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Columbia Sportswear (NASDAQ:COLM)
Q2 2019 Earnings Call
Jul 25, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to Columbia Sportswear Company second quarter fiscal-year 2019 financial results. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andrew Burns, director of investor relations. Thank you, Mr.

Burns, you may now begin.

Andrew Burns -- Director of Investor Relations

Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company second-quarter results and 2019 outlook. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary explaining our results and the assumptions behind our 2009 outlook. The CFO commentary is also available on our investor relations website, investor.columbia.com. With me today on the call are President and Chief Executive Officer Tim Boyle, Executive Vice President and Chief Operating Officer Tom Cusick, Senior Vice President and Chief Financial Officer Jim Swanson and Executive Vice President and Chief Administrative Officer Peter Bragdon.

Gert is not available to join us today, so I will start off by covering the Safe Harbor reminder. This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operations. Please bear in mind that forward-looking information is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's annual report on Form 10-K and subsequent filings with the SEC.

Forward-looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or to changes in our expectations. I'd also like to point out that during the call we may reference certain non-GAAP financial measures, including non-GAAP results for 2018. 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 second quarter 2019 earnings release. 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 everyone by the end of hour.

Now I'll turn the call over to Tim.

Tim Boyle -- President and Chief Executive Officer

Thanks, Andrew. Welcome, everyone, and thanks for joining us this afternoon. 2019 is shaping up to be an excellent year for Columbia Sportswear Company with record second-quarter and first-half financial performance. Based on strong first-half results, current business momentum and one-time tax benefits, we are raising the low end of our net sales outlook and raising our operating margin and earnings per share outlook for the full year.

Overall, our brand-led, consumer-focused strategy is delivering profitable growth, market share gains and enabling continued investments in our strategical priorities. In the second quarter, net sales increased 9%, driven by strong spring 2019 sales performance and, to a lesser extent, early shipments of advanced fall 2019 orders and increased closeout sales. Excluding the effect of exchange rates, net sales increased 11% with double-digit growth realized for Columbia, Sorel and Mountain Hardwear brands. Project CONNECT financial benefits continued in the second quarter, helping to drive 70 basis points of gross margin expansion.

Diluted earnings per share more than doubled to $0.34. It's also important to note that diluted earnings per share includes $0.11 of one-time tax benefits, primarily related to the passage of the Swiss tax reform package. Because the second quarter is our lowest volume sales quarter, I'm going to focus my remarks on our first-half results as they more accurately reflect underlying business trends. For the first half, net sales increased 8% or 10%, excluding the effect of exchange rates.

Diluted earnings per shares of $1.41 increased 83% compared to 2018 GAAP first-half results, and increased 52% compared to 2018 non-GAAP first-half results. Regionally, U.S. net sales increased 13%, comprised of mid-teens percent growth in wholesale and low double-digit percent growth in DTC, driven by brick-and-mortar store performance and a low 20% increase in e-commerce. Consumers responded well to our innovative spring 2019 assortment, led by the Columbia and Sorel brands in the U.S.

wholesale and e-commerce channels. From our review of international markets and brand performance, I will reference constant currency growth rates, which we believe best reflect the underlying business trends. Net sales outside the U.S. grew 6% in the first half with the EMEA, LAAP and Canada regions all reporting net sales growth.

Looking more closely at growth trends in our international markets, our international distributor business was up high single-digit percent with growth from the EMEA distributors, partially offset by a modest decline in our LAAP distributor business. Japan's high single-digit percent growth in the first half reflects the Columbia brand's strong market position, with healthy growth noted across both wholesale and DTC channels. Europe-direct was up mid-single-digit percent driven by DTC and wholesale growth. Given economic pressures, the retail environment is challenging in several of our largest European markets, resulting in growth rates below what we've seen in recent years.

That said, given our relatively low market share today, we continue to see tremendous long-term growth opportunities in Europe. Korea was up mid-single-digit percent in the first half as our business continues to stabilize despite a declining Korean outdoor market. China was up low single-digit percent in the first half. After a decline in the first quarter, net sales returned to growth in the second quarter, driven by our decision to work down excess inventory.

In 2019, new general manager John Soh was focused on resetting the marketplace by optimizing distribution and investing in our consumer experience. The Columbia brand has a strong market position in China, and we believe new management and the investments we're making will reinvigorate growth in this market, which remains one of our largest geographic growth opportunities. In Canada, after a difficult first quarter, the arrival of warmer weather in the second quarter helped boost spring 2019 product sell-through, resulting in mid-single-digit percent growth for the first half of the year. Turning to margin performance for the first half.

Gross margin was up 150 basis points to 50%, largely reflecting Project CONNECT benefits, including our design to value, assortment optimization and manufacturing efficiency initiatives. SG&A expenses grew 9% compared to last year's non-GAAP SG&A expenses, resulting in SG&A as a percent of sales of 41.7%, compared to non-GAAP SG&A as a percent of sales of 41.6% in the prior year. The biggest drivers of SG&A growth were planned investments to support our expanding global DTC operations, higher personnel and project-related expenses and increased demand creation spending. Looking at the Columbia brand globally, sales increased 11% in the first half, led by our U.S.

DTC and wholesale businesses. We believe this growth is indicative of market share gains. Our spring 2019 sell-through has been quite positive across all categories as consumers responded to our innovative product lines. Once again, PFG was a top performer and is quickly approaching annualized sales of more than $200 million.

We are committed to investing in PFG to unlock its full potential. In 2019, we've released several PFG digital stories, as well as launched a new dedicated PFG Instagram channel. In June, country singer and brand ambassador Luke Combs was invited to be the newest member of the Grand Ole Opry. Luke received this prestigious honor wearing his signature black PFG Bahama shirt.

Congratulations, Luke, it's well deserved. On the product front, Columbia received several media call-outs and awards during the quarter. In rainwear, the Evolution Valley Jacket was included in Forbes' roundup of the best raincoats for stylish and productive men, and Digital Trends featured the OutDry Extreme ECO jacket in their article on sustainable outdoor gear for Earth Day. Omni-Shade Sun Deflector products, including the PFG Tidal Deflector and Terminal Deflector, were featured in articles on sun protective clothing from Outside Magazine, Gear Patrol and Yahoo Lifestyle.

In footwear, Runner's World featured a strong review of our new lightweight trail running shoe, the Alpine FTG. Our newest collaboration with Opening Ceremony, which continues to resonate with younger consumers, was covered by several media outlets, including Esquire, Russell, Complex, HYPEBEAST and Nylon. We're excited to launch a new footwear platform innovation next month called Shift, which targets younger adults who are not willing to compromise city-inspired style and athletic comfort for outdoor function. Shift provides them with a modern aesthetic, athletic comfort and is engineered with Columbia's technologies for uncompromising performance on the trail.

We'll be launching this product August 9 with a select number of retail partners around the world, including some very limited production styles with influential retailers. We will support this launch with a coordinated marketing campaign, including launch events, influencers, digital, in-store and out-of-home advertisements. This is just a first of many new Columbia footwear product introductions that you'll see in the coming years as we realize the brand's full potential in this important category. As part of Columbia's mission to unlock the outdoors for every one, we recently announced a new campaign and donations to support the National Park Foundation's Open OutDoors for Kids initiative, which helps today's youth trade screen time for green time.

This collection of T-shirts features nine limited edition designs with images from our national parks. We also continue to support the U.K. National Park system as their official outfitter for park rangers and staff. During the quarter, we continued to enhance our consumer experience globally by investing in Columbia's in-store presence with key retail partners.

This season, we've added additional shop-in-shops and fixtures at top sporting goods retailers, which resulted in improved sell-through performance of targeted categories at those stores. In the second half of 2019, we will be executing key city attack plans in New York City and Denver. Evidenced by the success of our Houston and Chicago key city attack plans last year, this strategy has proven to be a valuable tool to boost brand awareness and drive increased sell-through across our wholesale partners, Columbia stores and columbia.com. We look forward to sharing updates on these important activations in the coming quarters.

Sorel net sales increased an impressive 31% in the first half of the year, led by growth in U.S. wholesale and DTC. Spring 2019 product was well received, with strong performance noted across our Ella Sandals, Joanie collection and Kinetic Sneakers. Looking to the second half of the year, we're positioned to capitalize on this momentum during the higher volume fall and winter seasons.

In recent calls, we have highlighted that we're investing in Sorel demand creation in 2019, and I look forward to sharing some of the exciting marketing and product stories that will be unveiled this fall on our next conference call. prAna net sales declined 1% in the first half. In order to maintain the brand's premium position and raise brand awareness, we reduced promotional activity and made changes to marketing and catalog programs. While this impacted near-term sales growth, the prAna team is hyperfocused on product assortment and market position in order to drive long-term growth.

Mountain Hardwear sales declined 1% in the first half, but we are encouraged to see full price sales up year-over-year during this time period. In the second quarter, Mountain Hardwear reported year-over-year growth for the first time since 2017 and is poised for continued growth in the second half of the year. I congratulate the Mountain Hardwear team for its tremendous work in building a foundation for long-term growth and in reinvigorating the Mountain Hardwear brand. I'll now quickly review our balance sheet and cash flow.

Total inventory exiting the year was up 33% to $756 million, primarily reflecting earlier receipts of fall 2019 product to improve manufacturing efficiencies and, to a lesser extent, to support our business growth. Our inventory is in line with our expectations and consistent with the commentary we provided on the last call. We remain confident in the quality and aging of our inventory position and expect inventory growth to moderate in the second half of the year with projected mid-teens percent year-over-year inventory growth at the end of the third quarter. We continue to view our diversified supplier base as a competitive strength.

And looking at our spring '20 assortment and beyond, the product source in China is expected to represent a low double-digit percent of total imported value into the U.S. If U.S. seeks to impose additional tariffs on China products, the potential impact would be primarily felt in 2020 and beyond. Our balance sheet remains extremely strong with cash balances of over $500 million exiting the second quarter.

We continue to have no long-term debt. During the first half, the company repurchased over 1 million shares of common stock for approximately $100 million at an average price of $97.22 per share and paid $33 million in shareholder dividends. Exiting the quarter, we had 236 million remaining under the current stock repurchase authorization. Before reviewing our 2019 financial outlook, I'd like to provide an update on current areas of investment.

On the technology front, we have begun implementation of our new retail platform, Consumer-First or C1 in North America. Currently, we are in the pilot phase of this implementation with a limited number of stores and plan to roll out C1 across the North America store fleet in the second half of this year. During the quarter, we also implemented our new mobile platform, Experience First or X1, in our Europe-direct and prAna e-commerce businesses. We're pleased with the performance of these systems to date.

We still expect the remainder of the excellent North America implementation to occur in 2020. We're also continuing to make strategic investments across our supply chain to enable growth, improve productivity, enhance service levels and add capacity throughout our distribution and fulfillment networks. I'd now like to provide some detail on our updated 2019 financial outlook. Based on first-half performance, we now anticipate 7% to 8.5% full-year net sales growth.

Compared to 2018 results, we continue to expect gross margin to improve by approximately 80 basis points, with the largest driver of year-over-year improvement coming from Project CONNECT benefits. We expect operating margin to be between 12.9% and 13%, compared to 2018 non-GAAP operating margin of 12.9%. Our full-year financial outlook now contemplates a full-year tax rate of approximately 20% due to the one-time tax benefits and a reduced share count. Together with the benefit of full ownership of our China business, we expect diluted earnings per share of $4.65 to $4.75, up 16% to 18% from 2018 non-GAAP results.

Our capital expenditures outlook has also increased to $145 million, reflecting the opportunistic purchase of a property close to our corporate headquarters, as well as larger technology investments. For the third quarter, we anticipate low double-digit percent net sales growth and mid to high single-digit earnings-per-share growth compared to 2018 non-GAAP third quarter diluted earnings per share of $1.41. Please note that our third-quarter earnings release and conference call will be on Wednesday, October 30. In summary, our record first-half performance is evidence that our brand-led, consumer-focused strategy is working.

Our profitable growth trajectory and fortress balance sheet provide a foundation of strength and confidence from which we will continue investing in our strategic priorities to drive global brand awareness and sales growth through increased, focused demand creation investments, enhance consumer experience and digital capabilities in all of our channels and geographies, expand and improve global direct-to-consumer operations with supporting processes and systems and invest in our people and optimize our organization across our portfolio of brands. You can find more detail on our Q2 results and our 2019 financial outlook in Jim's CFO commentary available on our website. That concludes my prepared remarks. We welcome to answer your questions for the remainder of the hour.

Questions & Answers:


Operator

Thank you. We will now be conducting a question-and-answer session. [Operator instructions] Our first question comes from the line of Bob Drbul with Guggenheim. Please proceed with your question.

Bob Drbul -- Guggenheim Securities -- Analyst

Thanks, good afternoon guys.

Tim Boyle -- President and Chief Executive Officer

Hey, Bob.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Hey, Bob.

Bob Drbul -- Guggenheim Securities -- Analyst

Tim, on the sales outlook for the remainder of the year, you talked a lot about the Shift footwear. You look at the performance of footwear versus apparel first half of the year. Can you just give us an idea in terms of the expectations on the footwear business in the back half of the year?

Tim Boyle -- President and Chief Executive Officer

Certainly. Well, as you know, we've got new leadership in our footwear department division with Peter Ruppe starting here. He didn't have the opportunity to impact much of spring 2019, and we're just beginning to see the fruits of his work. And we've been very pleased so far with the reception of the product by retailers and consumers.

And so the expectation is that we're finally going to have, we're finally going to end up resolving the question about whether or not footwear can be the largest product category of the company, which I've been talking about for some time. So I'm very pleased with what we're seeing so far. The Shift product is only narrowly winter related so will be a smaller percent of the total business that we expect in winter. But as you know, the winter product of the company has been so famous for, especially the Columbia product has been really winter-related footwear.

So we should have a good result in 2019 winter. And then you add on the Shift opportunity and further the continuation of our PFG footwear and the expectations are high.

Jim Swanson -- Senior Vice President and Chief Financial Officer

And Bob, this is Jim. I would just add with regard to the cadence between first half and second half, we'd anticipate an acceleration in the footwear business as we get into the second half of this year, and that comment is combined between the Columbia brand footwear and with Sorel. So we should see nice growth there in the latter part of the year.

Bob Drbul -- Guggenheim Securities -- Analyst

Got it, OK. And then just the second question is on the inventory levels. I think you've been talking about this for a little bit, but can you break that down a little bit more in terms of within that increase, is there a speculative position in that number? And I guess just curious in terms of the regional breakdown of the inventory and in China, [Inaudible] you went through some clearance sales. Is the supply demand part in China for the brand at a healthy level at this point?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Hey, Bob. From an overall standpoint, I would indicate that our inventory, we're very comfortable with the position that we have. When you step back and look at the underlying aging of the inventory, by and large, the inventory is comprised of current and future season inventory, comprised of our spring '19 and fall '19. When we step back and look at the aged inventory or older season inventory, it's up modestly.

It's up single-digit millions of dollars. And when you look at that coupled with the growth that we got planned in the latter part of the year, we feel comfortable where we will be. And as Tim had indicated, we exit the third quarter we anticipate inventory growth coming back down into the mid-teens level. Now certainly within there, we have some pockets of excess inventory.

In the case of China, we have. We have liquated some of that through the first half of the year. We'll continue to manage that situation for the balance of the year. And I think finally, as it relates to your question on speculative purchase, I think last year, we've made an opportunistic purchase should we see incremental demand.

We've done that to a lesser extent this year and keep in mind we've got a relatively significant replenishment business as a part of our wholesale business that inventory is intended to fulfill as well.

Bob Drbul -- Guggenheim Securities -- Analyst

Great. Thank you very much.

Operator

Our next question comes from the line of John Kernan with Cowen. Please proceed with your question.

John Kernan -- Cowen and Company -- Analyst

Hey, good afternoon everybody. Thanks for taking my question. Congrats on the momentum. So just, Jim, could you talk about the benefits of Project CONNECT from a margin standpoint in the second quarter and what your expectations are going into the back half of the year that are embedded in the gross margin guidance?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, certainly. So if you look at the first half of the year in which we delivered 150 basis points of gross margin expansion, the lion's share of that 150 basis points of margin expansion is effectively Project CONNECT. And so as it relates to the second quarter, we continue to see well over 100 basis point improvement related to Project CONNECT. There are some offsets, however.

And the two offsets in the quarter, one of whom was the channel sales mix with wholesale business outpacing the growth in the B2C business. And then the other component is we've liquidated some excess, the whole full price closeout mix had an impact as well. And then as it relates to balance of the year, we would continue to anticipate nice improvement from Project CONNECT, similar to what we have through the first half of the year. There are some offsets however in the back half of the year as well as we've previously noted, just given the favorable selling environment that we had in the fourth quarter of last year.

That's a part of that offset. And then there's other smaller components that would include everything from freight cost and mix with the footwear business outpacing the apparel business in the back half of the year. So there are some other components like that, but we certainly have confidence in the hard work that the teams have put in to deliver the Project CONNECT benefits.

John Kernan -- Cowen and Company -- Analyst

Excellent. That's helpful. And just my follow-up question is just on the back half top line outlook. It feels like inventory levels in the wholesale channel are very clean, sell-throughs are high, and we can see that in your numbers for the first half of the year.

You called out advanced fall 2019 orders as being a benefit to the second quarter. Can you go back to a time where the last time inventory levels were this clean and the product cycle was this strong? It just feels like, you've called out advanced fall orders, there were some shipments that did pull through. I'm just wondering how that affects your overall top line outlook, particularly in the U.S. as we go into the back half of the year.

Thank you.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes. I think we've reflected all those factors into the outlook that we've provided for the back half. And the first half we grew 8.5%. The back half also contemplated to grow 8.5% if you look at the cadence and flow between Q3 and Q4 given the strength of the fall '19 wholesale order book.

We are anticipating low double-digit growth and have the confidence in order book and be able to deliver that in the third quarter. And then obviously the fourth quarter is growing at a slightly lower rate and that part reflecting that we plan the business on more of a normalized basis relative to the favorable environment that we saw in the fourth quarter last year.

John Kernan -- Cowen and Company -- Analyst

Got it, still planing on a more normalized basis for the back half. Got it. Got it. All right, thanks guys.

Best of luck.

Operator

Our next question comes from the line of Laurent Vasilescu with Macquarie Group. Please proceed with your question.

Laurent Vasilescu -- Macquarie Group -- Analyst

Oh, good afternoon, thanks for taking my question. I wanted to follow up on Project CONNECT. It sounds like it's actually becoming a bigger benefit in the second quarter to the gross margin. Without getting into specifics for FY '20 guidance, Jim, is this Project CONNECT benefit only for these four quarters, or should we kind of think about it continuing into FY '20?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Well, I think the way I would look at it is certainly, the step function improvement that we see in gross margin when you look at the 170 basis points of gross margin expansion that we achieved in 2018 and in the incremental 80 basis points of gross margin lift that we'll see in 2019, that's where you are going to see the substantial step function lift from a Project CONNECT standpoint. That said, as a part of that project, we put a lot of time and effort into ensuring that we develop sustainable processes. So the margin achievement that we've accomplished in the past couple of years, we're able to sustain that. And certainly, our product creation teams and others throughout the business are very focused on continuing to drive gross margin improvement and other elements of the business that will hopefully drive EBITDA margin expansion as well.

Laurent Vasilescu -- Macquarie Group -- Analyst

OK, very helpful. And then, I want to follow up on Shift. Can you possibly talk about the price point ranges you are targeting? And are you working with key like national retail partners or the more specialty stores? Any comments or additional color would be very helpful.

Tim Boyle -- President and Chief Executive Officer

Sure, you bet. So we've talked about the company having a focus on footwear for quite some time. And most of our largest customers are big sellers of footwear. So we know there's an opportunity from a channel perspective.

As it relates to the Shift launch, we launched with our most important large customers who have footwear businesses and that would include sporting goods guys such as DICK'S Sporting Goods. And then we layered in energy accounts, which would include sneaker-specific accounts that in the past typically have not purchased Columbia's footwear, but also even at a mature state will not likely impact the total volume very significantly. So we had a strategic view of how we're going to launch it both here in the U.S. and in Europe and the expectations are that this will be a momentum-building event, which can help us really get our true cadence in footwear.

Laurent Vasilescu -- Macquarie Group -- Analyst

Fantastic, best of luck.

Tim Boyle -- President and Chief Executive Officer

Thanks.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Thanks, Laurent.

Operator

Our next question comes from the line of Alex Perry with Bank of America. Please proceed with your question.

Alex Perry -- Bank of America Merrill Lynch -- Analyst

Hey guys, congrats on a great quarter. Just first for Tim. Can you just talk through what drove the overall momentum in the U.S. wholesale business? And then just as a follow up on that, can you help us think through how much of the growth was driven by advance fall 2019 order shipment?

Tim Boyle -- President and Chief Executive Officer

Sure. Well, let me talk about the momentum items. First of all, the biggest single category was probably PFG. It's an area where we don't have a lot of competition from our traditional, brands that we traditionally compete with.

The area fishing apparel is enormously strong in the southern part of the United States. It's the single biggest outdoor activity and an area where we've worked diligently over the last 30 years to build a business that can help us to counteract our heavy involvement in outerwear. So I would say that's probably the lever. Additionally, we had great footwear sales.

We have a really strong footwear product, which is now getting stride called the Newton Ridge, which is a heritage product for the company as well as very solid rainwear, which just based on the amount of rain that the United States had. So those were the primary drivers of the good results in fourth, excuse me, in the first half. And maybe I'll ask Jim to talk a bit about the specifics numerically as it relates to advance orders in fall.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes. I think in terms of timing and certainly to Tim's point, the lion's share or a good chunk of the U.S. wholesale revenue growth on the quarter related to spring '19 and the order conversion. There is, however, a shift there as well as you are referring to.

So for fall '19, earlier deliveries from Q3 into the first or latter part of June, it's a mid to high single-digit millions of dollars number. And so if you neutralize for the effect of that, the wholesale business was up a low double-digit, high single-digit percent on the quarter, which by and large reflects the spring '19 order conversion.

Alex Perry -- Bank of America Merrill Lynch -- Analyst

Thanks a lot. And then just a follow up, can you talk to the [Inaudible] the Sorel growth is really strong this quarter on top of strong growth last year. Can you talk about the momentum you're seeing there, specifically in the sort of spring, summer style? Thanks.

Tim Boyle -- President and Chief Executive Officer

Certainly. Well, the Sorel management team has been highly focused on pivoting the business to be winter plus. So for us to be successful in that product category, in that brand internationally as well as really in the U.S., we need to have products year round so our retailers can keep the brand on the floor year round. And that's going to mean emphasizing spring product and unique differentiated merchandise for spring.

And that's what the Sorel team has delivered, and the results have been really gratifying. Now albeit it's a smaller base, but we really believe the opportunity to make Sorel a $1 billion brand at some point in time is really there. But it's going to have to be a year-round brand. And so if we're able to pull off this winter plus strategy, which we're certainly playing that forward now, we have a great opportunity with that brand.

Alex Perry -- Bank of America Merrill Lynch -- Analyst

Thank you, that's very helpful. Best of luck.

Tim Boyle -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Paul Lejuez with Citigroup. Please proceed with your question.

Tracy Kogan -- Citi -- Analyst

Thanks, it's Tracy Kogan filling in for Paul. I had a question on your DTC business in the U.S. I guess can you first just clarify what you're saying in your, at least that the bricks-and-mortar comp was positive and maybe if you could quantify that? And then secondly, if you could just talk about the performance of your outlet store versus your full price store? Thank you.

Tim Boyle -- President and Chief Executive Officer

Yes, as we said in the past, we really consider ourselves to be a wholesale company. We don't really report on typical retail comps or any of those specific metrics, but I can tell you that we're pleased with the results of the business, and we believe that there's a large opportunity for us just based on the brand's strength. So--

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, and I'd just add. As part of Tim's prepared remarks, through the first half of the year, the U.S. B2C business grew a low double-digit percent. It was up a high single-digit percent when you look at just the second quarter alone.

And certainly similar to other retailers that have reported with some of the warmer, or colder weather rather in April and May, we saw some slowness through those two months and returned to nice growth as weather turned to our favor in the month of June. And that's specific to the outlet stores.

Tracy Kogan -- Citi -- Analyst

Got it, thank you.

Operator

Our next question comes from the line of Susan Anderson with B. Riley FBR. Please proceed with your question.

Susan Anderson -- B. Riley FBR -- Analyst

Hi, good evening, thanks for taking my question. Nice job on the quarter. I guess I wanted to maybe touch on Mountain Hardwear a little bit. Nice to see the increased sales there.

And I guess what's the feedback you're getting from your wholesale customers? Are they getting more excited about the product as it improves? And I guess any chance that they're willing to take on more product? And do they see maybe potentially some space gains for the brand over the next year or two? Thanks.

Tim Boyle -- President and Chief Executive Officer

Well, thank you. Yes, it's gratifying to see that brand finally starting to grow again. And it's really a function of the improvement in the product. And so the business there will really rise and be fulfilled based on our wholesale business.

So the traditional specialty stores that have been buying Mountain Hardwear and hope that it will continue to perform well, but really happy to see the improvements that we've made in the product category, in the product, with the best is yet to come in winter. The new team there was really only 18 or

Jim Swanson -- Senior Vice President and Chief Financial Officer

There we go.

Tim Boyle -- President and Chief Executive Officer

Hello?

Unknown speaker

We're OK.

Tim Boyle -- President and Chief Executive Officer

Next question, operator.

Operator

I believe that came from near line, one moment.

Tim Boyle -- President and Chief Executive Officer

OK.

Operator

Our next question comes from the line of Jonathan Komp with Baird. Please proceed with your question.

Jonathan Komp -- Robert W. Baird -- Analyst

Yes, hi. Thank you. I wanted just to start off following up on the beat for the quarter. It's a pretty sizable beat versus where you had projected.

And it looks like maybe you're flowing maybe about two-thirds of that through to the full year. So I just wanted to ask kind of what the offsets you see are when you look out to the balance of the year?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, John, this is Jim. So just to talk through the components of the beat on the quarter. So it effectively boiled down to three things. One, the top line came in a bit better than our internal outlook to the tune of call it $15 million.

A good chunk of that, as I was describing earlier as it relates to our wholesale business with the fall '19 and the earlier delivery, is really what's driving that. And so by and large, that's a timing effect and that's why you're not seeing an increase in our full-year revenue outlook. The other two components are the SG&A underspend in the quarter relative to our outlook in the income tax. And of course in the case of the income tax, we've lowered the full-year tax rate to 20% from 22%.

And so really, the delta in here is on the SG&A. And so we underspent by somewhere north of $10 million, half of which we've approved the outlook on the full year, the other half of which is effectively project-related spend and other phasing of expenses planned for the latter part of the year. So when you look at it taken all together, $0.34 beat, we passed $0.20 of that on to the full year, a good chunk of that being tax, SG&A and then to a lesser degree, given some of the share repurchases that we executed on the quarter is the other component.

Jonathan Komp -- Robert W. Baird -- Analyst

OK. And maybe as a follow up I think you have touched on some of the factors, but looking at your, the cadence of your guidance for the year, the first half at least operating profit that you delivered would represent the pretty high portion of the full year, maybe higher than it's been in recent history. So do you think that's all the shifts going on? Do you think it's a change in the seasonality of your business? Or is it conservative more appropriately in the back half? How would you characterize that?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Well, I mean, certainly, as we planned that more normalized effect in the fourth quarter, I mean, that could be some of what you're seeing and so that's all dependent upon a lot of factors, whether you're talking whether a macro, economic and whatnot. So we've planned that as best we can based upon our historical norms, if you will. If you set that piece aside and look at how we planned the year, now certainly we anticipate the third quarter grown at a faster rate just given the wholesale order book that we have and being able to ship that in. I think the reason you're not seeing the operating margin expansion in the back half of the year because certainly we're anticipating continued gross margin expansion with the CONNECT benefits in the latter part of the year.

Our SG&A rate, however, our SG&A grew, call it 9% in the first half. I think as you look at our outlook for the back half, you'll find it in the 11% to 12% range. And that's partially related to project spend. There's nothing new in the way of new initiatives or projects, but just the phasing of that.

And in particular, as we've recently gone live with C1 and X1 projects, there's a cost as we've taken those online, coupled with some of the strategic hires that we've made to get after the Sorel business as we want to continue to drive a sustainable and profitable growth there. And then likewise, as Tim discussed in terms of the Columbia brands, footwear opportunity and really making sure that we're investing in the talent to continue to drive that business forward.

Jonathan Komp -- Robert W. Baird -- Analyst

OK, great. Then maybe last one from me. In terms of the gross margin drivers for the year, I think you took out DTC backs, which had been a positive call out. I think you removed that now from the current outlook.

So I just wanted to maybe clarify the drivers there and maybe you could just remind us on the e-commerce side what the main drivers you see of sustaining some of the momentum there.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, I think on the full year as it relates to gross margin, it really boiled down to a couple of factors. One, there's obviously going to be the favorable impacts of Project CONNECT that'll carry through the year. And then the most significant offset to that is just as planning on a more normalized basis relative to last year in which we were a lot less promotional and the effects of a positive environment. On the channel mix question you've got, I mean the channel mix is probably slightly favorable, but it's not that meaningful and that's really being a function of the growth that we're seeing in the wholesale business.

Our fall 2019 order book is strong, so that a net positive in our line. And then, John, your latter part of your question?

Jonathan Komp -- Robert W. Baird -- Analyst

It was just as you start to cycle better e-commerce performance, what you see is the ongoing drivers for that business?

Tim Boyle -- President and Chief Executive Officer

Well, it's going to be us continuing to do, increase our sophisticated use of digital channels to increase the business size and efficiencies. So again, we want to reiterate that we're a wholesale company primarily and that the e-com business is used as really an additional marketing tool. We ended up having great results really as a function of the brand's strengths. So we're really focused on a wholesale distribution of our company's products.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, John. I'd just add we went live with the X1 platform in Europe and our product business here in the US during the quarter. And certainly, our expectation over time is that's a mobile-first platform. And with consumers increasingly shipping or transitioning over to more mobile device shopping, that that ought to improve conversion and improve performance within the e-commerce business.

So we're making the right investments really to drive that business going forward.

Jonathan Komp -- Robert W. Baird -- Analyst

Understood. Thanks for taking all the questions.

Tim Boyle -- President and Chief Executive Officer

Thanks.

Operator

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

Jim Duffy -- Stifel Financial Corp. -- Analyst

Thanks. Hi everyone. Hope you guys are doing well. I wanted to ask a couple of questions.

Tim Boyle -- President and Chief Executive Officer

Thank you.

Jim Duffy -- Stifel Financial Corp. -- Analyst

I wanted to ask a couple of questions specific to the overseas markets. Tim, can you give us an update on the European marketplace? You know, that guided mid-single digit constant currency growth. I know that's not new, but that's lower than we've been accustomed to. The prepared remarks, you spoke to challenges broadly across markets.

Are there any markets that are worse than others, any that might be bright spots? And anywhere you're seeing prospects for return?

Tim Boyle -- President and Chief Executive Officer

Certainly. Well, overall, I'd like to make sure everybody understands how important Europe is for the company and basically how small our business is by comparison to others and the fact that there's big opportunity for us in Europe. I think we've probably been most impacted in France and in the UK between the yellow vest movement and the Brexit discussions, although we do have very strong performance in Spain and great connections with our customer there, I'll quote [Inaudible], as well as strong business in Germany. So we're underperforming what my personal expectations are, and the plan is to continue to reinvest there, increase the brand awareness and to take advantage of the opportunities of the European market.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Great. And then in China, you cleared through some inventory this quarter, and that certainly feels like part of the reset operation. What are some things that we in the investment community should be watching for in China to kind of benchmark your progress on the turn?

Tim Boyle -- President and Chief Executive Officer

Certainly. Well it's again probably the single largest geographic opportunity for the company. We have very strong footwear business there and a new management team. And the focus is going to be for us on refreshing our stores, continue to improve the merchandise offering and continuing the expansion of our e-com business.

So I believe that we've got the right people in place to make sure the business grows. We just need to make sure that we've got the proper investments in brand and the demand creation and the brand focus to allow us to take advantage of that. So I would expect that we're going to have modest growth there this year. But next year, we should have more significant growth and in the future.

Jim Duffy -- Stifel Financial Corp. -- Analyst

Sounds good. Thanks for the thoughts.

Tim Boyle -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from the line of Chris Svezia with Wedbush. Please just you with your question.

Chris Svezia -- Wedbush Securities -- Analyst

Good evening gentlemen. Great job on the quarter. I guess first question I have is just on the direct business versus, global direct versus global wholesale. Any color or context you can provide as we go into the back half of the year? I guess this is Q3, Q4.

I guess Q4 on direct consumer I guess would be a little more maybe modest in the fourth quarter just given the comparison? And then Q3 maybe a little bit stronger on global wholesale. Am I thinking about that right?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, that's right, Chris. I think on an annual basis, we provide an update in terms of percent of total business that B2C and e-com represents of our total. But as you're thinking through the cadence and flow, as we look at the fall '19 order book that we've taken across our wholesale and distributor businesses, we'll definitely see a stronger growth rate in the third quarter for that portion of the business. And then with B2C, certainly given the more challenging comps that we've got in the fourth quarter, we've normalized for that.

So I would anticipate that just in terms of thinking through a cadence, that we'd see a lighter growth rate there relative to a normal run rate.

Chris Svezia -- Wedbush Securities -- Analyst

OK. And just so I'm clear about something, if by any chance there's favorability in weather, maybe similar to something last year, I know last year you had some speculative inventory that you sold through at a better price. Just as you think about it this year, you still have that ability to maybe fulfill that demand, whether it's in DTC outlet, online, if for whatever reason that came to fruition in the fourth quarter.

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, I think there's certainly, we'll have the inventory up to a certain level to deliver a better top line and a profit figure. But as we sit here today, we've provided the best outlook that we can in light of all the factors and the order that we've got in hand and the trends that we're seeing in the business.

Tim Boyle -- President and Chief Executive Officer

And we really haven't materially changed our focus that we've had for the last 25, 30 years, which is a modest approach to inventory purchases on a speculative basis. So we have some, but they're by no means extravagant or significantly different from prior periods.

Chris Svezia -- Wedbush Securities -- Analyst

OK, understood. And then context of the 7% to 8.5% revenue growth on the year, just any color between the core brands Sorel, Columbia, prAna. I know Mountain Hardwear. Just how it falls in the context to that 7% to 8.5% by some of those brands, if you could provide that?

Jim Swanson -- Senior Vice President and Chief Financial Officer

Yes, from an overall standpoint, the positive, we anticipate growth from all four brands. And so we saw Mountain Hardwear return to growth in the second quarter and anticipate that to continue to accelerate into the back half of the year. In terms of where we'd see the lion's share of the growth, I mean, certainly going to be with the Columbia brand and with Sorel. Sorel in particular when you look at that from a percentage standpoint.

And then prAna's 10-point [Inaudible] in the prepared remarks. We intend to grow, but it'll be a lower rate of growth. So I'd probably leave with that.

Chris Svezia -- Wedbush Securities -- Analyst

OK. Fair enough. Last few things I have real quick. Just on the gross margin cadence.

Is there anything, you expecting improvement both in Q3 and in Q4? I mean obviously Q4 is significantly less than you've seen throughout the year, but is it fair to say in both quarters? Or is it more heavily skewed to the third quarter at this point?

Jim Swanson -- Senior Vice President and Chief Financial Officer

It's in both quarters. You know, certainly the third quarter will be stronger than the fourth, just given those comps that we've talked about with regard to the fourth quarter. But we are anticipating gross margin expansion in each of the two quarters.

Chris Svezia -- Wedbush Securities -- Analyst

OK. And finally just on C1. I'm just curious just what are you anticipating in terms of maybe some of the benefit with a better POS system? Maybe talk about loyalty opportunities and just maybe anything that that, you can provide as you go sort of into the back half. Any further thoughts about the development and maybe the benefit potentially this year, or is that more really we think about 2020?

Tom Cusick -- Executive Vice President and Chief Operating Officer

Yes, it's probably more 2020. Chris, this is Tom. We're using a 20-year old system, so this is really modernizing the ERP across the application base.

Chris Svezia -- Wedbush Securities -- Analyst

OK, understood. All right, thank you gentlemen. All the best.

Operator

[Operator instructions] Our next question comes from the line of Michael Kawamoto with D.A. Davidson. Please just see you with your question.

Michael Kawamoto -- D.A. Davidson -- Analyst

Hey guys, thanks for taking my questions. Just first off, you anniversaried the city attack plan with PFG footwear in Houston. How are you thinking about the longevity of the benefits of those attack plans? It sounds like you're maintaining momentum within those markets, but do you expect this to normalize a little bit going forward?

Tim Boyle -- President and Chief Executive Officer

Yes, so we didn't reinvest in Houston to the level we did last year, although we had some modest residual impact on the business. So we're continuing to roll them out as you might, just a reminder, we had a fairly sizable city attack plan in Chicago last year, and then we'll be using that plan both in New York City and the surrounding area, as well as Denver for 2019 fall. So we're pleased with how those strategies work and the fact that there is residual momentum after the heavy up in those markets. So we'll be continuing to do that and we'll be rolling them out probably internationally as well.

Michael Kawamoto -- D.A. Davidson -- Analyst

Yes, that was my follow-up question. Do you have some cities in mind internationally that you're looking at? Or is that still kind of more further down the line?

Tim Boyle -- President and Chief Executive Officer

Yes, it's still under negotiation right now for a European market [Inaudible]. We've had some focus in China on specific markets, including Shanghai and Shenzhen.

Michael Kawamoto -- D.A. Davidson -- Analyst

Got it. Thanks guys and good luck for the rest of the year.

Tim Boyle -- President and Chief Executive Officer

Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back over to Tim Boyle for closing remarks.

Tim Boyle -- President and Chief Executive Officer

Well, thank you very much for your attention today. We look forward to talking to you again in October. And again, I might note that we have moved the date for our conference call in October to the 30th. So I look forward to hearing, to talking to you about our third quarter results then.

Thank you.

Duration: 17 minutes

Call participants:

Andrew Burns -- Director of Investor Relations

Tim Boyle -- President and Chief Executive Officer

Bob Drbul -- Guggenheim Securities -- Analyst

Jim Swanson -- Senior Vice President and Chief Financial Officer

John Kernan -- Cowen and Company -- Analyst

Laurent Vasilescu -- Macquarie Group -- Analyst

Alex Perry -- Bank of America Merrill Lynch -- Analyst

Tracy Kogan -- Citi -- Analyst

Susan Anderson -- B. Riley FBR -- Analyst

Unknown speaker

Jonathan Komp -- Robert W. Baird -- Analyst

Jim Duffy -- Stifel Financial Corp. -- Analyst

Chris Svezia -- Wedbush Securities -- Analyst

Tom Cusick -- Executive Vice President and Chief Operating Officer

Michael Kawamoto -- D.A. Davidson -- Analyst

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