Columbia Sportswear (COLM) Q4 2020 Earnings Call Transcript

Columbia Sportswear (COLM 0.72%)
Q4 2020 Earnings Call
Feb 04, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Columbia Sportswear fourth-quarter 2020 financial results conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andrew Burns. Thank you, Mr.

Burns, you may begin.

Andrew Burns -- Director of Investor Relations

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 explaining our results. The CFO commentary is also available on our Investor Relations website, investor.columbia.com. With me on the call today here are Chairman, President, and Chief Executive Officer Tim Boyle; Executive Vice President and Chief Financial Officer Jim Swanson; and Executive Vice President and Chief Administrative Officer, Peter Bragdon.

This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations, or beliefs about the future. These statements are expressed in good faith and are believed to be a reasonable basis. However, each forward-looking statements are 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, actual results, or 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 on the 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 including in our fourth-quarter 2020 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 to everyone by the end of the hour. Now I'll turn the call over to Tim.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thanks, Andrew, and good afternoon. I hope everyone is well and your families are all safe and healthy. I'm pleased to report above plan fourth-quarter results with broad-based outperformance across our brand portfolio and regions. These results are particularly impressive with the backdrop of a global pandemic and demonstrate the dedication and commitment of our global workforce of employees who overcame enormous pandemic-related disruptions.

While consolidated net sales and earnings remain below -- remained below prior-year levels, trends sequentially improved compared to third quarter, and we remain poised for continued recovery in 2021. 2020 was an unprecedented year of adversity by almost any measure. Our team's swift cost containment and capital preservation actions, along with disciplined working capital management, enabled free cash flow of nearly $250 million and cash and short-term investments of over $790 million, and no borrowings exiting the year. Our profitable growth trajectory and fortress balance sheet have given our board of directors the confidence to approve a quarterly cash dividend, increase our stock repurchase authorization and return to our pre-pandemic capital allocation strategy.

Fourth-quarter net sales declined 4%, and diluted earnings per share declined 14% year over year, primarily reflecting the ongoing negative effects of the COVID-19 pandemic, partially offset by the benefit of later timing of fall 2020 shipments that we referenced in our third-quarter earnings release. Promotional pricing activity in the quarter was less than expected, resulting in gross margin expansion of 50 basis points compared to fourth quarter in 2019. I'd note that fourth-quarter 2020 operating income includes $18.1 million in retail impairments and store closure charges and $17.5 million in prAna trademark impairment. Wholesale net sales declined 5% in the fourth quarter, driven by earlier actions to curtail purchases of fall 2020 inventory in conjunction with wholesale customer order cancellations and lower consumer demand resulting from the pandemic.

This was partially offset by later timing of fall 2020 shipments. I'm encouraged by the strong fall 2020 sell-through rates and our wholesale partners are well positioned to exit the season with clean inventory positions. DTC net sales declined 3%, driven by lower brick-and-mortar sales, partially offset by strong e-commerce growth. In the fourth quarter, our e-commerce net sales increased 41% and represented 23% of the total net sales mix.

As a reminder, we went live on our new mobile-first e-commerce platform, X1 in North America for the Columbia, SOREL, and Mountain Hardwear brands during the third quarter. I'm pleased to report the X1 platforms performed exceptionally well during the peak season and contributed to improved site performance and conversion. For the full year, net sales declined 18% and earnings per share declined 66% year over year, primarily reflecting the negative effects of the COVID-19 pandemic. A bright spot for the year was our DTC e-commerce net sales, which grew 39% year over year and represented 19% of the total net sales mix.

If you include our partners wholesale online businesses, along with our own e-commerce sites, we estimate online sales were over 30% of our global net sales mix in 2020. Investing in supporting this growth across both our e-commerce sites and wholesale partner sites is a top priority for us. We know that when the Columbia brand is democratically offered across our broad distribution, consumers choose our innovative products. As we begin 2021, we're encouraged by the building momentum across our brand portfolio, which is reflected in the continued robust growth of our e-commerce channel as well as a meaningful recovery in wholesale orders for the spring and fall 2021 seasons.

That being said, we are also facing several operational headwinds and unknowns resulting from the ongoing pandemic. There is tremendous uncertainty regarding the timing and effectiveness of global efforts to contain the spread of COVID-19. We are also facing industrywide supply chain and logistics capacity constraints that are resulting in later receipts and customer deliveries of spring 2021 production. Additionally, brick-and-mortar traffic trends remain depressed with stores in destination locations and tourist-dependent markets remaining some of the hardest hit.

We anticipate traffic in these markets to remain depressed until international tourism resumes. Before detailing our strategy to mitigate these challenges and grow our business in 2021 and beyond, I'd like to quickly review our fourth quarter and 2020 financial performance. Sales trends during the fourth quarter remained highly correlated to each market's management of the pandemic and consumers' willingness to shop in-store. In the U.S., fourth-quarter net sales decreased 6%.

This performance reflects a mid-single-digit percent decline in both wholesale and DTC net sales. Stronger-than-anticipated consumer demand helped fuel strong wholesale reorders despite a warm start to winter that reduced early season outerwear sell-through. As colder weather arrived in December, outerwear sell-through accelerated and retailers are well positioned to exit the season with clean inventory positions. Recovery curves across our broad distribution vary greatly with sporting goods and online retailers, leading the recovery in wholesale.

In DTC, stronger-than-anticipated consumer demand drove high 30% e-commerce growth and improved store performance. We are pleased to see that brick-and-mortar net sales decline moderate compared to the third quarter, but this channel remains under pressure. Limited tourism, government-mandated restrictions and growing consumer preference to shop online are all contributing to depressed store traffic levels. From our review of international markets, I will reference constant currency year-over-year growth rates, which we believe best reflects the underlying business trends.

In our Latin America Asia Pacific or LAAP region, fourth-quarter net sales decreased 8%. In Asia, store traffic and sales trends continued to improve during the quarter, with some weeks returning to positive year-over-year growth. Looking at net sales growth in our direct markets, Japan grew low single-digit percent, Korea declined low single-digit percent, and China was down high single-digit percent. This marks a meaningful improvement in trend compared to the third quarter, and the region is positioned to return to growth in 2021.

We know we have powerful brand recognition in China and that this market represents one of our largest geographic growth opportunities. With that said, recent trends show that we are underperforming. To unlock China's full potential over the long term, we're committed to supporting and investing in this region. Last quarter, we announced that Franco Fogliato is leading the company's focus on the global omnichannel experience, including oversight of Columbia brand sales in China.

Franco will be working to support and build strong commercial channel teams in China that will drive global brand messaging while optimizing local product and marketing. We have also made a regional leadership change in China, and the search is under way for a new general manager. LAAP distributor net sales decreased low 50% primarily reflecting lower spring 2021 orders as many distributors work through carryover inventory from the spring 2020 season that was heavily impacted by regional lockdowns. In our Europe, Middle East, Africa, or EMEA region, fourth-quarter net sales decreased 18%.

Europe direct net sales grew low single-digit percent driven by wholesale and e-commerce growth partially offset by decline in DTC brick-and-mortar sales, primarily resulting from lockdown restrictions. EMEA distributor net sales decreased high 50% reflecting challenging conditions in several markets and later timing of spring 2021 shipments that have shifted into the first quarter of 2021. As a reminder, distributor shipments are factory direct meaning we don't control the timing of shipments or related revenue recognition for this part of the business. It's also important to note that a large volume of shipments typically occurs around year-end resulting in significant quarterly timing shifts year-to-year.

Canada net sales increased 37% in the fourth quarter, benefiting from the later timing of fall 2020 shipments and, to a lesser extent, robust e-commerce sales. Shifting to fourth-quarter margin and profit performance. Gross margin expanded 50 basis points year over year to 50.6% of net sales primarily driven by favorable channel mix, lower promotional pricing activity, and favorable currency -- foreign currency hedge rates. This was partially offset by higher freight costs.

SG&A expenses were essentially flat compared to the fourth quarter of 2019. During the fourth quarter of 2020, we realized approximately $30 million in SG&A savings from cost containment actions and lower variable expenses. For the full year, we achieved our 2020 cost containment goal of more than $100 million of SG&A expense savings in comparison to last year before nonrecurring expenses and charges. This performance resulted in an operating margin of 13.5% of net sales, down 100 basis points from the prior year.

Diluted earnings per share decreased 14% year over year to $1.44. Moving to performance by brand. Columbia brand net sales decreased 7% in the quarter due to earlier actions to curtail inventory purchases in conjunction with order cancellations. Retailers had significantly less inventory on hand entering the season.

Consumer demand ultimately exceeded our expectations, resulting in strong wholesale reorders and sell-through rates, while a warm start to winter in the U.S. reduced early season outerwear sell-through, trends improved in December as colder weather arrived. Globally, I would characterize weather for the fall 2020 season as within the band of normal to favorable for most of our key markets. By category, consumers' interest in poly fleece styles was quite strong as consumers shop with their at-home routines in mind.

Popular insulated styles like women's Heavenly, and saddle mountain jackets were top sellers. In footwear, classic styles like the Newton Ridge and the winter boot lines, including the Fairbanks, Bugaboot, Ice Maiden, and Minx were top performers. Overall, strong season-to-date sell-through rates and cold weather in early 2021 are helping retailers exit the season with clean inventory positions. This creates a favorable backdrop for the fall 2021 order book and season.

In December, we launched our fifth annual Star Wars collection. This year's collection, based on the hit Disney series, The Mandalorian, was our most extensive to date with several styles for adults and children. The launch generated a phenomenal response from our consumers with many styles selling out in the first hour. Our efforts to promote the collection earned dozens of online and broadcast placements creating over 300 million impressions across media and social channels.

Columbia's innovations received several media call-outs and awards during the quarter. Columbia's new Omni-Heat Black Dot technology was highlighted by several outlets, including Gear Junkie, Orbs, Women's Wear Daily, Us Weekly, and was honored by popular mechanics as one of the 100 greatest innovations of 2020. Outerwear styles from our Ski collection, including the Peak Pursuit, Women's Alpine Crux, and Autumn Park Down Jacket were highlighted by several outlets, including SKI Magazine, Men's Health, and Outside Magazine. In footwear, Outside featured the Facet 45 OutDry in the epic gifts for ocean addicts in their holiday gift guide.

Gear Patrol featured the Hyper-Boreal Omni-Heat boot in their article on the best boots or winter adventures. During the fourth quarter, we continued to prioritize digital marketing spend, including mid-funnel investments to further attract active customers and propel online sales growth. We took a digital-first approach to creative assets and leverage this content across digital and social media platforms around the world. For the year, Columbia's DTC e-commerce business grew 39% and represented 15% of the brand's total net sales mix.

On the marketing front, we featured social media influencers to tell differentiated brand and product stories throughout the quarter. In addition to our Omni-Heat 10th anniversary and Warm Smarter campaigns, we had several more targeted marketing events highlighting our new Facet footwear collection, our popular PFG line, and winter ski assortment. In 2021, I look forward to strengthening Columbia's ties with Bubba Wallace as he embarks on his first season with his new team, 23 11, whose principal owners include Michael Jordan and three-time Daytona 500 winner, Denny Hamlin. In addition to creating brand heat at key races, we will be sharing a new project with National Geographic CreativeWorks this fall, highlighting Bubba's outdoor pursuits.

Turning to our emerging brand portfolio. It was quite encouraging to see all three brands returned to growth in the fourth quarter with signs that momentum is building into 2021. SOREL net sales increased 5% in the quarter, led by e-commerce growth that reflected strong underlying brand momentum and consumer demand. SOREL was our strongest performing brand in 2020 with net sales down only 7% despite the challenges presented by the pandemic.

For the year, SOREL's DTC e-commerce business grew 44% and represented 31% of the brand's total net sales mix. In 2020, as the pandemic took hold, consumer brand affinity for SOREL remained high and demand shifted toward versatile collections such as Kinetic Sneakers, Ella Sandal, and classic slippers. For the full year, sneaker category net sales, led by the Kinetic collection, grew nearly 200% year-on-year on SOREL's North America e-commerce sites. Successes in these new categories validate SOREL's evolution beyond its legacy winter utility business to become a year-round, function-first fashion footwear brand.

prAna was our strongest performing brand in the fourth quarter with net sales up 11%. Top-selling categories for the quarter included fleece, fitness apparel, and flannels as consumers shop for their at-home routines. Growth in the quarter and throughout the year was led by e-commerce. For the full year, prAna's DTC e-commerce business grew 37% and represented 47% of the brand's total net sales mix.

This growth included record new customer acquisitions. It's clear that prAna's commitment to being an industry leader in sustainability and its mission to create clothing for positive change is driving new consumers to the brand. As we begin 2021, I believe prAna is uniquely positioned at the intersection of four growing consumer trends: rising participation in outdoor activities, conscious consumerism, sustainability, and growing demand for yoga and active apparel. This spring, prAna is continuing to strengthen its commitment to sustainability with the introduction of ReZion.

This next generation of the brand's best-selling Stretch Zion Fabric delivers the same elevated performance, refined style, and versatility of its predecessor with the sustainability benefits of recycled nylon and PFC-free durable water repellency. Mountain Hardwear net sales increased 7% in the fourth quarter, led by e-commerce growth. For the full year, Mountain Hardwear's DTC e-commerce business grew 31% and represented 25% of the brand's total net sales mix. The investments we've made in recent years in the Mountain Hardwear's reenergized product line and modernize messaging and look are clearly sparking consumer and retail interest.

Looking at the fall 2021 order book, strong growth at key wholesale accounts as well as meaningful new distribution demonstrates retailers are embracing the brand's direction. In 2021, the Mountain Hardwear team is focusing on driving U.S. wholesale growth and sustaining e-commerce momentum. Unlocking the brand's full potential in these two important domestic businesses is the first step to realizing the brand vision of becoming the most desired Mountain Sports brand in the world.

I'd now like to review our key areas of focus for 2021 and our financial outlook before opening up the call for questions. It's clear that pandemic has changed consumer shopping behavior, and we believe many of these shifts, including a greater consumer preference for online shopping, will remain intact long after COVID-19 is contained. All aspects of our business operations are being impacted, and our distribution channels around the world are evolving. This is creating both disruptions and opportunities.

As the consumer marketplace evolves, we are adapting our business model to capture demand and unlock our brands portfolio's full potential. As we plan 2021, there are a few key areas of focus I'd like to highlight. First, we're committed to creating products that inspire active consumers. We know that products are the foundation of our success.

For the Columbia brand, we know that when we provide consumers innovative products that keep them warm, dry, cool, and protected at an exceptional value, we win their loyalty and business. We achieved this with our differentiated technologies, many of which are developed in-house and exclusive to our brands. As the pandemics took hold, we did not back down our investments -- on our investment in product design and innovation, and I'm excited about the robust pipeline of innovative products that we have for many seasons to come. Looking to 2021, we're launching several new exciting innovations.

This spring, we're launching our newest and most advanced cooling technology to date, Omni-Freeze ZERO Ice. This touch-activated cooling fabric takes on the heat before you start sweating, while an improved sweat-activated pattern enhances moisture management and evaporative cooling. This fall, we're launching Omni-Heat Infinity. We expect this to be the largest innovation launch in our company's history and early retailer feedback and orders have been incredibly encouraging.

This new addition to our Omni-Heat family provides significant more heat reflection and dramatically different visual appearance to the consumer. With our product focus, footwear is a top priority across both the Columbia and SOREL brands. I've always said that footwear should be the company's largest category, and we've been investing to realize this potential. We have elevated our footwear design and merchandising capabilities, resulting in encouraging results across both Columbia and SOREL in recent years.

This momentum remains evident in our spring and fall 2021 order book. We're also committed to investing in demand creation to leverage our compelling brand portfolio and to connect with consumers. Given the confidence in our brand portfolio, we anticipate demand creation increasing as a percent of sales to 6% in 2021 compared to 5.7% in 2020 and 5.5% in 2019. This represents the highest level of demand creation investment as a percent of sales in our history as a public company.

Within our demand creation spending, we are prioritizing digital marketing and social media investments that amplify our brand messaging and create clear paths to purchase. In 2021, continuing to build digital expertise is a priority. Prior to the pandemic, we were already investing to enhance our digital capabilities with the X1 initiative. Our 2020 e-commerce growth has only increased our confidence that the investments we're making in digital capabilities are critical to driving sustainable and profitable long-term growth.

We are also recalibrating our DTC brick-and-mortar strategy to reflect the current retail environment. In 2020, we closed 13 underperforming stores in the U.S. and one in Europe. These were primarily full-priced branded stores.

In 2021, we plan to selectively resume opening stores where market conditions and favorable lease terms create an attractive return profile. We currently anticipate opening approximately eight stores in the U.S., primarily consisting of outlet stores. The number of stores may increase as we finalize ongoing lease negotiations and evaluate the best opportunities. We are also committed to investing in talent across the organization.

We recently announced Skip Potter is joining the company as our chief digital information officer. In this newly created role, Skip will be responsible for leading Columbia's global technology organization who will play a pivotal role in evolving our digital footprint, and omnichannel and supply chain capabilities across the enterprise. On a related note, we were thrilled to recently welcome John Culver to our board of directors. John has been instrumental in driving international growth at Starbucks for almost 20 years.

We are excited for him to bring that knowledge and expertise to our board of directors as we continue to focus on unlocking our international omnichannel growth opportunities. Mr. Culver also brings a deep understanding of the consumer and consumer trends, including digital transformation, which we hope to leverage during his service on the Board. Turning to 2021 financial outlook.

This commentary includes forward-looking statements, please see our CFO commentary for additional details and disclosures related to these statements. Our initial 2021 outlook contemplates 18% to 20% net sales growth to approximately $3 billion with growth across all four brands. This net sales outlook is based on spring and fall 2021 orders that indicate a return to growth in our wholesale business, with notable strength in the fall 2021 order book. Other items contemplated in this outlook included continued DTC e-commerce growth and a return to growth in DTC brick-and-mortar sales.

The recovery in brick-and-mortar sales factors in the benefit of lapping prior year store closures as well as gradual fundamental improvement over the course of the year. From a category perspective, we anticipate the year-over-year growth rate of footwear to be relatively similar to apparel in 2021. We're working to overcome challenges with our footwear manufacturing partners' capacity and capture as much of the anticipated demand as we can across both the SOREL and Columbia Footwear businesses. Gross margin is expected to expand approximately 110 basis points to 50%, and we expect SG&A to grow slower than net sales.

Combined, we expect operating margin to be in the range of 10.8% to 11.5% compared to the operating margin of 5.5% in 2020. This results in initial diluted earnings per share outlook of $3.75 to $4.05. We are forecasting approximately $240 million in free cash flow in 2021, and we are acutely focused on managing inventory levels and improving turns. Capital expenditures are expected to be between $60 million and $80 million.

Looking at the first half of the year, we believe high teens percent to low 20% year-over-year net sales growth in the first half of 2021 is achievable. Looking at the later timing of spring 2021 receipts and deliveries, we expect net sales growth to be heavily weighted into the second quarter. Industrywide constraints on ocean transportation, including vessel and container shortages are resulting in later selling season when compared to 2020. Our supply chain and logistics teams are working diligently to mitigate disruptions.

As I referenced earlier in the call, based on the strength of our balance sheet, and confidence in our long-term growth and earnings recovery, the board of directors has approved the company's quarterly dividend at its pre-pandemic level of $0.26 per share. We have also approved an incremental $400 million share repurchase authorization, which is in addition to the $82 million remainder under our existing share repurchase authorization. We have also reinstated our historical approach to capital allocation. In this framework, our top priority for cash is continuing to invest in our business to enable long-term profitable growth.

Our second priority is to return at least 40% of annual free cash flow to shareholders in the form of dividends and share repurchases with an aspiration to increase our dividend over time. Other uses of cash include opportunistic mergers and acquisitions. In summary, I'm confident in the strategy that we outlined today and encouraged by the fundamental recovery under way. We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities, to drive global brand awareness and sales growth through increased focused demand creation investments.

We'll 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. That concludes my prepared remarks. We welcome your questions for the hour. Operator, could you help us with that?

Questions & Answers:

Operator

[Operator instructions] Our first question here comes from Bob Drbul with Guggenheim Securities. Please proceed with your question.

Bob Drbul -- Guggenheim Securities -- Analyst

Hi, guys. Hi, Tim. Good evening.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Hey, Bob. Thanks.

Bob Drbul -- Guggenheim Securities -- Analyst

A couple of questions, actually. I think -- well, first of all, congratulations on a strong finish to the year and -- and on a very solid outlook for '21.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thanks.

Bob Drbul -- Guggenheim Securities -- Analyst

I guess I'd like to ask a couple of questions on '21 if I could just sort of unpack it a little bit. On -- so on the order books for, I don't know, fall and for the spring, where are you -- like how much of it is completed? And I think you got some pretty good visibility. It sounds like in the fall with the new technology. Can you just give us any numbers around that aspect of it? And I guess the second question I have related to the '21 outlook is just what's the e-commerce penetration that you contemplate? Or like is there a range for the full year? Just a little bit more color on some of the buckets would be pretty helpful to us.

Thanks.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Certainly. Well, as you know, spring's -- spring's order book for '21 is essentially in the bag. We -- we get orders and cancels every day on both seasons. But for all intents and purposes, spring is done in the books.

Fall, I would say, by March, we'll be over 90% done. Today, it's probably in the 80s, maybe higher than 80. So we have a high degree of confidence in the -- in what we're talking about today in terms of what '21 is going to look like. In addition, we talked about the launch of Omni-Heat Infinity, which is a dramatically improved transformational product for Omni-Heat, and we're very excited about the opportunity that's going to bring, and it gives us a lot of confidence in our view of '21, especially in the back half.

The e-com percentages that we're talking about really will depend on the length and transparent length and direction of closures, store closures around the world. And I think our best view today is that it will mirror last year's penetration in that range. And that could be increased, I suppose if we don't have openings as expected across the globe or contract a bit. But for all intents and purposes, I think consumers are getting very comfortable with buying online.

And I think our -- the penetration of that business will be about the same as it was in '20. Now that have been said, we just have to remind investors that the company does have a significant amount of business with wholesale partners who run e-com businesses, and those are growing nicely. So it may be that the combined wholesale digital and Columbia DTC digital businesses may -- may take a slightly larger portion for next year.

Bob Drbul -- Guggenheim Securities -- Analyst

Great. Thank you very much, Tim.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thanks, Bob.

Operator

Thank you. Our next question comes from Laurent Vasilescu with Exane BNP Paribas. Please proceed with your question.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Hello. Good afternoon. Thank you very much for taking my question, and congrats on the momentum. Jim, I'd love to ask about the 1H guidance.

I saw that you upped it up a little bit from last quarter, it was high teens to now this kind of 20% range. Is it fair to assume, as we think about 1Q, 2Q dynamics, maybe 1Q is probably in the mid-single-digit range or potentially higher?

Jim Swanson -- Executive Vice President and Chief Financial Officer

Well, I think the -- as we commented in the commentary that we provided, Laurent, you can dig in the details there. Given some of the delays that we're seeing in inventory receipts for the spring '21 season that may have some impact on the deliveries for our wholesale business as well as our direct-to-consumer business. We believe today that the growth that we've got projected for the first half is going to be very heavily weighted to the second quarter. So I think I'd factor that in, in terms of how you look at Q1 and Q2.

And then in terms of the improvement we've seen from our prior guidance we provided from high teens, and then we've shown a little bit of upside relative to that. I think that's just demonstrating the continued steady recovery that we've seen in the business, including our brick-and-mortar, albeit it's -- it's still got a ways to go. We're seeing nice trends with regard to the improvement in traffic and sales levels.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Very helpful. And then as a follow-up question, I appreciate that you give us -- you're giving us full-year guidance in a very uncertain environment. It looks like for 2H '21, the implied guide is up mid-teens. Yeah, I'm trying to reconcile the comment about just notable strength in the order book for fall 2021? And then secondly, how do we think about the gross margin evolution over the course of the year, high level?

Jim Swanson -- Executive Vice President and Chief Financial Officer

Well, as it relates to the second half, I don't think there's a noticeable difference between the growth rates that we would project for the second half and what we're saying for the first half. While the first half is high-teen to low 20% -- the vast majority of our business is more significantly weighted toward the second half. So I would expect that growth rate to remain at that level, and it would be consistent with Tim's comments with regard to how encouraged we are in the order book that's come through from our -- from our wholesale business. And then as it relates to gross margin, I don't want to get into parsing that by quarter at this stage.

We're pleased with the progress that the company has made with regard to how we're managing the margin. I think if you look at it relative to 2020, we're up 110 basis points projected, and we're up over 2019 as well. And so I think that's on the back of a lot of hard work that our product creation teams and whatnot have done. There's some favorable product costing in there and some benefits from more full price and some shifts in channel mix.

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

OK, very helpful. Congrats on the momentum.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Alex Perry with Bank of America. Please proceed with your question.

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

Hi. Thanks for taking my question. Congrats on a strong quarter. Just first, on the fourth quarter, do you think you're able to take market share during the quarter given lower competitor inventory versus your ability to service reorders? And is that something you're seeing here as we move into the first quarter as well?

Tim Boyle -- Chairman, President, and Chief Executive Officer

Yeah. I think we had a bit of improvement in our market share view against what we would consider typically our branded competitors. We did see a bit of slip against our customers' private label businesses. Because if you remember, they were not really able to cancel any of their own private label merchandise coming in, but they were able to reduce the brands that they had coming in.

So we felt like we had a great year, and we finished up strong and especially against our typical competitors. But there was a bit of movement, I guess, retailers' private label.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Yeah. And Alex, I'd just add, I mean our reorders trend throughout the fourth quarter was pretty solid all the way through. And I think that part and demonstration of the sell-through rates and just the cleanliness of the overall channel inventories.

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

That's really helpful. And then I just wanted to follow up on a few of the prior questions. And maybe, can you just help us parse out exactly what is driving the strength in the fall 2021 order book? And is that being helped by the Omni-Heat Infinity launch? Is there -- can you just help us think through what's driving the particular strength that you're seeing there?

Tim Boyle -- Chairman, President, and Chief Executive Officer

Certainly. Well, the -- the strong performance for the brand across the fourth quarter was certainly helpful because we took the bulk of our orders from the period, call it, 1st of December through today. So certainly, the performance at retail of the brands gave us a lot of strength. Again, Omni-Heat Infinity is a unique product, not available anywhere else from any other brand.

So we had the distinct points of differentiation that we talk about so much, specifically in that area. And then the great weather for outerwear and winter footwear, which has basically been present across the Northern Hemisphere for much of December and certainly almost all of January. So there's really clean inventories. The channel is very receptive to winter merchandise.

And that's, I think, was -- those things were strong indicators and improved our fall backlog.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Yeah. I would just add, it's very broad-based growth. When we look across each of -- each of the brands. I mean, certainly, Columbia leads the way given sheer size and whatnot.

But we're very encouraged, particularly in the emerging brand space, and the SOREL had a strong track record and has momentum, but also in the case of the growth that we anticipate from Mountain Hardwear and prAna and the order books we've taken from them. And then from a categorical standpoint, footwear has been a strong category for us, but the apparel growth rates will be every bit as much as or as strong as what we're anticipating from a footwear standpoint. So all in all, I'd say pretty broad-based growth across brands, categories, and regions for that matter.

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

That's really helpful. And can I just sneak a really quick follow-up here? Just on the category growth between footwear and apparel, I think traditionally, footwear has been a relative outperformer, but it sounds like this year, it's going to be pretty balanced. And I think you mentioned footwear manufacturing capacity constraints as being one of the limiting factors there. Should we think about that categories potentially? How much is that limiting the footwear growth in 2021? And would that be growing faster if it wasn't for some of the constraints you're seeing there?

Tim Boyle -- Chairman, President, and Chief Executive Officer

Yeah, we think we would have some faster growth. But really, this, we believe, is a fairly short-term constraint. We've got lots of great product in the pipeline. And really, this is a bit of a function of the impact of the pandemic on these very large factories that are making footwear for the company and for others.

So we believe it's a short-term impact. But over the long term, that we still believe that footwear should be the largest product category for the company.

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

Perfect. Really helpful. Thanks again, and good luck as you finish out the season here.

Tim Boyle -- Chairman, President, and Chief Executive Officer

OK. Thank you.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from Camilo Lyon with BTIG. Please proceed with your question.

Mackenzie Boydston -- BTIG -- Analyst

Great. Thanks for taking our question. This is Mackenzie Boydston on for Camilo. My first question is just about performance by geography.

Any detail you can provide, especially the really impressive growth in Canada given the lockdowns and then any detail in Europe as well, and how those geographies are performing into Q1. Thanks.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Yeah. I think as -- as it relates to the quarter, one thing you have to keep in mind, and Tim touched on it, there are some shifts regarding the delivery of our wholesale shipments out of the third quarter and into the fourth quarter. So when you look at Canada as an example, with the 36% or 37% growth, a lot of that was aided by some later shipments. And then e-commerce, I would say, across the board, geographically was a solid growth from that channel.

And then aside from that, I think that timing shift in addition to impacting Canada, I think the U.S. was the other geography that was the most impacted by that. Aside from that, I don't think there's any other significant call-outs that I would make with regard to regional changes.

Mackenzie Boydston -- BTIG -- Analyst

Great. Thanks. And then just a follow-up on the prior e-com question, I saw very strong this quarter, obviously, but did moderate slightly from last quarter. So just trying to understand, as your stores reopen, have you seen any digital sales flow at all? And how do you think about it heading into F '21, especially with the vaccine rollout and stores reopening, and consumer showing more comfortable shopping? Thanks.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Yeah. I think it's yet to be determined. I mean our -- the largest investments the company has made in '20 from a capital perspective were in our digital space. And so we've become much more adept at interacting with consumers digitally.

People obviously, feel more comfortable shopping digitally today. And I think they get a better experience as it relates to our products. We're able to much better explain them, and some of them are quite complicated. So our expectation is that over time, we're still going to have a very large digital business.

And the pace of our brick-and-mortar sales, as well as our sales to retailers who have primarily brick-and-mortar stores, is really going to be determined by how open they are, which means how broadly dispersed the vaccine distribution is.

Mackenzie Boydston -- BTIG -- Analyst

OK. Thank you. Best of luck in 2021.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from John Kernan with Cowen. Please proceed with your question.

John Kernan -- Cowen and Company -- Analyst

Hey, good afternoon, guys, and congrats on a nice end of the year. And certainly, the confidence you're showing in the outlook for 2021. Much appreciated. Maybe we could talk to the digital business within DTC.

I know that pre-COVID, whether it was Project CONNECT or the X1 initiative, you were making a lot of investments in digital and DTC in general. I'm just curious where we are in the evolution of the digital platform and where you think the long-term economics of the digital business can sit?

Tim Boyle -- Chairman, President, and Chief Executive Officer

Well, it's -- we still consider ourselves at our -- at our core to be a wholesale company. So our focus always is going to be on how our products show up at retail or in a set environment that our wholesale partners might provide. That having been said, our clearest view and our -- the brand's most important visibility to consumers is going to be on the digital space that we're able to craft ourselves. And so that's why we've made such heavy investments in digital space.

I would say that I would give ourselves perhaps maybe a B- in terms of what we can do with our digital communications with customers. And so there's lots of runway for us to get better. We'll continue to make investments in that area. And some of it's going to be content related.

Some of it's going to be performance across the social space and getting more integrated into the -- between the company's brand messages and the digital messages that are contained in our website and email messages. All those things really will give us a real additional leg up. It's going to be interesting with Skip Potter's experience to help us craft positive growing -- go-forward basis on that. And really how we look at the web investments.

We have basically industry average conversion rates, which means many millions of people come and visit our site and leave with a great marketing message. So I mean, there's lots of great things about the digital business, which are going to be really supportive of the brick-and-mortar business as well.

Jim Swanson -- Executive Vice President and Chief Financial Officer

And John, I mean, looking just strictly at the economics of it, the operating margins that we generate out of our e-commerce business even with the significant investments that we've made in the last couple of years are still highly accretive, much better than the overall corporate operating margin and know the arrival -- where we are from a wholesale margin standpoint. And so we'll continue investing where we believe there's strong returns to the business.

John Kernan -- Cowen and Company -- Analyst

That's helpful. Thanks. And just maybe one final question on PFG and SOREL, too, the growth year, smaller brands relative to Columbia. Any comments on PFG and the growth potential where you want to take this brand long term outdoor? It certainly seems like it has a lot of tailwinds along with fishing in general.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Yes. Well, PFG is really a Columbia brand. It's a sub-brand of the business. But fishing is the largest single category of participation in the United States.

And so an area where we have a significant lead on many competitors as it relates to innovative apparel, whether it's sun protection or just performance apparel for fishing. It's also that had very strong opportunity for lifestyle. And so there's lots and lots of runway on that product category. And it's extremely popular in the Southeast, those areas where the weather is conducive and we're -- we've had population growth in that area.

So very excited about it. We're just barely testing the surface of the opportunity in PFG footwear. If we could sell as many shoes as we sell fishing shirts, we would be a very big business. So that's the plan.

And as it relates to SOREL, the really encouraging thing about SOREL was the popularity of the sneaker category for them this year, which -- which really shows us the brand strength beyond winter footwear. So lots of good stuff going on.

John Kernan -- Cowen and Company -- Analyst

Got it. Thanks, guys, and -- and best of luck, again. And congrats on a strong -- strong finish of the year.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Thank you.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Thanks, John.

Operator

Thank you. Our final question comes from Paul Lejuez with Citigroup. Please proceed with your question.

Tracy Kogan -- Citi -- Analyst

Thank you. It's Tracy Kogan filling in for Paul. I had two questions. The first is, I think over the last couple of quarters, you've mentioned the lack of innovation by your competitors.

And I'm wondering what your view of -- of the competition or the competitive landscape is currently? And then secondly, I was just hoping you could get a little more detail on your inventory composition? And -- and how much of the reduction in inventory this quarter was due to the timing shift? And then on the aged inventory piece, which I think you said was up, I'm just wondering if that level improved versus last quarter. Thanks.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Yeah. So well, I prefer not to get specifics about our competitors' innovation. But I can tell you more about ours where -- and this is an area where we've invested very heavily, and we consider to be the key point of differentiation against others. So I mean it's quite common for commodity brands like GORE-TEX and other commodities that are used to produce apparel, especially performance apparel to be used.

We really have taken the approach that we want to have unique, ownable innovations, and that's where we've spent the bulk of our time. And so we have the Omni-Heat Infinity that we talked so much about on today's call as well as items to keep people cool when it's warm. And as we know, it's -- the climate is an important topic. That's why we think wearing apparel that can keep you cool can help us rely less on artificial air conditioning.

So Omni-Freeze ZERO Ice, which is a new product that we launched in spring. These kinds of commodities can allow us to be very significantly different. I'll ask Jim to talk -- to try and get to your inventory question.

Jim Swanson -- Executive Vice President and Chief Financial Officer

Yeah. I think as it relates to inventory and the down 8% year over year. So if you adjust for the later receipt of our spring inventory or later production of our spring inventory, we still would have been up. It would have been up low single-digit to mid-single-digit percent.

So I think there's still obviously plenty of room for us to improve our operating efficiency and our inventory turns. As it specifically relates to the position of our aged inventory versus last quarter. We've seen steady improvement. I don't have the exact figures, but steady improvement in terms of our aged inventory levels and remain comfortable with those, and we're repositioning our outlets in part in terms of that being a more meaningful vehicle for us to close out or to sell that inventory.

And then in addition, as we've talked about in the past, there's a fair amount of our inventory that carries over season to season as well. So we've pulled back on some of our spring '21 production this last year, knowing that we're carrying forward an over inventory from spring '20.

Tracy Kogan -- Citi -- Analyst

Great. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Tim Boyle -- Chairman, President, and Chief Executive Officer

Well, we thank you for listening in today. We're very excited about the potential for fall and spring 2021, we're well positioned, and we're anxious to see a rollout of the vaccine, getting us back to normal times, and look forward to talking to you about it at the end of Q1. Thank you.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Andrew Burns -- Director of Investor Relations

Tim Boyle -- Chairman, President, and Chief Executive Officer

Bob Drbul -- Guggenheim Securities -- Analyst

Laurent Vasilescu -- Exane BNP Paribas -- Analyst

Jim Swanson -- Executive Vice President and Chief Financial Officer

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

Mackenzie Boydston -- BTIG -- Analyst

John Kernan -- Cowen and Company -- Analyst

Tracy Kogan -- Citi -- Analyst

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