Greetings. Welcome to the Columbia Sportswear Fourth Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode.[Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Andrew Burns, you may begin.
Good afternoon, and thanks for joining us to discuss Columbia Sportswear Company's fourth quarter results. In addition to the earnings release, we furnished an 8-K containing a detailed CFO commentary and financial review presentation explaining our results. This document is also available on Investor Relations website investor.columbia.com.
With me today on the call are Chairman, President and Chief Executive Officer, Tim Boyle; Executive Vice President and Chief Financial Officer, Jim Swanson; and Executive Vice President, Chief Administrative Officer and General Counsel, Peter Bragdon.
This conference call will contain forward-looking statements regarding Columbia's expectations, anticipations or beliefs about the future. These statements are expressed in good faith and are believed to have a reasonable basis. However, each forward-looking statement is subject to many risks and uncertainties, and actual results may differ materially from what is projected. Many of these risks and uncertainties are described in Columbia's SEC filings. We caution that forward-looking statements are inherently less reliable than historical information. We do not undertake any duty to update any of the forward-looking statements after the date of this conference call to conform the forward-looking statements to actual results or any changes in our expectations.
I'd also like to point out that, during the call, we may reference certain non-GAAP financial measures, including constant currency net sales. For further information about non-GAAP financial measures and results, including a reconciliation of GAAP to non-GAAP measures and an explanation of management's rationale for referencing these non-GAAP measures, please refer to the supplemental financial information section and financial tables included in our earnings release and the appendix of our CFO commentary and financial review.
Following our prepared remarks, we will host a Q&A period during which we will limit each call to 2 questions so we can get to everyone by the end of the hour. Now I'll turn the call over to Tim.
Thanks, Andrew, and good afternoon. As we begin 2025, I'm encouraged by the continued momentum we see in our international business and the fact that we are returning to growth in North America. I'd like to thank our global workforce whose hard work and dedication allowed us to overcome challenges throughout the year. I'm proud of the many accomplishments our teams were able to achieve, including, exiting the year, our inventories were down 7%, and we are rapidly closing our temporary clearance locations. Inventories are healthy, supporting our outlook for gross margin expansion. Our profit improvement program delivered $90 million in cost savings, and we're actively pursuing additional ways to lower our cost structure. We also returned meaningful cash to shareholders with $318 million in share repurchases and around $70 million in dividends paid. We also maintained our fortress balance sheet, exiting the year with $815 million in cash and equivalents and no debt.
While we made progress in many areas, our 2024 financial performance was short of my personal growth and profitability goals. Overall, 2024 net sales decreased 3% to $3.4 billion, reflecting challenging marketplace conditions in North America. The net sales decline and ongoing cost pressures resulted in an operating margin contraction and a decline in earnings.
On the last call, we introduced the Columbia brand's ACCELERATE growth strategy. This strategy is intended to elevate the brand and attract younger and more active consumers while continuing to serve existing customers with accessible outdoor essentials. During 2024, we laid the foundation for the ACCELERATE growth strategy, including a refreshed marketing direction, enhanced consumer segmentation and a new product construct.
I'd like to provide some updates on the progress we're making. Our product teams are focused on creating products and driving growth with our targeted consumers who value innovation and style. For Fall '25, we're expanding our innovation-led offerings like our premium Titanium product line. We are also bringing new collections to market with elevated style, like the [ Amaze PUF ] insulated jacket and ROC Pant. We are expanding our Omni-MAX footwear collection, which delivers consumers lightweight, ultra-comfortable performance. The Columbia brand is fun, irreverent and authentic, and our refreshed marketing strategy will bring this to life. You will begin to see the new brand voice in our fall marketing campaigns.
To amplify our refreshed marketing, we are increasing our targeted demand creation spend to 6.5% of sales compared to 5.9% of sales in 2024. To activate the brand and product strategies, we will be elevating the brand storytelling and consumer experience across the marketplace. We're investing alongside our strategic retail partners to enhance in-store presentations.
In our direct-to-consumer business, we've already begun to evolve columbia.com to be the best expression of the brand. In brick-and-mortar, we're opening a small number of branded stores in high-traffic centers in North America. These new branded stores feature elevated product assortments that showcase Columbia's apparel and footwear innovations. These North American stores will join the hundreds of Columbia-branded stores that raise the image of the brand in important international markets. Taken together, we're thoughtfully evolving how the Columbia brand is perceived by consumers and how we show up in the marketplace. We're being thoughtful about how, when and where we utilize promotions across all channels and consumer segments. Overall, it's great to see the energy and alignment around the ACCELERATE growth strategy across the organization. I'm excited to bring it to life in the seasons ahead.
Our initial 2025 net sales outlook contemplates modest growth. In addition to Columbia brand growth, our outlook contemplates a return to growth for prAna and continued momentum at Mountain Hardwear. While we expect the SOREL business to remain down in the spring, efforts to reinvigorate the brand will be more evident in the fall.
Our initial 2025 operating margin outlook contemplates similar performance compared with 2024 with healthy inventories entering the year. We anticipate less clearance activity that will contribute to gross margin expansion. This is expected to be offset by SG&A deleverage resulting from demand creation investments and ongoing cost pressures.
When we announced the profit improvement program last year, we targeted $125 million to $150 million in annual cost savings by 2026. This program has meaningfully slowed SG&A spending growth, but it has not been enough to align our cost structure with current sales levels. With this in mind, we're expanding the review of our cost structure as we pursue additional savings and enhanced profitability. It is too early to quantify the financial impact of this review, and our outlook does not include additional cost savings or potential charges that may occur. We will update you on our efforts as our plans are formalized.
Turning to fourth quarter financial performance, we were able to overcome a slow start to the winter season with strong December performance resulting in fourth quarter results within our guidance range. Net sales increased 3% year-over-year to $1.1 billion, driven by a 7% increase in wholesale net sales and 1% direct-to-consumer growth. Gross margin expanded 50 basis points to 51.1%, driven primarily by lower closeout sales and improved margins compared to elevated clearance activity in the prior year. SG&A expenses increased 6%, primarily reflecting higher incentive compensation and DTC expenses. This performance resulted in operating income and diluted earnings per share within our guidance range.
Looking at net sales by geography, U.S. net sales decreased 1%. The U.S. wholesale business declined low single-digit percent, reflecting our lower Fall '24 order book and challenging outdoor category trends. Even though sell-through was down year-over-year, our retail partners are exiting the season with clean inventory levels. This is helping to fuel our positive order book for both spring and fall.
U.S. DTC net sales declined low single-digit percent with lower e-commerce sales partially offset by modest brick-and-mortar growth. U.S. e-commerce net sales were down mid-single-digit percent, reflecting challenging market conditions as well as lower planned promotional activity and a shift in digital marketing strategies on columbia.com. December trends significantly improved as colder weather arrived and we invested in marketing to spur demand.
Brick-and-mortar net sales were up low single-digit percent driven by the contribution from new stores and temporary clearance locations. With improved inventory health, we will be closing most of our [ class ] locations in the first half of the year. A small number will remain open as we assess their potential as permanent stores.
For our review of fourth quarter year-over-year net sales growth in international geographies, I will reference constant currency growth rates to illustrate underlying performance in each market. Latin America, Asia Pacific region, or LAAP, net sales increased 7%. China net sales increased mid-teens percent with healthy growth across wholesale and DTC. For the year, China grew over 20% in constant currency. The outdoor industry is experiencing a powerful growth trend in China, fueled by growing consumer interest in outdoor activities and outdoor brands. We are capitalizing on this trend by connecting with consumers through meaningful brand activations, localized product collections and a robust digital strategy.
E-commerce was China's fastest-growing channel in 2024. During the year, we expanded Columbia's TikTok platform, adding new stores for women and footwear. We had amazing brand activations during peak sales periods like Double 11 and participated in successful Super Brand Day events with both Tmall and TikTok.
Columbia's premium Transit product line designed specifically for Chinese consumers continues to perform incredibly well. To build on this momentum, we will further expand our localized product assortments in China this year.
Across our product offerings, marketing activations and marketplace strategies, we are working to create a more premium Columbia brand experience for Chinese consumers. We expect China to once again be our fastest-growing market in 2025.
Japan net sales increased mid-single digit percent with continued strength in international tourism. Despite high inflation and sluggish domestic spending, our team in Japan continues to deliver growth through compelling localized product offers, unique marketing activations and strong digital and in-store execution.
Korea net sales decreased mid-single-digit percent in the quarter. 2024 was a challenging year in Korea, including macroeconomic headwinds and political unrest. Despite these challenges, the team made meaningful progress resetting the marketplace and laying the foundation for future growth. In 2025, our team in Korea is focused on accelerating digital sales, revitalizing the DTC store fleet and optimizing marketing investments.
LAAP distributor markets were up low double-digit percent, primarily reflecting spring '25 quarter growth.
Europe, Middle East and Africa region, or EMEA, net sales increased 21%. Europe Direct net sales increased high-teens percent, led by robust DTC growth. Europe Direct was the top-performing market in 2024. The European team is doing an exceptional job expanding our DTC businesses and growing wholesale sales with key strategic retail partners. Our EMEA distributor business increased over 30%, primarily reflecting Spring '25 order growth.
Canada net sales were up modestly in the quarter. The Columbia brand remains well positioned in Canada, and we forecast constant currency growth for this geography in 2025.
Looking at fourth quarter performance by brand, Columbia net sales increased 6%. This fall, our top innovation stories were Omni-Heat Infinity, and our newest cold weather innovation, Omni-Heat Arctic. These differentiated innovations and technologies were prominently featured by numerous media outlets. Columbia products were named in over 20 best-of lists from top media outlets, including Esquire, Men's Journal, Travel & Leisure and Ski magazine. Product awards and reviews from trusted editors validate and bring awareness to the innovation and value we deliver to consumers.
Omni-Heat Infinity remains one of the fastest-growing parts of our business and our top marketing story globally. Omni-Heat Infinity will once again be featured on Intuitive Machines' next lunar lander named ATHENA. In addition to Infinity, the lander will utilize a second Columbia technology, Omni-Shade Sun Deflector. This patented material, which is part of our sun protection apparel line, uses titanium dioxide reflective dots to deflect sunlight and mitigate heat generation. The launch window for ATHENA begins later this month, so stay tuned for more details.
On the collaboration front, we turned to the dark side with our largest Star Wars collab to date, the Vader collection. This was the first Star Wars launch where Columbia Greater Rewards members got early access to the product. The consumer response was incredible, resulting in the highest demand hour we have ever had on columbia.com. Early access is just 1 of the unique benefits of our new, enhanced membership program.
Since the relaunch of Columbia Greater Rewards this past June, our active membership continues to grow. I'm especially encouraged by the engagement of our Titanium members who spend more than $300 annually. We will continue to expand our membership benefits and deepen our connections to this key customer base in 2025.
I'd like to congratulate 2 of Columbia's athlete ambassadors on their recent half-pipe skiing wins. This past Sunday, Alex Ferreira won gold in the Free Ski World Cup and Aspen, continuing the success of his unprecedented perfect season last year. Cassie Sharpe won the X Games gold metal in the SuperPipe event in a triumphant return from a 2-year break from competing following the birth of a daughter. Congratulations to Alex and Cassie.
Shifting to our emerging brands, Mountain Hardwear net sales increased 5% in the fourth quarter, led by e-commerce growth. Consumers responded well to Mountain Hardwear's fall assortment, including new snow sports offerings and an expanded Ghost Whisperer collection. In November, Mountain Hardwear released another highly sought-after collab with iconic streetwear brand, Stussy. The collection featured expedition-quality gear, including jackets, beanies, bibs and shawls. I'm confident in Mountain Hardwear's product line and the fresh brand positioning. To further elevate Mountain Hardwear in the marketplace and attract new consumers, we're investing in the brand. This includes demand-creation investments to supercharge its e-commerce business as well as partnering with outdoor retailers to elevate in-store presentations. I believe these investments will lay the foundation for growth acceleration in the years ahead. We expect Mountain Hardwear to continue to grow in 2025, including strong Fall '25 wholesale orders.
PrAna net sales decreased 2% in the quarter. In 2024, the prAna leadership team made amazing progress reinvigorating the brand. This will come to life in 2025 with exciting new product collections and creative brand activations. PrAna is also expanding its wholesale account base with new [ brand-ride ] specialty retail partners. We're very excited to get prAna's new product and marketing direction in front of consumers in the seasons ahead. PrAna is expected to return to growth in '25, including robust Fall '25 wholesale order growth.
SOREL net sales decreased 16%, driven by lower wholesale and DTC sales. During the quarter, SOREL created brand heat with its first collab with streetwear brand, Supreme. The limited-edition CARIBOU boot came in two-color ways, introducing SOREL's iconic style to Supreme's fashion-conscious consumer base. 2024 was a challenging year for SOREL, but the team made meaningful progress refining future-season product assortments and building strategies to reenergize brand marketing. 2025 is expected to be a year of stabilization with modest growth in the second half of the year. I remain confident SOREL has meaningful long-term growth potential.
I will now discuss our 2025 financial outlook. This outlook and commentary include forward-looking statements. Please see our CFO commentary and financial review presentations for additional details and disclosures related to these statements. This outlook and commentary does not include any potential impact on the company as a result of the recent U.S. administration change other than the direct costs of tariff actions announced on February 1, 2025. It also does not include any potential impact from actions we may undertake as we review our cost structure and look to expand the profit improvement plan.
For the full year, we expect net sales growth in the range of 1% to 3%. Based on current exchange rates, foreign currency is expected to be an approximate 140-basis-point headwind. This outlook also assumes most of our temporary clearance locations are closed in the first half of the year. Combined, the FX headwinds and temp store closures resulted nearly a 3-point headwind to reported sales growth.
Gross margin is expected to expand 80 basis points to approximately 51%. The improvement in gross margin is primarily driven by a healthier underlying inventory position and favorable input costs.
SG&A is expected to grow in 2025 driven by investments in demand creation, higher incentive compensation and DTC store growth. Based on these assumptions, we expect an operating margin of 7.7% to 8.3%, leading to diluted earnings per share in the range of $3.80 to $4.15. I'd note that this range includes a $0.30 negative impact to diluted earnings per share due to changes in foreign currency exchange rates.
In summary, I'm confident we have the right strategies in place to unlock the significant growth opportunities we see across the business. We are investing in our strategic priorities to accelerate profitable growth, create iconic products that are differentiated, functional and innovative, drive brand engagement with increased, focused demand creation investments, enhance consumer experiences by investing in capabilities to delight and retain consumers, amplify marketplace excellence that is digitally-led omnichannel and global, and empower talent that is driven by our core values.
That concludes my prepared remarks. We will welcome your questions for the remainder of the hour. Operator, can you help us with that?
[Operator Instructions] The first question comes from Bob Drbul with Guggenheim.
I was just wondering if you could expand some more. I think you said in your comments that your order book for spring and fall was both positive. I was just wondering if there's any difference between the 2 seasons. I wonder if there's any geography -- geographic commentary you can add. And then just if you could spend some time on -- more time on China, what you're seeing in China. Those numbers are pretty impressive. That would be helpful.
Well, as we said earlier, our order book for spring and for fall will be up. We're excited about that return to growth. I think the geographic component will be led by China and Europe. Those 2 markets will be our fastest-growing markets. And we're very excited about that. We're also excited about the return to growth in the U.S. But specifically China, really this applies to Europe as well, we've been quite clear that, in those markets, historically, we've underperformed. And again, this is a people business. We have great leadership running both businesses there. And so we've seen terrific results. China specifically, once we encouraged our teams in China to be more focused from a product standpoint on items that can be important in their markets, we've seen much better results.
Additionally, from a business standpoint, we have a leader there that's very focused on highly productive stores. In the past, we had relied more on a sort of dual-season approach. And the leadership there really is focused on monthly performance per store. And that's been a real improvement and allowed us to have real great success there.
Bob, this is Jim. I'd just add a couple of comments. One, as it relates to Spring '25, we shared in October that our order book for the Spring '25 season for our wholesale business globally supporting a mid-single-digit rate of growth doesn't meaningfully change in that order book since that time. And then for Fall '25, it is a bit lower of a rate of growth that we're anticipating. It's in the low single-digit percent terms. And we're well into our order-taking for the season with about 90% of those orders in, so good visibility to the order book at this stage.
Great. And then just one other question just on the demand creation commitment for '25, I think you said a lot of the newness is going to kick in in the fall. Will the spend be down in the first half and then magnified in the second half of the year? I'm just wondering if you can just talk about the plans there a little bit more.
I guess I would describe the first half spread to be more moderated. There's still a function of the push on sales, but it will be more moderated than fall. Fall, we tend to be quite aggressive, and that's where the bulk of the new material we see and the budgets will be bigger.
Yes, I think that's fair, Bob. We wouldn't expect it to be down in the first half, but certainly more amplified. When we get to the back half of the year, we're able to get certain of those ACCELERATE marketing investments in front of the consumer.
The next question comes from Jim Duffy with Stifel.
A couple of questions, first on the U.S. DTC business. I wanted to ask, is there a change in tactic on a year-to-year basis despite the increased number of stores, the U.S. DTC business in the fourth quarter up just a modest amount? And then you're also expecting growth next year despite closing some of the temporary stores. If you could reconcile that, that would be great.
Sure. Well, there's a bunch of things going on in DTC. I would say the primary delta would be the closure of these temporary locations that we established in order to help liquidate inventory more profitably than we otherwise would have been able to, reducing the value channel and et cetera. So we'll be closing a bunch of stores during this year.
Additionally, we've really focused on columbia.com as being the -- really showcase the brand and less promotionally driven than we had been in the past to give ourselves a more premium positioning in the marketplace. And then lastly, we are experimenting with opening a number of stores in gold-price, high-traffic malls, which will allow us to showcase the brand, fully blown-out ACCELERATE strategies, in especially footwear, where we can have a real opportunity to show consumers the products that we're putting together.
And then, Tim, I wanted to ask, on the marketing, are you seeing evidence of traction with the new marketing direction, bringing younger and active consumers to the brand?
I would say we're right on the cusp at the beginning of it. We've got digital presentations, which will begin appearing this spring, which I think will set a different tone, and we'll be excited to see how that works. But everything we've tested so far as it relates to fall is right on, and so we're excited that we're in the right position.
Okay. The next question comes from Laurent Vasilescu with BNP Paribas.
Jim and Tim, I was wondering. I wanted to ask about revenues, with regards to the first quarter, why revenues would be down to -- 1% to 3%. Is there a dynamic in place with regards to shift? Is there something that we should consider on -- by channel? And then when it comes to -- I think, to Jim's question about DTC, I think you mentioned in the prepared remarks that the closures will be about a 300-basis-point headwind for this year. And I think you're guiding for DTC to go up low single digits. So I think, underlying, it means DTC should grow about mid-single digits. Can you maybe parse that out a little bit? What's the anticipation? Is it e-commerce? Is it new stores? I'd love to get your take on the revenue front.
Yes, Laurent. Thanks for the question. And to start off with the first quarter, why you're seeing the projection in terms of the revenue being down to Q1, a few contributing factors to that, one, keep in mind, we're lapping a very cold winter in the January-February time frame of last year, in which we had amplified demand. And we're not anticipating a repeat of that here in Q1. We've updated our outlook for what we've seen through the month of January. That's an element of it.
There's also a component of which we had earlier shipments of Spring '24 wholesale orders a year ago in anticipation of our transition to PFAS [indiscernible] we're seeking to get those orders up to our wholesale customers sooner than they would ordinarily shift. So you're seeing some of that come into Q1 last year and this year being a more normalized trend.
And then finally, and as Tim's touched on, with columbia.com being the best representation of the brand and reducing some of the promotions, there's some continued pressure that we're anticipating, at least through the beginning part of this year, from that vantage point.
And then with regard to your second part of your question, I didn't get it all, but as it relates to the 3% headwind, if you will, that comment was specific to a combination of the temp store closures. About half of that is related to the ramp-down of those temp stores. And then the other half relates to the continued strength of the dollar and the impact on the rate of growth from a local currency standpoint. So we are anticipating, as Tim touched on, continued strength internationally, particularly in China and Europe, as a bit dampened just given the strength of the dollar relative to foreign currency.
Super helpful. I wanted to ask a second question here because you see the gross margins are expected to be up 80 bps for the year. Can you give us some color on how you're thinking gross margins should shake out between 1Q and 1H? And then on the SG&A front, I saw that you're stepping up demand creation to 6.5% of sales with the new marketing director, the new agency, Adam & Eve, but can you maybe unpack that pressure point on SG&A? Are there any other factors that we should consider on the SG&A front, whether it's incentive comp or any other factors to consider for FY '25?
Sure. As it relates to the gross margin in the front half of the year, I think as it relates to -- the second quarter is going to be a stronger quarter in terms of gross margin from an expansion standpoint. Otherwise, when you look at the full year, we've provided full year gross margin expansion of 80 basis points. The second quarter is going to be naturally a bit higher because the proportion of full-price revenue going into that quarter with the shifts in the wholesale business are naturally going to have a bit of an impact on that. And then conversely, Q1 will be -- won't be quite as strong as that full year guide.
As it relates to the SG&A, so aside from the marketing in terms of what's contributing to the deleverage when you look at SG&A year-on-year, you pointed out incentive comp. That continues to be among the pressure points that are in there. There are other strategic investments that we're making in the DTC business. Tim touched on part of it as it relates to the branded stores. I think what I would convey, and what Tim touched on, is we're not satisfied with seeing our SG&A continue to deleverage and be in the upper 43%, low 44% range. And that's why we're in the process of initiating a continued review and assessment of our SG&A and seeking ways in which we can streamline the business to drive greater cost efficiency. So that's not in our outlook currently but something that we'll be looking at over the coming weeks here and provide an update as we get deeper into the year.
Yes, sorry, Tim.
With the new marketing efforts, we're being very focused on measuring and testing these messages to make sure we've got the right approach to these consumers that we want to track, so we're looking forward to launching that stuff in the fall.
Next question comes from Jonathan Komp with Baird.
If I could just follow up on that last point, as you think about the ramp in the incremental marketing that you're planning, could you just maybe go a little bit further on what you're hoping to accomplish and some of the key metrics that you'll be looking to show from those efforts?
Certainly. Well, as a company, we've been highly democratic in terms of how we've approached our customer base, product orientation, et cetera. Even though we have among the most sophisticated products group keeping people warm, cool, dry and protected, we're often thought of as a higher-value line. And that value allows us to be producing large quantities of merchandise, which we can use then to leverage to build more expensive, more targeted products for younger and more, again, consumers that are more professionally oriented. So the approach will be to combine those new products and a marketing message which is going to be compelling to that consumer to give us an additional boost of sales and consideration. So where we believe we have the strongest opportunity to do that is in the fall, and that's where we're going to be focusing our time and effort.
And Jon, as it relates to KPIs, we don't get down into a lot of specifics around our DTC business. But where we certainly look for improvement is thinking about the conversion rate that we're achieving with our own online business. With the full funnel marketing approach that we've taken in shifting more of that marketing out and performance marketing into the mid-funnel and upper-funnel, we are seeing improvement in the traffic. But over time, we need to see that improvement in the conversion. And then the other piece, we launched a new membership loyalty program last year, which has had success. Tim touched on the Titanium level member. But it's really about member retention -- acquisition and retention as well.
That's really helpful. And then just one separate follow-up on the profit recovery that you're projecting, as we sort of step back and think you're well underway for your first profit improvement plan, you're talking about a normalized inventory environment. And yet the margin profile of the business is well below historical. So just how are you thinking about the long-term view of the opportunity to get back to much higher profitability levels?
Well, it's certainly why we're undertaking the work that we've described, because our expectation is to get our operating margins back to more appropriate levels. And certainly, the first milestone will be getting back to double-digit. But then longer term, our expectation is to be in the upper quartile relative to our peer group, which would put you into the teens percent. Now, we've not defined the time frame that that would take place. But certainly, there's some work that we collectively need to do in managing the cost base. To Tim's point, we need to grow. Part of the reason why you see some of that deleverage is we've had a few years here running now where that top line hasn't kept pace with inflationary pressure and other costs. And collectively, we need to shore that up. So that's what this year is about, is building that plan to ensure that we've got a scalable business that can drive margin leverage going forward.
Yes. This is the reason we really have [indiscernible] this very measured investment in marketing to get our products in front of consumers. We believe we have the right stuff, and we just need to be very conscious and specific about going to market. And we have to be very disciplined about our SG&A spend, which is something we know how to do and we will undertake.
Next is Mitch Kummetz with Seaport Research.
I want to start with the fourth quarter. Your sales were near the high end of your range, but the op margin, I think, fell a little bit below the midpoint. I'm just trying to understand that disconnect. Did you guys -- given the slow start to the quarter, Tim, did you guys end up maybe being a little bit more promotional than you were expecting? Or did you ramp up the demand creation a little bit more than you were expecting once the weather turned and the sell-throughs improved? Is there a reason for why the margins weren't better comp -- strong sales quarter?
Yes. Mitch, a couple of things related to that, from a gross margin standpoint and the way we would characterize promotions, we weren't any more promotional than we would have been a year ago. Having said that and as we touched on, October and November, they were softer months from an overall demand standpoint. Those are typically months in which you're doing more full-priced sales in advance of the promotional marketplace coming into the holiday season. And so business was soft during that time frame and really picked up, and we had healthy demand from Black Friday, Cyber Monday through the holiday sales period. You see a higher concentration of revenue done during that period where we were a little bit more promotional. So that did have some effect as you think about gross margin.
And then on the SG&A side of things, we haven't touched specifically on it, but you'll see some notes, I think, in the CFO commentary that we've provided with regard to some SG&A severance costs that we incurred in the quarter. I think it was mid-single-digit millions of dollars.
So if you take those 2 things, those are going to be the meaningful drivers impacting the operating margin.
And from a holistic standpoint, we're more or less in the range of the guidance that we provided. And of course, there's income tax valuation impact in there that also impacted earnings per share.
And then on the guide, I know Laurent asked about 1Q sales being a little bit light. And Jim, you kind of went through the factors there. I guess my follow-up to that is, on 2Q, the implied sales growth rate, I think, if my math is correct, like sales up 6% to 8%. And I know you talked about a more normal delivery schedule on the order book this year versus last year. And I'm wondering how much that's contributing to the strong 2Q sales growth? Or if there are other factors to consider there?
Yes. I think, if you look at the shift between Q1 and Q2, I think it's in the $20 million to $30 million range on the wholesale business. That's going to make up that difference when you get to that slightly higher rate of growth relative to the slight decline that we're anticipating in Q1. Setting that piece aside, Mitch, I don't think there's anything meaningfully different in how we're planning the business.
The next question comes from Paul Lejuez with Citigroup.
It's Tracy Kogan filling in for Paul. I have two questions. I was wondering if you were seeing any difference in your order trends from your partners in the U.S., depending on whether it's a department store, specialty store, et cetera. And then secondly, I was hoping you could break your CapEx down into stores, IT, DCs, whatever else might be in there. And then is $60 million to $80 million a good run rate to use beyond 2025?
I can talk a little bit about the customer base for all business, which we're still in a strong position with virtually all of our customers. Again, just as a reminder, we have a very established, mature business in North America. Basically, we're selling to every customer we want to sell to. We have great relationships with all of them. But we are finding that we're selling -- we have a much stronger order book with those customers that reflect this new customer type that we're approaching with our product line and with our marketing. So the growth in those customers has been quite dramatic and quite exciting.
And Tracy, as it relates to your question on capital expenditures and the range that we provided, if you look back over the last few years, we've been at around the $60 million CapEx range. And so look at it this year at $60 million to $80 million, I think that's a pretty fair estimate, barring us providing any other updates as we look forward. Breaking that down into a lot more detail, I'd be hesitant to do that. Having said that, I'd say that roughly 1/4 of our CapEx is your traditional maintenance-based capital. Some of the reason why our CapEx has come down over the years is because, if you look back over a longer horizon, you'd see it at the $80 million to $100 million range. We don't have any major ERP -- enterprise-level ERP projects going on at the moment. And as we've shifted more and more to the cloud, there's less absolute hard capital expenditures that we've made. So the most significant element that's in there relates to stores and expansion of stores. And we've got a modest plan this year. I think we've got about a dozen stores that are planned in North America that are a combination of the branded stores Tim touched on as well as a few outlets.
Up next is Alex Perry with Bank of America.
This is [ Lucas Sutton ] on for Alex Perry. The guidance assumes a stabilization in the SOREL business. Could you guys just give a little bit more color on what's driving that? I know you guys mentioned the Supreme collaboration, but any more color would be helpful.
Yes, we have -- I'm just actually fresh off a review of the upcoming seasons for SOREL, so I'm excited about what the opportunities are there. We've got a number of collaborations planned, some of which I can't really talk about, but those should drive meaningful progress. And we have an opportunity to go beyond winter footwear, specifically in the SOREL business, with that improved women's offering and a relatively brand-new men's offering, which is going to give us a lot of opportunity to show what we can do to typical customers who have been buying SOREL over the years. So I'm excited about the opportunities, frankly.
Yes. [ Lucas ], when you look at the 2-season business that we operate for the spring season in SOREL, we've got an order book that contemplated a decline. As we brought the new leadership team on and then they've worked on some updates to the strategy and to the product line, we do anticipate, based on the order book that we have today, that we should return to growth in the latter part of the year through that wholesale business as well as our plans in the direct-to-consumer area.
[Operator Instructions] The next question comes from Mauricio Serna with UBS.
First, I would like to hear more about the rationality of why the Fall order book is lighter than the Spring for 2025? And then I just wanted to clarify. Was there any pull-forward of demand in your Q4 results? And lastly, on free cash flow, you see the guidance, there's operating cash flow of at least $250 million. And that seems well below fiscal year '24 of a little bit of around $490 million. I just wanted to understand what's the rationality behind that, like if EBIT will likely be up this year?
Yes. So let me touch on those. And Tim, if you want to jump in with color? So as it relates to the Fall '25 order book being lower than the Spring season, these are 2 very distinctive different seasons, right? And we just came through Fall '24. And from a U.S. standpoint, sell-through was lighter. Tim touched on that. We're encouraged, despite that lower level of sell-through, the work that we've done from an accelerated perspective, that retailers are responding favorably to that. And we still anticipate modest growth in the fall season. So we look at that as a positive despite the fact that it is a lower rate of growth in comparison to what you're seeing for the Spring '25 season.
From a Q4 perspective, you were asking a question about pull-forwards. There's no pull-forward of revenue out of the first half of '25 into Q4 at all. It's all just the natural flow of our orders for the Fall '24 season. There was, however, I should mention -- as a result of supply chain disruptions impacting the Red Sea and Bangladesh, there were some sales that shifted out of Q3 and into Q4, and that was for the tune of $60 million. I think I touched on it in an earlier question.
And then finally, as it relates to operating cash flow and the lower projection that's there, essentially, looking at operating income, which is more or less flat, slightly up year-over-year. And then when you think about the working capital equation, over the course of the last 2 years, of course, we've been encouraged and pleased with the work we've done in reducing our inventory levels that have had amplified effect on how you think about the operating cash flow. As we get into this year, while we believe there's still continued opportunity to continue to drive inventory efficiency and working capital, it's certainly not at the level of magnitude that we would have achieved in each of the last couple of years. So that's the underlying rationale for what we see in that cash flow projection.
Yes, as regards to --
Yes, sorry, go ahead, go ahead.
I was going to talk a little bit about our fall order book. It's reflecting, as I said, adoption by our customers of the new category of consumers that we're approaching. And I guess I would emphasize that we've got products, including the [ Amaze PUF ], which is a very popular, at least based on our customers' adoption, down jacket for women as well as a product called the ROC Pant, which is a men's and women's bottoms collection, which has been incredibly well received. So those are the areas that -- where retailers are going to be trying our products and making sure that we've got the right connection to consumers.
And then as it relates to inventory, I think we all agree here at a company that we can operate the business with less inventory. So we really see a keen focus on this to run the business with less inventory. So you should expect that, over time, our cash flows will significantly improve.
Understood. And then just very lastly as a follow-up, in the guidance for gross margin, you talk about lower product costs. I just wanted to understand what was behind that. And you kind of mentioned also, looking at the year, you're going to see the highest gross margin expansion in Q2. So should we think about the other 3 quarters being relatively expanding at a similar rate, excluding Q2? Or how should we think about that?
On the lower product cost side of things, so we've gone out to our factories and worked with them in placing allocation, and that's nothing more than what we're seeing in terms of just input costs generally being a little bit lighter or lower this year relative to last month, particularly in the case of the Spring season. And that's more, I think, in the effect of material, raw material, that sort of thing, Mauricio, as opposed to any form of labor or duty aside from what we've touched on as it relates to China specifically.
And then as it relates to the gross margin, so that was touching on Q2, the margin is a little bit healthier just in light of the full-price sales proportion relative to total. If you look at the balance of the quarters during the year, I think they're at or around -- the 80 basis points of expansion is included in our outlook. Keep in mind Q2 is an exceptionally -- is our smallest quarter from a revenue standpoint. So even though the gross margin might be greater than, it just doesn't have the same effect on the full year.
Okay. We have no further questions in the queue. I would like to turn the floor back to management for any closing remarks.
Thank you, operator. I just want to thank everyone for listening in. We're very excited to be returning to growth in 2025, and we're looking forward to the ACCELERATE growth strategy coming to life in the seasons ahead. I look forward to talking to you next quarter.
This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
