COLUMBIA SPORTSWEAR CO (COLM) FY 2024 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Special Note Regarding Forward-Looking Statements", Item 1, Item 1A, and Item 8 of this Annual Report on Form 10-K. In addition, refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2023 for our discussion and analysis comparing financial condition and results of operations from 2023 to 2022.

OVERVIEW

As a global leader in designing, developing, marketing, and distributing outdoor, active and lifestyle products, our mission is to connect active people with their passions. We provide our products through our four brands: Columbia, SOREL, Mountain Hardwear, and prAna; and two major product categories: apparel, accessories and equipment products and footwear products. Apparel, accessories and equipment products are provided by our Columbia, Mountain Hardwear and prAna brands. Footwear products are provided by our Columbia and SOREL brands. We sell our products in more than 110 countries and operate in four geographic segments: U.S., LAAP, EMEA, and Canada.

ACCELERATE Growth Strategy

As part of our strategic priorities, in October 2024, we announced the Columbia brand ("Brand") ACCELERATE Growth Strategy. At its core, the ACCELERATE Growth Strategy is intended to elevate the Brand to target a younger and more active consumer. It is a multi-year initiative centered around several consumer-centric shifts to the Brand, product and marketplace strategies, as well as enhanced ways of working. We believe successful execution of the ACCELERATE Growth Strategy can elevate the Brand and drive profitable growth. Through the ACCELERATE Growth Strategy, we will focus on achieving the following objectives:

•steward existing consumer segments while focusing on bringing new younger and active consumers into the Brand;

•elevate consumers' perception of the Brand;

•create product based on a consumer-centric product construct;

•enhance the positioning of the Brand in the U.S. marketplace; and

•deliver integrated full-funnel marketing.

In addition, we are committed to investing in our strategic priorities with a renewed emphasis to:

•accelerate profitable growth;

•create iconic products that are differentiated, functional and innovative;

•drive brand engagement through increased, focused demand creation investments;

•enhance consumer experiences by investing in capabilities to delight and retain consumers;

•amplify marketplace excellence, with digitally-led, omni-channel, global distribution; and

•empower talent that is driven by our core values through a diverse and inclusive workplace.

Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative expense efficiency, and drive improved operating margin over the long-term.

Profit Improvement Program

Concurrent with the ACCELERATE Growth Strategy, we continue to make progress on our multi-year Profit Improvement Program to accelerate profitable growth and improve the efficiency of our operations. In 2024, we focused on four areas of cost reduction and realignment, including:

•operational cost savings;

•organizational cost savings;

•operating model improvements; and

•indirect, or non-inventory, spending.

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In 2024, our Profit Improvement Program delivered approximately $90 million in realized cost savings, net of approximately $3 million to $4 million of severance and other costs.

While this program has meaningfully slowed SG&A spending growth, it has not been enough to align our cost structure with current sales levels. With this in mind, we are expanding the review of our cost structure as we pursue additional savings and enhance profitability. As we expand the program, our objectives include exceeding our previously stated goal of achieving $125 to $150 million in annualized savings by 2026 and positioning the Company to achieve SG&A expense leverage and operating margin expansion in future years.

Business Environment and Trends

Heightened Geopolitical Risk | We sell our products in more than 110 countries and our ability to sell, import into and produce in certain markets may be impacted by ongoing geopolitical tensions. We believe these tensions will remain elevated, and will continue to manifest themselves in certain regions where we operate.

Changing U.S. Regulatory Environment | We are headquartered in the U.S. and are subject to the laws and regulations governing companies operating in the U.S. The recent U.S. presidential administration change may impact us in several respects, including in the areas of taxes and tariffs. With respect to tariffs, tariffs have long been built into apparel and footwear pricing and we attempt to minimize the impact felt by consumers through diversification of our source base and product engineering. To that end, we expect less than 3 percent of our finished products imported into the U.S. in 2025, by dollar value, will be manufactured in China. To the extent broad-based tariffs are imposed by the U.S. that impact a larger percentage of our source base, we may choose to raise prices to offset the increase in our cost of goods sold. Tariffs can also have an impact outside of expenses incurred by the Company or prices to consumers; they could impact the demand for our products as consumers weigh discretionary spending or even impact the availability of certain sourcing regions. Retaliatory measures may also increase and impact our ability to compete in other regions of the world.

Increasing U.S. Competitive Environment and Evolving U.S. Consumer Trends | We believe our competition in the historical U.S. outdoor and active apparel and footwear market has increased as many brands have shifted their strategies and new parties have entered the marketplace to capitalize on the emergence of casual and lifestyle trends. The versatility of casual and lifestyle products provides consumers the ability to use these products in a variety of settings, including outdoor activities. We believe the successful implementation of our strategic priorities, including the Columbia brand ACCELERATE Growth Strategy, will enable us to better compete in this evolved U.S. marketplace in the future.

Evolving North America Omni-channel Strategy | As part of the Columbia brand ACCELERATE Growth Strategy, we are approaching the North America marketplace with an omni-channel perspective and evaluating how, when, and where we utilize promotions across all channels to attract different consumer segments. We intend to retain our historical value-oriented consumers while attracting younger and more active consumers to the Columbia brand.

During 2024, we shifted our marketing strategies for the Columbia brand's U.S. DTC e-commerce business to become less promotional, in order for Columbia.com to represent the best expression of the Brand. In our DTC brick-and-mortar business, we are opening a small number of branded stores in high-traffic shopping malls in North America. These new branded stores feature elevated product assortments that showcase Columbia’s apparel and footwear innovations. These stores will join the hundreds of Columbia branded stores that raise the image of the Brand in important international markets. Within our U.S. wholesale business, we implemented pricing, promotional and segmentation strategies which are also intended to elevate the positioning of the Brand in the marketplace.

While we expand the Columbia brand's target consumer, we intend to continue serving our core consumer base that is focused primarily on value. To capture demand associated with value-oriented consumers, we have increasingly relied on our fleet of DTC brick-and-mortar outlet stores. We believe general economic uncertainty in the U.S. and Canada is particularly impactful to these value-oriented consumers.

Normalizing Inventory Levels in the U.S. | In 2024 we operated numerous temporary clearance locations in the U.S. to move through excess inventory in a way that provided stronger financial returns to the Company in comparison to wholesale closeout sales channel alternatives and that had a less disruptive impact in the marketplace. As we exited 2024, our inventories were down 7% for the year and we plan to rapidly close our temporary clearance locations now that our inventories are in a healthier position. We also believe wholesale partners are entering 2025 with cleaner inventory levels. We expect these changes in inventory in the market will support expansion of the Company's gross margin in 2025.

Changing International Consumer Trends | We believe consumers in many international markets have adjusted their shopping habits. In China, the outdoor apparel and footwear market has expanded, driven, in part, by governmental efforts to stimulate outdoor recreation. In Japan, the weakness of the Japanese Yen has contributed to an influx of international tourism which has benefited consumer demand, while

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domestic consumption has been soft due to inflationary pressures. Despite economic and geopolitical challenges in many other international markets, the outdoor apparel and footwear industry has been resilient and demand for our products has been healthy. We expect most of our international businesses to continue to grow in 2025, despite currency pressures.

Supply Chain Disruptions | Continuing Red Sea disruptions resulted in longer inbound transit times for Fall 2024 inventory. With pressure on key trade lanes, we expect inbound transit times to be elevated until the resolution of this conflict, which should result in reduced transit times and more favorable transit pricing.

Seasonality | Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis, and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. In 2024, over 60% of our net sales and over 90% of our operating income were realized in the second half of the year.

RESULTS OF OPERATIONS

The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with Part II, Item 8 of this Annual Report on Form 10-K.

Non-GAAP Financial Measure

To supplement financial information reported in accordance with accounting principles generally accepted in the U.S. ("GAAP"), we disclose constant-currency net sales information, which is a non-GAAP financial measure, to provide a framework to assess how the business performed excluding the effects of changes in foreign currency exchange rates against the U.S. dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period into U.S. dollars at the exchange rates that were in effect during the comparable period of the prior year. Management believes that this non-GAAP financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may find the non-GAAP measure useful by reviewing our net sales results without the volatility in foreign currency exchange rates. This non-GAAP financial measure also facilitates management's internal comparisons to our historical net sales results and comparisons to competitors' net sales results. Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP.

The following discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP below.

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Results of Operations — Consolidated

The following table presents the items in our Consolidated Statements of Operations, both in dollars and as a percentage of net sales:

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Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Net Sales. Net sales by brand, product category and channel are summarized in the following table:

(1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information.

Our global net sales decrease primarily reflected lower wholesale net sales in the U.S. and Canada, partially offset by strength in international markets, as compared to 2023. The declines in wholesale net sales were driven by lower Spring and Fall 2024 orders, resulting from retailer cautiousness, including the transition of products to non-PFAS chemistry and a change in promotional practices, and a difficult competitive environment throughout the year, primarily in the U.S and Canada. Internationally, our net sales growth was broad-based across many markets within our LAAP and EMEA regions. We believe international net sales growth was attributable to the execution of our business strategies, as well as to the benefit of certain trends and/or factors favorably impacting the outdoor apparel and footwear sector.

DTC net sales increased, reflecting growth in our brick-and-mortar business from temporary clearance locations and new stores, partially offset by declines in our e-commerce business, compared to 2023. The declines in e-commerce net sales have resulted from softness in the U.S. and Canada throughout the year, which we attribute to a challenging environment and increased competition within the outdoor lifestyle category, and our decision to de-emphasize promotions on Columbia.com as part of the Brand's ACCELERATE Growth Strategy.

Gross Profit. Gross profit is summarized in the following table:

Gross margin expanded primarily due to the following factors:

•favorable inbound freight costs; and

•favorable region and channel net sales mix; partially offset by

•unfavorable decrease in channel profitability reflecting higher clearance and promotional activity.

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Selling, General and Administrative Expenses ("SG&A"). SG&A expenses are summarized in the following table:

SG&A expenses increased primarily due to the following factors:

•higher omni-channel expenses of $40.5 million, reflecting higher DTC brick-and-mortar expenses, including costs associated with new stores and temporary clearance locations and personnel expenses;

•higher incentive compensation, reflecting higher performance against target as compared to 2023; partially offset by

•lower supply chain expenses of $28.7 million, reflecting decreased global distribution center expenses resulting from more normalized inventory levels and supply chain optimization efforts; and

•lower demand creation expenses, primarily reflecting decreased net sales.

Impairment of Goodwill. For the year ended December 31, 2024, there were no impairment charges recorded for goodwill. For the year ended December 31, 2023, we recognized $25.0 million of impairment charges related to goodwill attributable to the prAna reporting unit resulting from our annual fourth quarter impairment testing.

Refer to our Critical Accounting Estimates below for further information regarding impairments.

Interest Income, Net. Interest income, net is summarized in the following table:

Interest income, net, increased primarily reflecting higher yields on increased levels of cash, cash equivalents and short-term investments.

Income Tax Expense. Income tax expense and the related effective income tax rate are summarized in the following table:

Income tax expense increased to $74.9 million for the year ended December 31, 2024 from $74.8 million for 2023. Our effective tax rate was 25.1% for the year ended December 31, 2024 compared to 22.9% for 2023. For the year ended December 31, 2024, our effective tax rate included a non-recurring expense related to a valuation allowance. For the year ended December 31, 2023, our effective income tax rate included a non-recurring benefit related to a foreign currency loss resulting from an intercompany transaction and a non-recurring foreign tax benefit.

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Results of Operations — Segment

Segment operating income includes net sales, cost of sales, segment SG&A expenses, and other segment items for each of our four reportable segments. For each reportable segment, other segment items include certain corporate expenses and net licensing income allocated to each of the reportable segments, as well as net licensing income directly attributable to each of the reportable segments. Refer to Note 16 in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Net sales by reportable segment are summarized in the following table:

(1) Constant-currency net sales is a non-GAAP financial measure. See "Non-GAAP Financial Measure" above for further information.

Segment operating income for each reportable segment and unallocated corporate expenses are summarized in the following table:

U.S.

U.S. segment operating income decreased $59.0 million to $356.7 million, or 17.2% of net sales, in 2024 from $415.7 million, or 18.5% of net sales, in 2023. The decrease was driven primarily by decreased net sales and gross profit, partially offset by lower segment SG&A expenses and other segment items. U.S. net sales decreased $173.2 million, or 8%, in 2024, compared to 2023, driven primarily by decreased net sales in our U.S. wholesale business. The declines in wholesale net sales were driven by lower Spring and Fall 2024 orders, resulting from retailer cautiousness, including the transition of products to non-PFAS chemistry and a change in promotional practices, and a difficult competitive environment throughout the year. DTC net sales also decreased driven by lower e-commerce net sales, partially offset by net sales growth from our brick-and-mortar business. The declines in e-commerce net sales were attributable to a challenging e-commerce environment for outdoor brands, increased competition within the outdoor lifestyle category, and our decision to de-emphasize promotions on Columbia.com as part of the Brand's ACCELERATE Growth Strategy. The increases in brick-and-mortar net sales were primarily driven by temporary clearance locations and new stores for the year ended December 31, 2024. U.S. segment SG&A expenses and other segment items increased as a percentage of net sales to 31.9% in 2024 compared to 30.1% in 2023, primarily driven by fixed SG&A expenses and decreased net sales. In total, U.S. segment SG&A expenses and other segment items decreased for the year ended December 31, 2024 compared to 2023, primarily driven by lower supply chain expenses resulting from more normalized inventory levels and our Profit Improvement Program, including supply chain optimization efforts.

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LAAP

LAAP segment operating income increased $15.2 million to $77.0 million, or 13.7% of net sales, in 2024 from $61.8 million, or 11.9% of net sales, in 2023. The increase was driven primarily by increased net sales and gross profit. LAAP net sales increased $41.0 million, or 8% (11% constant-currency), in 2024, compared to 2023. Increased LAAP net sales were primarily driven by our China, LAAP distributor, and, to a lesser extent, our Japan businesses, partially offset by declines in our Korea business. Increased net sales in our China business reflected continued strong consumer demand, aided by positive outdoor category trends. Increased net sales in our LAAP distributor business reflected growth in our Fall 2024 and Spring 2025 orders as compared to the same period in the prior year. Increased net sales in our Japan business were driven by strong demand from increased international tourism, which was largely offset by unfavorable foreign currency translation compared to the same period in the prior year. Decreased net sales in our Korea business reflected a continued challenging environment and increased competition within the outdoor lifestyle category. LAAP segment SG&A expenses and other segment items decreased as a percentage of net sales to 42.1% in 2024, compared to 44.4% in 2023, primarily driven by increased net sales. In total, LAAP segment SG&A expenses and other segment items increased for the year ended December 31, 2024 compared to 2023.

EMEA

EMEA segment operating income increased $4.5 million to $103.5 million, or 20.2% of net sales, in 2024 from $98.9 million, or 21.1% of net sales, in 2023. The increase was driven primarily by increased net sales and gross profit. EMEA net sales increased $42.5 million, or 9% (8% constant-currency), in 2024, compared to 2023, primarily driven by our Europe-direct business. Increased net sales in our Europe-direct business were driven by robust demand within our DTC brick-and-mortar and e-commerce businesses for the year ended December 31, 2024. Our Europe-direct wholesale business realized a modest increase in net sales reflecting retailer cautiousness. Increased net sales in our EMEA distributor business reflected growth in our Fall 2024 and Spring 2025 orders as compared to the same period in 2023. EMEA segment SG&A expenses and other segment items increased in total and as a percentage of net sales to 28.1% in 2024 compared to 26.8% in 2023.

Canada

Canada segment operating income decreased $7.8 million to $47.8 million, or 21.0% of net sales, in 2024 from $55.6 million, or 21.7% of net sales, in 2023. This decrease was primarily driven by lower net sales and gross profit. Canada net sales decreased $28.9 million, or 11% (10% constant-currency), in 2024, compared to 2023, driven primarily by decreased net sales in our Canada wholesale business. Decreased net sales in our wholesale business primarily reflected lower Spring and Fall 2024 orders, resulting from retailer cautiousness and a difficult competitive environment throughout the year. DTC net sales decreased, driven by lower net sales in our Canada e-commerce business, partially offset by an increase in our Canada brick-and-mortar business. Canada segment SG&A expenses and other segment items increased as a percentage of net sales to 29.1% in 2024 compared to 25.9% in 2023, primarily as a result of fixed expenses and decreased net sales. In total, Canada segment SG&A expenses and other segment items were flat for the year ended December 31, 2024 compared to 2023.

Unallocated Corporate Expenses

Unallocated corporate expenses decreased by $7.5 million to $314.3 million in 2024 from $321.8 million in 2023.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity include cash, cash equivalents, short-term investments, and available committed credit lines. Our liquidity may be affected by the general seasonal trends common to the industry. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. Our cash and cash equivalents and short-term investments balances generally are at their lowest level just prior to the start of the U.S. holiday season and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales. This trough cash position is impacted by the amount of product we order from our contract manufacturers in anticipation of customer demand and is more heavily impacted in advance of periods of expected high demand.

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Cash Flow Activities

Cash flows are summarized in the following table:

The change in cash flows provided by operating activities was driven by a $86.1 million decrease in cash provided by changes in assets and liabilities, as well as a $59.2 million decrease in cash provided by net income and non-cash adjustments. The most significant comparative changes in assets and liabilities included Inventories, Accounts receivable and Accounts payable. The $244.7 million decrease in cash provided by Inventories was primarily driven by inventory liquidation efforts throughout 2023 and 2024. The $135.6 million decrease in cash provided by Accounts receivable reflected cash provided of $123.8 million for the year ended December 31, 2023, primarily driven by a higher portion of fourth quarter wholesale sales collected in 2023 compared to the same period in 2022, as well as cash used of $11.8 million for the year ended December 31, 2024, primarily driven by a lower portion of fourth quarter wholesale sales collected in 2024 as compared to the same period in 2023. These amounts were partially offset by the $241.0 million decrease in cash used in Accounts payable, reflecting cash used of $85.9 million for the year ended December 31, 2023, primarily resulting from the earlier production of and payment for Spring 2024 and Fall 2024 inventory, as well as cash provided of $155.0 million for the year ended December 31, 2024, primarily resulting from the timing of inventory receipts and related payments, including a reduction in the use of early payments and extension of payment terms with certain vendors.

Net cash provided by investing activities was $87.3 million for 2024, compared to $461.8 million of cash used in investing activities for 2023. For 2024, net cash provided by investing activities consisted of $816.2 million in cash provided by sales and maturities of short-term investments, partially offset by $669.1 million in cash used for purchases of short-term investments and $59.8 million for capital expenditures. For 2023, net cash used in investing activities consisted of $528.5 million in cash used for purchases of short-term investments and $54.6 million for capital expenditures, partially offset by $121.3 million in cash provided by sales and maturities of short-term investments.

Net cash used in financing activities was $386.2 million for 2024 compared to $254.8 million for 2023. For 2024, net cash used in financing activities primarily consisted of repurchases of common stock of $317.8 million and dividend payments to our shareholders of $69.7 million. For 2023, net cash used in financing activities primarily consisted of repurchases of common stock of $184.0 million and dividend payments to our shareholders of $73.4 million.

Sources of Liquidity

Cash and cash equivalents and short-term investments

As of December 31, 2024, we had cash and cash equivalents of $531.9 million and short-term investments of $283.6 million, compared to $350.3 million and $414.2 million, respectively, as of December 31, 2023.

Domestic Credit Facility

As of December 31, 2024, we had available an unsecured, committed revolving credit facility, which provides for borrowings up to $500.0 million. We were in compliance with all associated covenants and there was no balance outstanding under the facility. Refer to Note 6 in Part II, Item 8 of this Annual Report on Form 10-K for further information regarding our domestic credit facility.

International Credit Facility

As of December 31, 2024, our European subsidiary had available an unsecured, committed line of credit, which is guaranteed by the Company and provides for borrowings up to €4.4 million (approximately US$4.6 million). There was no balance outstanding under the facility.

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Other Sources

As of December 31, 2024, collectively, our international subsidiaries had unsecured, uncommitted lines of credit, credit facilities and overdraft facilities, providing for borrowings up to approximately US$101.8 million. There were no balances outstanding under these facilities.

Capital Requirements

Our expected short-term and long-term cash needs are primarily for working capital and capital expenditures. We expect to meet these short-term and long-term cash needs primarily with cash flows from operations and, if needed, borrowings from our existing credit facilities.

Our working capital management goals include maintaining an optimal level of inventory necessary to deliver goods on time to our customers and to satisfy end consumer demand, alleviating manufacturing capacity constraints, and driving efficiencies to minimize the cycle time from the purchase of inventory from our suppliers to the collection of accounts receivable balances from our customers. Inventory balances may be elevated in advance of periods of expected high demand. As of December 31, 2024, our inventory balance decreased to $690.5 million, compared to $746.3 million as of December 31, 2023, driven by a reduction in current season and carryover inventory resulting from lower inventory buys, as well as the use of our outlet stores and temporary clearance locations to profitably sell excess merchandise. We believe older season inventories represent a manageable portion of our total inventory mix.

We have planned 2025 capital expenditures of approximately $60 to $80 million. This includes investments in our DTC operations, including new stores and supply chain and digital capabilities to support our strategic priorities. Our actual capital expenditures may differ from the planned amounts depending on factors such as the timing of system implementations and new store openings and related construction.

Our long-term goal is to maintain a strong balance sheet and a disciplined approach to capital allocation. Dependent upon our financial position, market conditions and our strategic priorities, our capital allocation approach includes:

•investing in organic growth opportunities to drive long-term profitable growth;

•returning at least 40% of free cash flow to shareholders through dividends and share repurchases; and

•considering opportunistic mergers and acquisitions.

Free cash flow is a non-GAAP financial measure. Free cash flow is calculated by reducing net cash flow from operating activities by capital expenditures. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders and acquisitions after making the capital investments required to support ongoing business operations and long-term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures since it excludes certain mandatory expenditures. Management uses free cash flow as a measure to assess both business performance and overall liquidity.

Other cash commitments

The following table presents our estimated significant contractual commitments that will require use of funds:

(1) Refer to Operating Leases in Note 8 in Part II, Item 8 of this Annual Report on Form 10-K.

CRITICAL ACCOUNTING ESTIMATES

Management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make various estimates and judgments that affect reported amounts of assets, liabilities, sales, cost of sales, and expenses and related disclosure of contingent assets and liabilities. Refer to Note 2 in Part II, Item 8 of this Annual Report on Form 10-K for additional information regarding the significant accounting policies and methods used in the preparation of our consolidated financial statements.

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We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results may differ from the estimates we use in applying these critical accounting policies and estimates. We base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances. Our critical accounting policies and estimates relate to sales reserves, excess, close-out and slow-moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes.

Management regularly discusses with our Audit Committee each of our critical accounting estimates, the development and selection of these accounting estimates, and the disclosure about each estimate in this Annual Report on Form 10-K. These discussions typically occur at our quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation.

Sales Reserves

The amount of consideration we receive and recognize as Net sales across both wholesale and DTC channels varies with changes in sales returns and other accommodations and incentives we offer to our customers. When we give our customers the right to return products or provide other accommodations such as chargebacks and markdowns, we estimate the expected sales returns and miscellaneous claims from customers and record sales reserves to reduce Net sales. As of December 31, 2024, our sales-related reserves were $96.9 million compared to $103.9 million as of December 31, 2023. The most significant variable affecting these reserve balances is sales levels. As a percentage of Net sales, the sales reserves balances were 2.9% as of December 31, 2024 compared to 3.0% as of December 31, 2023. The reserve for returns from customers or consumers is the component of our sales-related reserves most susceptible to estimation uncertainty. These estimates are based on 1) historical rates of product returns and claims; and 2) events and circumstances that indicate changes to such historical rates are warranted, such as our customers' inventory positions and their anticipated sell-through rates. However, actual returns and claims in any future period are inherently uncertain and thus may differ from our estimates. As a result, we adjust our estimates of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the amount of consideration becomes fixed. If actual or expected future returns and claims are significantly different than the sales reserves established, we record an adjustment to Net sales in the period in which such determination was made.

Excess, Close-Out and Slow-Moving Inventory

We make ongoing estimates of potential excess, close-out or slow-moving inventory. We evaluate our inventory on hand to identify excess, close-out or slow-moving inventory by contemplating our purchasing plans, sales forecasts, historical liquidation experience, and the level and composition of inventory from current and prior seasons that remains unsold and establish provisions as necessary to properly reflect inventory value at the lower of cost or net realizable value. Provisions are established when necessary in the period in which we make such a determination. As of December 31, 2024, our inventory provisions reduced gross inventory by $20.4 million compared to $23.3 million as of December 31, 2023. The level of estimated excess inventory as of December 31, 2024 decreased, reflecting the use of our outlet stores and temporary clearance locations to profitably sell excess merchandise.

Long-Lived Assets

Long-lived assets, which include property, plant and equipment, lease right-of-use ("ROU") assets, and capitalized implementation costs for cloud computing arrangements are evaluated for impairment only when events or circumstances indicate the carrying value may not be recoverable. Our retail store fleet long‐lived assets are generally evaluated at the retail location level. Events that result in an impairment review of a retail location include plans to close a retail location or a significant decrease in the operating results of the retail location. When such an indicator occurs, we evaluate the retail location long‐lived asset or asset group for impairment by comparing the undiscounted future cash flows expected to be generated by the location to the location long‐lived asset group’s carrying amount. If the carrying value of an asset or asset group exceeds the estimated undiscounted future cash flows, an analysis is performed to estimate the fair value of the asset or asset group. An impairment is recorded if the fair value of the asset or asset group is less than the carrying amount.

During 2024, we tested certain long-lived assets consisting of property, plant, and equipment and lease ROU assets for impairment at certain underperforming retail locations. For the years ended December 31, 2024 and 2023, impairment charges from underperforming retail stores were not material. Further declines in projected future performance may adversely affect the recovery of retail location assets.

Indefinite-Lived Intangible Assets and Goodwill

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We review and test our intangible assets with indefinite lives and goodwill for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that it is more likely than not that the fair value of the asset or reporting unit is less than its carrying amount. Our intangible assets with indefinite lives consist of trademarks and trade names (collectively, "trademarks"). Substantially all of our goodwill is recorded in the U.S. segment and impairment testing for goodwill is performed at the reporting unit level. Key assumptions used in the discounted cash flow models are cash flow projections and the discount rate. Cash flow projections are developed in part from our annual planning process. The discount rate is based on the estimated weighted-average costs of capital of the reporting unit from a market-participant perspective. When we include market-based valuation methods to estimate fair value of our reporting units as part of the goodwill impairment testing, we utilize market multiples for guideline public companies.

In the impairment tests for trademarks, we compare the estimated fair value of each asset to its carrying amount. The fair values of trademarks are estimated using a relief from royalty method under the income approach. If the carrying amount of a trademark exceeds its estimated fair value, we calculate impairment as the excess of carrying amount over the estimate of fair value. At December 31, 2024, the carrying value of indefinite-lived intangible assets was $79.2 million, of which $51.8 million was attributed to prAna's trademark. In our 2024 impairment test, the fair value of prAna's trademark exceeded its carrying value by approximately 33% as of the measurement date and, therefore, no impairment was recognized. As part of our evaluation, we performed a sensitivity analysis on the trademark impairment model. A 300 basis point decline in the compound annual growth rate for net sales assumed over the first eight years would reduce the excess of fair value over the carrying amount to approximately 12%. Separately, a 100 basis point increase in the assumed discount rate would reduce the excess of the fair value over the carrying value to approximately 22%. A separate 50 basis point decline in the assumed royalty rate would reduce the excess of fair value over the carrying amount to approximately 21%. In our 2023 impairment test, we determined that the prAna brand's trademark was not impaired. In our 2022 impairment test, we determined that the prAna brand's trademark was impaired and we recognized a $18.7 million impairment charge for the year ended December 31, 2022.

In the impairment test for goodwill, we compare the estimated fair value of the reporting unit with the carrying amount of that reporting unit. If the carrying amount of the reporting unit exceeds its estimated fair value, we calculate an impairment as the excess of carrying amount over the estimate of fair value. We estimate the fair value of our reporting units using a combination of discounted cash flow analysis and market-based valuation methods, as appropriate. At December 31, 2024, the carrying value of goodwill was $26.7 million, of which $12.3 million was attributed to the prAna reporting unit. In our 2024 impairment test, the fair value of the prAna reporting unit exceeded its carrying value by approximately 23% as of the measurement date and, therefore, no impairment was recognized. As part of our evaluation, we performed a sensitivity analysis on the goodwill impairment model. A 300 basis point decline in the compound annual growth rate for net sales assumed over the first eight years would reduce the excess of fair value over the carrying amount to approximately 8%. Separately, a 100 basis point increase in the assumed discount rate would reduce the excess of the fair value over the carrying value to approximately 15%. In our 2023 and 2022 impairment tests, we determined that prAna goodwill was impaired and we recognized a $25.0 million and $16.9 million impairment charge for the years ended December 31, 2023 and December 31, 2022, respectively.

Our impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected net sales, income, cash flows, discount rates, market-based multiples, and other operating performance measures. Changes in estimates or the application of alternative assumptions could produce significantly different results. These assumptions and estimates may change in the future due to changes in economic conditions, changes in our ability to meet sales and profitability objectives or changes in our business operations or strategic direction.

Income Taxes

We make assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets and liabilities and our uncertain tax positions. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for Income tax expense in our Consolidated Statements of Operations.

Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could cause our current assumptions, judgments and estimates of recoverable net deferred tax assets to be inaccurate. Changes in any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, which could materially affect our financial position, results of operations or cash flows.

Our assumptions, judgement and estimates relative to uncertain tax positions take into account whether a tax position is more likely than not to be sustained upon examination by the relevant taxing authority based on the technical merits of the position and the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. Changes in tax law or our

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interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for Income tax expense in our Consolidated Statements of Operations.

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. As the calendar year progresses, we periodically refine our estimate based on actual events and earnings by jurisdiction. This ongoing estimation process can result in changes to our expected effective tax rate for the full calendar year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that our year-to-date provision equals our expected annual effective tax rate.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 in Part II, Item 8 of this Annual Report on Form 10-K.