaigns. I'm encouraged by early sell-through, and I believe we are well positioned to continue growing these franchises in the seasons ahead.

Columbia is also celebrating iconic styles with the rerelease of its first-ever footwear product the Bugaboot 1. The original Bugaboot was the result of landmark collaboration between Columbia Founder, Gert Boyle, myself and legendary footwear designer, Peter Moore, who created the original Nike Dunk and Jordan One silhouettes. The rereleased Bugaboot 1 honors the original 1993 design with its iconic retro style and pairs it with our latest innovations such as Omni-Grip traction and TechLite cushioning. This limited edition boot was only available to select specialty retailers and online at columbia.com, selling out in hours on the website.

During the quarter, we launched our newly redesigned columbia.com website. This freshly enhanced site mirrors our evolving brand, allowing us to tell compelling stories about our products while offering unique and personalized experiences for our consumers. We've significantly enhanced product discovery with search and merchandising features, upgraded product photography and our reverent voice. The feedback from our consumers has been very positive, and we are already witnessing early signs of increased engagement.

On the ambassador front, Columbia announced a new partnership with rising global icon, Robert Irwin, son of legendary wildlife conservationist Steve Irwin. Robert continues the legacy of his dad as a passionate wildlife warrior. He also has a deep connection with the Columbia brand. Robert's mother is from Oregon, and he still remembers meeting Gert Boyle when he visited our headquarters as a young child. Through his work as a TV presenter, producer, author and photographer, Robert aims to act as a global advocate for the natural world. We are also cheering him as he takes the stage in the current season of dancing with the stars. We are absolutely thrilled to be officially joining forces with Robert and look forward to sharing his adventures in the outdoors with Columbia Gear.

As part of our Engineered for Whatever launch, we have executed several unique brand activations this fall that are getting people talking about Columbia again in the U.S. Advertising takeovers across digital, social and Thursday Night Football on Amazon remind consumers of Columbia's irreverent roots and superior product quality. This new advertising spotlights outlandish outdoor product tests and celebrity cameos in situations featuring crocodiles, human snowballs and even the grim reaper. These stories are being shared online, in-store and out of home, and we're seeing increases in organic brand search since the launch.

We recently activated a breakthrough guerilla marketing stunt in New York City. We launched a scavenger hunt inviting New Yorkers to find our extreme mannequins hidden in hundreds of locations across the city, picture a mannequin wrestling a bear in Bryant Park or an angler catching a shark in the Hudson River. Each mannequin had a QR code that consumers could scan to enter to win an outdoor adventure for 2. Over 3,000 New Yorkers participated in our scavenger hunt, and we created buzz in the city, reaching over 3 million New Yorkers across earned media and social.

In this crowded and competitive environment, Engineered for Whatever stands out. We're showing people that our products are made to handle the extreme and unpredictable with a healthy dose of humor and joy.

Turning to our emerging brands. SOREL net sales increased 10%, aided by earlier timing of fall '25 wholesale shipments. This fall, the SOREL team is building product and brand momentum through new collections and refreshed marketing. The new Callsign Horizon and Daystrom Horizon collections infused the iconic CARIBOU boot design language into new categories and silhouettes. The team is also creating brand heat through highly successful collabs with London-based streetwear brand, Aries and Japanese streetwear brand, NEIGHBORHOOD. prAna net sales increased 6% in the quarter, reflecting growth across DTC and wholesale. The prAna team's brand refresh is well underway, and we're seeing positive momentum. New customer acquisition trends are improving and consumers are responding to the new marketing and product collections.

Mountain Hardwear net sales decreased 5%, driven by lower clearance activity compared to elevated levels in the prior year. Healthy full price sales growth during the quarter reflects underlying business momentum. The brand is seeing a notable sell-through lift with specialty retailers where we've invested in brand in-store environments.

On the product front, Mountain Hardwear introduced its most capable snow sport kit to date. The new Mythogen kit pinnacle of the brand snow sport line built for max durability, mobility and style in demanding Alpine environments.

I'll now discuss our fourth quarter and full year 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. For the fourth quarter, we expect net sales to decline 5% to 8% year-over-year and diluted earnings per share to be in the range of $1.04 to $1.34. This brings our full year net sales outlook to $3.3 billion to $3.4 billion or flat to down 1% year-over-year. Full year diluted earnings per share is expected to be $2.55 to $2.85, including the $0.46 impact from impairments in this quarter.

Looking to 2026, we have concluded our spring season order taking. Our forecast is for flat to low single-digit wholesale growth in the first half of '26, and it's unchanged from our last call. This forecast contemplates sustained international growth across our direct and distributor markets, partially offset by a decline in the U.S. We are planning to share more on our 2026 outlook when we report our fourth quarter results in February.

Overall, I'm excited to see our ACCELERATE Growth Strategy come to life. Consumers are responding to new product collections with more on the way. Engineered for Whatever has reenergized our unique brand voice, helping to set us apart in a competitive environment. I know that elevating consumers' perception of the Columbia brand will take time, but I'm confident we have the right strategy in place to unlock the significant long-term growth opportunities ahead.

We remain committed to 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 our consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that's digitally led omnichannel and global; and empower talent that is driven by our core values.

That concludes my prepared remarks. We welcome your questions for the remainder of the hour. Operator, can you help us with that?

At this time we will be conducting a question and answer session. [Operator Instructions] The first question comes from Bob Drbul with BTIG.

Just have a couple of questions. I guess, first, on the product side, you talked about the sell-through or the sellout of the Bugaboots rerelease. Did you or your mother have more of an impact on that boot when you worked on it with Peter Moore, Who gets the credit for that one?

Well, I can tell you, I did the work on the product. My mom did the work on the name.

That's a good collaboration. I guess a couple of other questions around product, Tim. Just on the Amaze Puff and with this like Bugaboot 1, do you have more products lined up for sort of into next year? When you think about the success that you're seeing with both of these products, can you just talk about the pipeline on the product side a little bit more?

Certainly. Yes, the thing about the Amaze Puff first of all, is that it's one of the most expensive items we've ever offered for sale. And the velocity is just incredible. So we've got more products in that Amaze family, including we're going to be offering men's version. This was a women's-only launch for fall '25, and that will be just an incredible opportunity. And based on the velocity that we're selling these things today, we're expecting really great things.

And then as it relates to footwear, we've got more of the original Peter Moore designs that we're going to be launching over time, which will be really good as well as some other early '90s product that was so successful for the company that we're going to be offering in a way that sort of out of the archives opportunity. And this is going to really be, I think, part of how we differentiate ourselves from others when we're talking about the Engineered for Whatever launch and the way our products are uniquely differentiated from others.

Sounds good. And I guess the other question I have, I know it's early, and I know it's going to take time, but the Engineered for Whatever campaign, when you think about any of the early feedback that you've got that the company has received. Can you just talk about what you've learned so far, any takeaways and sort of what your thoughts are as you sort of continue this?

Yes, certainly. Well, it's -- when we first began discussing the Engineered for Whatever launch, it was really a function of 2 parts. One was to get us back to the historical irreverent way that we approached ourselves not taking ourselves too seriously. Our products are made to have a good time outside and our advertising should reflect how much fun it is to be outdoors.

Secondarily, there's really no other brand that can pull this off. There are many brands that are so serious and perhaps rightly so. But when we're talking about being different and separating ourselves from others, it's all about how we approach what we're doing and how we want to be heard. So it's been really gratifying that both our consumers and wholesale customers are talking about how different it is and how refreshing it is to see us sort of back in the -- having a good time.

The next question comes from John Kernan with [ EB ] (sic) [ TD ]

Tim, $160 million unmitigated tariff impact next year is a big multiple of the unmitigated impact this year. Obviously, some of the higher cost inventory is going to start flowing through the model more next year, but just your confidence in the ability to offset that and with your confidence in the high single-digit price increases as we look into spring.

Yes. I guess I would suggest that the company -- if the company has one strength, it's ability to navigate tariff environments. So just as some background, in 2024, the company was the 81st largest duty payer in the United States of all companies. And that's because our commodities are so heavily tariffed, not only in the U.S. but globally.

So we have a large team that does nothing but help us make products in locations that can be advantaged from a duty standpoint, that can have the characteristics, that can allow for a reduced tariff to be built with particular characteristics that can help us navigate this stuff. We are quite good at it. I mean this is a daunting task, But we think we're up for it, and we think we'll be able to navigate it. We have some significant strengths in our balance sheet that will allow us to navigate this stuff in really a proper way. So I'm convinced we can grow the business and grow our profitability as well.

John, not only are there the price increases that are being implemented in the marketplace, but there are other mitigation factors as well, not the least of which is discussions that we've had with our strategic factory partners. And we believe that, that will help deliver and mitigate part of the cost here. And then in addition to that, there are certain instances where we'll be successful in resourcing part of our production. So the combination of those things is really what gives us the confidence that we'll at least be able to mitigate the absolute dollar impact of the incremental tariffs.

That's helpful, Jim. Just one quick follow-up. Obviously, the SG&A rate has been a source of deleverage for a few years now. And it looks like most of the deleverage in Q3 was the increase in the marketing rate year-over-year. How long do you -- can you just describe the timing and the magnitude of the SG&A rate recovery and the top line type growth you need to lower that rate? It's obviously been the biggest source of the operating margin pressure the last few years.

Yes. Well, certainly, one of the most significant factors that we've had consistently throughout this year is the strategic investment that we've made behind the Columbia ACCELERATE strategy. So I would just emphasize that point. That was a step function increase in our overall SG&A to fund that. And our intent at this early stage would be that we're sustaining that investment over time. But to put that in order of magnitude, I think our marketing spend last year was just under 6% and will probably be at or just above 6.5% this year.

So it's a pretty meaningful portion of that SG&A deleverage that we're seeing this year. I think as we approach next year, and certainly, we're not providing earnings guidance here today. But our goal going into next year would be to get the business growing and achieve leverage and SG&A leverage, in particular, if not operating margin leverage knowing that we've got to overcome the impact of the tariffs. So we're hard at that. We've been working over the course of the last several months and quarters on our profit improvement plan. We've implemented a series of cost reductions that will yield benefit over time here.

The next question comes from Paul Lejuez with Citigroup.

Curious if you could talk about the lower promotions that you saw during the quarter. Curious if you saw that across both DTC and your wholesale partners. Maybe talk also promotional levels across regions? And what do you build in, in terms of year-over-year promos in the fourth quarter guidance?

As it relates to promotions, I keep in mind on this, Paul, we're lapping last year in which we were heavily liquidating inventory coming off of the excess inventory levels that we had, combined with -- you'll recall that with [ PFAS ] chemistry that we were also transitioning out of our product line from a year ago. So the combination of those 2 things led to a fair amount of liquidation effort within our own DTC business, including outlet stores and clearance stores, which we believe to be a more profitable mechanism. And then likewise, wholesale customers needed to move through that same inventory. So a lot of this is effectively lapping that.

And essentially, what we're seeing here in the third quarter and then going into the fourth quarter as we're most of the way through October, is the overall margins out in the marketplace are pretty healthy. When we look at overall dealer margins in the U.S., they're up on a year-on-year basis. And as it pertains to how we're thinking about that in the fourth quarter, it will still be a tailwind for us just given the magnitude of kind of that continued liquidation effort in the fourth quarter last year.

So nothing meaningful to call out. And I think, by and large, from what we see thus far early in the holiday season, retailers, there's not an overexcitement or an overload on being promotional and discounting at this point in the season.

Got it. And then within the comments about your order book being flat to up for spring, was that -- I just want to confirm that, that is in dollars? And then curious if those order books already include the high single-digit price increases that you mentioned.

Yes. The price increases are included in the order books, specifically in the U.S. We didn't raise prices very significantly in the markets outside the U.S. But yes, they do include those price increases.

Yes. And of course, that will mean that units are down with the flat to up is in revenue dollars. And so with those price increases in the U.S., that is going to result in a decrease in the overall units.

The next question comes from Peter McGoldrick with Stifel.

I wanted to ask on the quarter-to-date performance for U.S. Columbia. You pointed to a slow start due to cold weather, which has taken a while to develop, holding back sell-through. I remember the fall/winter 2024 was also -- had a slow start due to weather. And I was curious if you can make any like-for-like comparisons for the quarter-to-date period and help us think about what's contemplated in guidance as we progress sequentially through the quarter.

Well, we build our plans assuming a normal weather year. And normal is an average of January's weather and December's weather and November, et cetera. So we're confident that we've got our plans built in the right area. And we've seen some uptick when weather hits a certain geography. So I think we're in the right spot here. And so it's not abnormal for there to be slight warming in some periods, some years. But generally, winter arrives and we're just assuming we've got a normal winter ahead of us.

Yes, Peter, I'd just add, demand out in the marketplace has been a bit lumpy. We saw a pretty nice July, August, September softened a little bit. That extends itself a little way into the month of October. Frankly, what we've seen over the better part of the last week or 2 has been pretty encouraging as we've seen a pickup in the demand that's offsetting some of the early season softness that we saw.

Okay. And then on SOREL, I get this is a smaller part of the business, but we did see an inflection to growth after several years of decline. So I was curious if you could help us think about the new collections and refreshed marketing. And as we think back to Investor Day a few years ago, is SOREL again going to become an outsized growth driver as you plan the business on a multiyear basis? I'm just curious on that brand.

Yes. So if you remember, going back to the origins of the SOREL brand, it was almost exclusively. In fact, it was an exclusively winter brand. And over time, we've been able to move that from just winter and frankly, just men's to have a very large portion of women's and a growing portion of non-winter product. We've had great successes over time with things like wedges, which have fallen out of favor as during the pandemic and when people were not back in office as much.

But what we've seen over the last few weeks -- excuse me, the last season or so is a growth in the sneaker business, which is going to give us the opportunity to be year-round, which is frankly what our international partners want in that brand. They're ready to make investments in that brand in stores and other institutions as long as we can get it to year-round. So the plan is to get -- to spend focus, time and effort on non-winter product while still harvesting the winter business.

The next question comes from Laurent Vasilescu with BNP Paribas.

Jim, I was hoping to understand just the small tick down on the [indiscernible] guide is about 1%. You mentioned to Peter and the audience that weather has been a slow start in the U.S., but also China has been impacted by China -- by weather, excuse me. Is that the reason why you're taking down the top end of the range for the guide for top line?

Yes. Let me touch on that, Laurent. So if you look at the third quarter, we had a revenue beat that was in the mid-$20 million range. That was really driven by our wholesale business and earlier shipment of wholesale orders to the tune of nearly $40 million. So you're seeing a little bit of softness in the third quarter in our direct-to-consumer business. That was predominantly in the U.S.

And we essentially looked at that trend in Q3 and applied many of those same assumptions to our fourth quarter, and that's the predominant reason for the 1% adjustment in our revenue guide. Far less of a factor in terms of thinking about China. In fact, we've got our China business plan up quite meaningfully in the fourth quarter. We're in the early stages of the Double 11 presales activity and anticipate nice growth in that market. So I think China was a little bit of a blip with some warmer weather. We still have a lot of confidence in the direction of that business.

Very helpful. And then I was hoping to unpack a little bit more of the commentary about 1H '26 wholesale revenues being slightly up. As you mentioned on the prepared remarks and in your CFO commentary, North America or at least the U.S. will be down and international will be a driver. Can you potentially unpack that a little bit more about just the magnitude of what we should consider for the U.S.? Can it be down mid-single digits? Just to understand a little bit more about elasticity of demand as you're taking pricing up high single digits for 1H '26.

Yes. We've had, as you mentioned, great success outside the U.S. where we have a much more predictable business. We've got multiple topics in play here in the U.S., the least of which is the price increases that we've all seen and are passing along to consumers and the uncertainty about how that's going to be accepted. So we have much more confidence in our business outside the U.S. That having been said, our U.S.A. business is a very large component. And our expectation is that we've set the business up in the right way for spring. And our retailers are cautious, but we believe there's great opportunities for us as we get into the business -- into the season.

Yes. We'll provide more detail on that certainly in February, Laurent. A lot of this is just due to the sell-through season for spring '25 was a bit soft in the U.S. and the order book is more or less reflective of that.

The next question comes from Tom Nikic with Needham.

I want to ask about gross margin. I'm not sure if you said like how we should think about gross margin versus SG&A in Q4. And when we kind of think the next couple of quarters, obviously, there's tariffs and there's pricing, but are there any other meaningful good guys or bad guys on the gross margin line?

Yes. As it pertains to the fourth quarter from a gross margin standpoint, no, we've not provided a lot in my CFO commentary. However, you will note that we did provide the estimated tariff impact. So it's a bit north of what we saw in Q3. Q3 was $15 million. We're estimating that at $20 million to $25 million in the fourth quarter. So a bit heavier of an impact. And then the same offsets would come into play, most notably would be the lower closeout and liquidation sales.

So I think the gross margin in Q3 was down 20 basis points. I think we'll see it be down a bit more than that in the fourth quarter, but nothing overly meaningful in that regard. And then thinking out to next year, the big offsets certainly are going to be with the incremental tariffs will be what we're doing from a pricing standpoint. That's certainly the most meaningful variable that I would call out at this stage other than that, I can't think of anything offhand.

The next question comes from Jonathan Komp with Baird.

I want to ask if you could share a little more insight when you look in the channel and inventory levels. And I know it's a challenging fall here, and you highlighted units ordered down for spring. So could you share any more perspective on what units look like in the channel? And could there be a situation come fall of next year where you see normalization from a positive perspective to get back to more normalized levels?

No, I think the channel inventories are actually pretty good right now. If they were building up, we would probably have seen some sort of adjustment in our fall order book, which we have not seen. Retailers are anxious to get merchandise, which is part of why the inventory was shipped a little bit earlier this year than prior periods.

But we're -- yes, I think the inventories are in the right spot. And certainly, we've got a couple of items, including the Amaze Puff jacket that's selling very well as well as newly designed and distributed pant program called the ROC pant. So those 2 areas are doing well, and we've had no pushback at all from retailers, right? I think the channels are quite good.

Okay. That's helpful. And maybe a broader question on the margin recovery. If I look over the last 3 years or so, it looks like your global revenue is down low single digits over that period and your total SG&A spend is still up roughly mid-teens percentage. So I'm wondering if there's any further opportunity to look for efficiencies. And as we think about exiting 2025 with a 5% operating margin, what's a reasonable time line to get back to more normal or reasonable levels for a healthy brand?

Well, certainly, our -- like I said to an earlier response, we would target an improvement in our SG&A cost structure looking out to next year. There's a lot of actions that we've taken to date, but you're not necessarily seeing them manifest themselves in the P&L because of other strategic investments, the marketing investments we're making from an ACCELERATE standpoint. There are some onetime costs that we're incurring in the P&L this year as it relates to severance, professional fees related to our profit improvement program and so forth.

So as we begin to lap those cost savings combined with certain of these costs, I would certainly expect that we put ourselves in a position to leverage on that line, Jon. It's not lost on us. I do think there's some additional opportunities as we look out to next year, certainly getting our U.S. business back to growth and how do we run that business more efficiently across our wholesale and DTC businesses. So that's an area of focus for us. And then there's other organizational costs that are in consideration for the company.

The next question comes from Mitch Kummetz with Seaport Research.

Tim, I think it was in your prepared remarks, you mentioned that U.S. DTC was down high single digits on the quarter. I'm curious, is there any way to parse out the negative impact from fewer temporary stores year-over-year versus maybe any early benefits that you're seeing from the new global platform? I would think that, that would hit DTC before it hits wholesale. So any help there?

Yes, I was going to just suggest that by far, the largest component is the lack of the temporary clearance stores. And then as it relates to our digital DTC business, we've taken the approach that the #1 method for consumers to get the best visibility for our brands is digitally, and we believe that we were slightly over promotionally active in prior periods. So we've taken an approach that we're going to rein back in the promotional activity and invest heavily in how the products look digitally. So I would think those 2 things would be the largest impacts.

Yes. I think, Mitch, just a clarifying remark on that stat shape more of detail. That high single-digit decrease in our U.S. D2C brick-and-mortar business, 90-plus percent of that relates to these temporary clearance stores. And then we're not getting a lot of benefit from new stores because if you can look at what we've added in new stores, just 3 new stores year-over-year. And so the productivity side of the existing stores, that's down, but it's down just slightly.

Okay. That's helpful. And then, Tim, on the ACCELERATE strategy, sounds like from a marketing standpoint, like you guys have the campaign that can really help drive this. But I'm curious, like where do you think you are from a product standpoint? When you look at like fall '25, what inning are you? And how much are you advancing that for spring '26?

Yes. I would say the ACCELERATE program as it relates to the marketing, I think, is dramatically different and dramatically larger investment for the company. The fact that we're selling products like the Amaze Puff at prices which we've never been able to sell before is an indication that I think we've got the right equation to really get growing. The company offers a democratic level of product across multiple channels and categories of merchandise. We often don't get -- we don't get no respect for our expensive products, and I think this is going to help us in that area. And I think when you look at what we've done with the ROC pant and with the Amaze Puff in terms of their performance, I think it shows that we can definitely get there. So I'm excited about it.

The next question comes from Mauricio Serna with UBS.

Just wanted to ask if you could clarify maybe on the comment on price increases. You mentioned high single digit for price increases for spring '26, and then you mentioned something about fall. So for fall '26, is there an increment like another round of price increase that you're looking at? Just wanted to understand that.

Yes. So for spring, we increased our prices perhaps, as we said, in the high single-digit range, about the same for fall. Frankly, inside the U.S., it's -- we don't really know what we're going to be paying for this merchandise based on the capricious nature of how the tariffs have been enforced. So we're taking our best shot at the business. Our prices outside the U.S. are more stable and more predictable. But inside the U.S., we're taking our best shot at what we believe the pricing will be.

And Mauricio, the pricing is not stacking. Keep in mind, we've got a seasonal business, right? So it's high single digit for each season, but not stacking cumulatively.

Okay. Yes. Okay. That's what I wanted to understand. Okay. And then on the shift from wholesale that benefited Q3, is that mostly U.S.? Or how should we think about that shift?

I think 80% of it, give or take, is U.S.-based. So it's predominantly there. I think there was also some over in our European direct business as well.

Okay. Very helpful. And then just lastly, on SG&A dollar growth in Q3 was like 5%. Like -- is that like an underlying number that we should think into like for the Q4? Or is there also like an impact from the shift in the wholesale that maybe means that could be 3% to 4% or somewhat lower?

Well, I indicated earlier, our gross margin is going to be down a shade more than what we saw in Q3. And then I think if you back into the SG&A, it's up a low single-digit percent -- low to mid-single-digit percent in the fourth quarter. I would keep in mind, when you think about the rate of SG&A growth in the third quarter at plus 5%, half of that was an investment in demand creation that we believe is absolutely the right thing to do to support the ACCELERATE Growth Strategy is making a difference in elevating and increasing the perception of the brand. So I think it's just incredibly important to keep that in mind as we're looking at the SG&A.

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

Well, thanks, everyone, for listening in. It's really, frankly, great to see the ACCELERATE Growth Strategy transition from just planning to activation. The brand platform engineered for whatever is bringing brand-new energy to the marketplace. And frankly, we're just getting started. We'll build on the momentum with new products and marketing activations in the seasons ahead. So I look forward to sharing our progress when we report in February.

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