Q2 2020 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
After the speaker's remarks, there will be a question and answer session. If he would like to ask a question during that time. Please press Star then one on your telephone keypad. If he would like to withdraw your question. Please press the pound Keith. Thank you I would now like to turn the call over to Patrick Burke Senior Director Investor Relations you May begin your conference.
Thank you and good morning, everyone with me are Danny Rees, President and CEO , and Jonathan Sinclair SVP and CFO .
After prepared remarks from Danny and Jonathan will take your questions. This call, including the Q and a portion includes forward looking statements. Each forward looking statements, including discussion of our fiscal 20 outlook subject to risks and uncertainties that could cause actual results could differ materially from those projected in such statements certain.
Material factors and assumptions were considered and applied in making these forward looking statements.
Additional information regarding these forward looking statements factors and assumptions is available in our earnings press release issued this morning, as what was the risk factor section of our most recent annual report filed with the FCC and Canadian Securities regulators. These documents are also available on the Investor Relations section of our website.
Forward looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these days.
Or commentary today will include certain non IRS financial measures, which are reconciled in the table at the end of our earnings press release issued this morning and available on the Investor Relations section of our web site at Canada Goose Dot com without I will turn the call over today.
Thanks, Patrick and good morning, everyone.
I'm really pleased to tell you that the power of our brand and our business model pulled through despite a challenging external environment and we delivered another strong set of results and finished the first half.
And here are the highlights.
The second quarter relative to last year revenue revenue grew by 27.7% and adjusted EPS per diluted share increased 23.9%.
Even with the unrest in Hong Kong revenue in Asia, nearly doubled to $48.9 million revenue in the U.S. increased by 38.5% on a constant currency basis.
Revenue in Canada grew by 29.9% for 29.9%.
Against tough comparisons that are most developed market. This is a strong results from a brand perspective, it's great to see consist customers at home embracing our light with down.
Jacket and network.
From a channel perspective wholesale [noise] wholesale led the way.
Excuse me also led the way with his largest quarter with revenue increasing by 22.9%.
This was complemented by direct to consumer growth.
47.2%.
Like in the first quarter, we continue to fulfill pardon requests earlier shipments in the Bakken increased operational flexibility.
[laughter].
With that as a starting point there are a couple of specific topics I would like to address.
Let me sort of Hong Kong as I'm sure you're aware the situation has intensified since our last call.
Impact on tourism in retail traffic to the performance of our store and I have see has an impact due to significantly.
The same goes for recently opened a location that Ocean Center, which is a 50 of our nine openings this year.
This addition, we're establishing the two most important luxury retail districts in the city.
Influencing the mix of yes, we already reached through I've seen.
Although we wish for the situation we wish that the situation. We're just was different today, we're developing markets and building stores for decades, not just for the next quarter.
Fortunately during our second quarter strong topline performances in other markets offset the impact in Hong Kong.
We're watching the situation closely and evaluating actions to streamline our cost base on the ground, including negotiating accommodations from landlords.
Moving on wholesale timing is another important topic for understood on for understanding our business.
I will offer is largely as a plant economy or fall winter and spring order books ours are set down to the color style and or well in advance and this gives us great visibility through the year the timing of when we ship. These orders can and does shift from month to month in any given year.
It comes down to a balance of one or partners want to livery and when we can manufacture their orders most efficiently. This year, we've been well positioned to fulfill customer indias earlier.
The shape of every year has always been different and some moment movements of orders between quarters or months is not reliable indicator of annual performance.
I'm really pleased that we've shipped so much of our fall winter order book earlier, which naturally moves now let me is less shipments in the next quarter.
It does not mean the underlying demand in the channel is changing we continue to expect wholesale revenue to grow in the high single digits in fiscal 2020.
The should this shift.
As already impacted our numbers for Europe , and rest of world, where revenue decreased by 3.4% in constant currency.
For the same reason this is not something that I'm at all concerned about.
I do at as it is our most wholesale centric region, India grew by 7% to 9.7% in the first quarter. So if your order shipped this quarter is a logical follow on aside.
As you have seen before growth rates in any given geography can vary from quarter to quarter.
Exactly for this reason.
Lastly, I want to provide an update on inventory, which we discussed last quarter.
We've continued to build in inventory buffer ahead of gross to maximize production efficiency and long term commercial flexibility.
Going back to our IPO acute growth strategy has an increasing in house production to control our own destiny provide greater flexibility and it to increase margin. Initially this meant expanding in house capacity alongside expanding existing contract or production.
[noise] in building four factories over the last two and a half years over half of our down for production is now in house and we're at a stage, where we can actively.
<unk> reduce RCM teams in the coming here.
I continue to feel very good side and the current composition of our inventory position.
We continue to operate commercially with disciplined and selective allocation model, both at wholesale and in our own DTC channels and always at full price.
Going into next year once the rationalization and transition are complete we intend to improve inventory efficiency relative to sales and expect that our inventory levels relative to revenue will trend lower overtime.
I'm also excited to share with you.
A few things, we're doing with innovation and experimentation in retail the season.
I believe it or I believed that our customers on our brand.
The value of our branded defined but some of their experiences innovation experimentation is an important part of the puzzle for us.
With consumers looking to use outerwear to express or own personality more and more our recent relaunch of rent. The is a great example.
Focused collection of six never to be repeated styles.
It is an elevated interpretation Kennedy uses heritage designed to inspire loyal brand fans and reach new on audiences with pinnacle product.
[noise] through versatile four and one in three in one and reversible styles that feature on artistic print and luxury fabric such as Loro Piana wall.
Brent has been a high impact centerpiece on her floors and the commercial response, so far has been incredible.
We've also introduce pilot programs do encourage to self expression, including the ability to add personal details on their jackets.
In the cut into customized for consumers to customize their jacket with new Hood brim auctions.
Offer new reflective comfort and insulated from choices consumers can tailor their jacket swear to where and how they use it and their own personal style preferences.
Customer response from this program has been extremely positive and we're learning a lot to inform future direction of both product and retail engagement.
Similar to our innovation was cold rooms and customization.
And personalization pilot programs, we continue to experiment and evolve with retail formats.
On a fast changing digital first world you cannot exceed by repeating the same store concept again and again, one box does not fit all.
There are so many interesting opportunities out there to two micro targeting specific locations and customers influences and experiences. This year, we back to me activated a number of new direct to consumer formats to test and learn what works, where what customers want and how we can deliver exceptional experience in new ways.
As we have done in the past were also utilizing pop ups to activate markets and test locations for permanent openings.
Last later this week, we'll be opening at Tysons Galleria in Washington, DC area.
And we're excited to degree or amazing tend to use experience to life there.
Going back to my initial remarks haven't global brand strength multiple avenues of growth and the discipline and focus to execute well are so important in times like these.
Winter just kicked into high gear and I'm really encouraged but how we are.
How we're performing despite the continued external headwinds and ongoing uncertainties despite that.
We continue to see long lives in our stores across geographies, which shows the power of great pride and exceptional experiences and with that Allison or over to Jonathan to go in to the specifics of our financial results.
Good morning to me.
Good morning, everyone.
Thank you thank you for joining us.
We delivered strong second quarter results in line with all expectations.
I'm power geographic diversity and high quality distribution continued to be a winning combination.
We were able to offset the impact disruptions in Hong Kong.
With strong performances in other markets against extendable, uncertainties executing with discipline and we're pleased to be in a position to reaffirm guidance for the good.
Now with that backdrop I'll walk you through the numbers in detail.
Please note that hold them because I'll close it in Canadian dollars.
The second force it can pay compared to the same quarter last year revenue.
27.7, and it's a 294 windows will 28.3% on a constant currency basis.
Wholesale was a standout performer in the lot to school, so with revenue growing 22.2% or 22.9 person on a constant currency basis.
This is primarily driven by growth from existing Paul is complemented by early issue ship and timing relative to last year.
Incremental revenue from Brian back then and its peak sales schools.
And then.
We continue to assume high single digit wholesale gross for the it.
This reflects our performance through the first off with a materially higher proportion of full wouldn't want is fulfilled run that since last year.
We also anniversary the acquisition of Boston stalls and event.
For these reasons, we expect wholesale revenues in Q3 to decrease in the mid teens on a percentage basis year over year.
This is purely a function of timing, we feel the remaining fall winter old as to what through and that's what drives the cool so.
Moving on to Q4, we transitioned to the sprinkled book I'd like to see some food to replenish.
We're pleased to satisfy all applications for Poland is.
Putting out 2000 plus points of distribution in a better position for the peak season.
But this does not change the commercial discipline with which we supply and operate this channel.
[noise] DTC revenue increased by 47.2% or 47.4% on a constant currency basis.
Now due to the transition to a full full five.
Fiscal calendar this year, we lost one day and.
Relative to last year.
Excluding the extra day in the prior period growth would have been 49.3 person.
Our established stores and e-commerce smoke is performing well at all new store openings at good stops with Shenyang, and Edmonton being particularly noteworthy.
Moving on geography, we made great strides in key markets alongside continued growth.
Starting with Asia, AOS topline nearly double $48.9 million that while Japan growth was much lower than Q1 Q2 shipment timing, it's still continue to be a positive in.
Positive contributor.
As with cools did incremental revenue from DTC operations in greater China.
No in Hong Kong, specifically on store was inevitably impacted by external disruptions.
That said given the effects on.
Tourism and Tropic, we're pleased with how let's see before.
We're fortunate to have a global business with them as it is offset this with strong performances in other geographies.
Now Unfortunately is where the situation in Hong Kong has intensified as we entered the second half of the.
We also have an additional locations ocean sensor, we anniversary sees opening making the headwind on DTC revenue growth most significant.
As you'd expect whipping pull something very prudent with all the cost base and resource allocation and that includes pursuing accommodations with all laterals and stuff providers alike.
Moving on to the United States revenue increased by 38% in constant currency.
This was driven by significant contribution from wholesale and its lot to schools are complemented by strong DCC performance, but online and in store.
At home in Canada revenue increased by 29.9%.
Against a tough comparisons comparison in the seasonally smaller pool. So we were pleased with the performance of all highly productive DTC channel.
Incremental bathroom revenue in its peak pools was also particularly relevant Canada.
In Europe , and rest of world revenue decreased by 3.4% in constant currency.
You'll recall that in the growth in Q1 was very elevated 79.7%, we called that out as being driven by earlier timing shipments relative to last year.
As an output there were fewer remaining for winter is to ship in Q2.
I didn't almost wholesale centric geography. This was the fundamental drivers the decrease.
Moving on revenue consolidated gross margin was 54.6%.
The channel level wholesale gross margin came in at 47.5% as expected.
This represents normalization relative to the first off of last year, which was elevated through a number of temporary timing factors as I've said before the mid to high Fortys is what right what we want to be annual periods and all comparisons normal normalize in the second calls.
[noise] DTC gross margin came in as a strong 75.6%.
This was driven by the net positive impact of pricing relative to costs. We sold the benefits of Tailwinds from a cool, we shouldn't which are more significance at this time, yeah relative to Q1, when the mix for non Paul impacted Vojo.
Wholesale operating income was $90.9 billion with an operating margin of 41.4%.
This reflects gross margin chip versus last year as I've, just described and relatively flat it's taken a specific revenues.
Turning to DTC and excluding Preopening.
Costs in both periods operating margin increased to 45.3% from 43.7% with strong sales productivity and profitability across all components of the trends.
We incurred $3.6 million in Preopening costs for the locations open and this compares to $1 million and the same period last year.
Including lease costs DTC operating income was $30 million, representing an operating margin of 40.4 person.
Unallocated corporate expenses were $43.2 million.
That's a study $4.2 million last year, while other allocated depreciation was $2.3 million compared to $1.8 million last year.
Increase in corporate question, Hey was primarily driven.
<unk> increased growth investments in marketing corporate headcount and infrastructure.
Included in greater China.
Combined this resulted in total operating income of $75.4 million that compares to $65 million last year.
No I have for us basis, adjusted EBIT was $79.2 million compared to $66.5 billion last year.
Net income was $60.6 million, all 55 cents per diluted share compared to $49.9 billion.45 per diluted channels here.
Adjusted net income, which excludes a 4 million.
A dollar impact from Preopening costs was $63.6 million.
57 cents per diluted share.
Compared to $51.1 million.46 per diluted share last year.
It's also worth noting the other things in the quarter benefited from a change in the effective tax rate to 12.8% from 18 point lumps and most yet now this is largely a temporary timing impact.
Relates to differences in the transfer of inventory to specific geographies and the applicable tax rates. We continue to assume an effective tax rate for the full yet in the area of 21.3%, which is what we achieved in fiscal 19.
Turning quickly to the balance sheet, we ended the quarter with net debt of $537.9 million that includes $224.2 million in lease liabilities.
As presented on the first six thing.
On a spot basis is the culture and Nick that even detail.
On a trailing 12 month period was 2.9 times. This reflects a seasonal peak and financing about working capital cycle, which has achieved through all short term facilities.
Net working capital was 300 study 383 million compared to 270 million in the same quarter last year.
This reflects a continuation of our planned inventory build.
And was partially offset by increases in accounts payable and accrued liabilities.
To support the staging needs about international.
TC expansion and maximize the efficiency of on you in house benefit capacity coming online we have built up buffer inventory to its it cools styles for longer term commercial flexibility. This buffa gets this continuity as we rationalize the policy seventies.
Moving beyond this fiscal year. Once this transition is complete we expect all.
Inventory levels to begin to normalize.
In summary, we're really pleased with all went through the first off for the fiscal year I'm, we're well positioned as we into all this is commercially period.
Well external uncertainties are a reality, we remain confident in the powerful brand and indeed no business model against this backdrop, we've continued to deliver strong gross revenue and earnings and we're pleased to reiterate our outlook for the.
Now I'll turn back to study for some closing remarks.
Thanks, Thanks, Jonathan.
The first year first half of the year has has truly been great and with the peak season now in full swing there are a number of exciting things on the horizon.
Well, we opened our first store in Paris on recent on arrays shortly.
This is a dream come true for me personally and I can't wait to see it up and running.
We're also launching offers concept store I'm sure we gardens in Toronto.
Experimental experience away to engage with our local friends.
And last but not least we'll be introducing our first small format resort town location event, which is one of Canada's most beautiful and popular international destinations.
And with that I'll now turn over to the operator to begin to it.
Thank you as a reminder to ask a question you will need to press star one on your telephone keypad to withdraw your question press the pound or Husky. Please remember to limit yourself to one question and one follow up question. If you have any further questions you may reenter the queue. Please standby, while we compile the Q and a roster.
Your first question comes from the line of Kate Fitzsimmons with RBC capital markets. Your line is open.
Yes, hi, good morning, guys congratulations on the momentum.
I guess my first question as you know the growth rate than you more established markets candidate in the U.S. were very impressive in the quarter I'm. How do you think about what's driving the demand and the home market, particularly at the wholesale channel. It's all those growth opportunities go forward in North America.
Then secondly, young age out you know, obviously very impressive growth there despite that disruption in Hong Kong can you just dig into what you're seeing in other markets as an offset and you know Danny it's been about a year since you've been in China. You know what would you say had been the more interesting enters the pricing learnings there more recently noted despite the fact that what's going on in Hong Kong.
Thanks, so much.
I think they give or take your questions do I think that.
Our brand he has never been stronger and it continues to grow global awareness and affinity of Iran, or great place and you can see that in their results.
We were significantly significantly growing our business and in all geographies and we continue to achieve very significant pace of growth off of a much larger base today.
I think that.
Some anecdotes.
I, just gotten colder their lineups and our stores, we get again other people camping out overnight to get some more collaborations.
And to make sure they get one of them. So the demand for our products is as truly never been stronger across all geographies and.
You know to speak to China and.
Yeah. It was opera and every year and as it comes in the result, there's also been great. This quarter we.
Almost all of our business in China and.
I think would I think there with the rent approach, there, but building, but in China from China, and investing in infrastructure and offices.
In country and I think the results are showing dividends on notwithstanding obviously was far Hong Kong.
And that no.
<unk> results office.
And the positive way for everybody, but.
You know.
In the meantime, <unk> China's great demand is strong in Chinese consumers, Iran is really resonating with them.
Great guys best of luck for holiday.
Thank you enough.
Your next question comes on the line of Omar Saad with Evercore ISI. Your line is open.
Thanks, Good morning, nice quarter I wanted to ask about.
A follow up in a lot of your comments around the supply chain production the inventory build looks like you're continuing to kind of build a that quarterly production. How much you guys are producing obviously also doing more in house I think you said, 50% or over 50%.
Maybe you could talk about do you expect production is still ramp whether its internal production or with your out extra all suppliers over the next year too.
From these levels or do you expect the production to level off at some point and also on the on manufacturing do you think you get to a level much above 50% overtime or you kind of happy where it is and then help us think about I think there was a comment around building some of the core items longer term in inventory and help us understand that dynamic and maybe you could frame it inventories per se.
Door or another metric that have that helps us understand get comfortable with how the inventory flows through the seasons and throughout the year. Thanks guys.
Oh I used the question I'll talk a little bit Ivan our manufacturing strategy and you know what it does go all the way back to.
It was.
Pointed out.
As a rule in public as one of our key growth drivers that we're going to bring a lot of our manufacturing in house by either building and or acquiring new facilities and Weve built but you know of four plus facilities now since then and we'll be able to bring a lot more capacity in house to the point, where I didn't last year was close to 50%.
Over over manufacturing and I think that.
You know to and two point how high can I go I think there's still room to go a bit higher than that I will have absolute target, but you know I think I think that there's still room to grow and that you know and that is important for number of its important to be able to control our own destiny into and to have control over on Oh supply chain and also obviously as you know.
We get to bring I haven't forgotten how should we increase our opportunity for additional margin has so so we're really excited about to do that and some of that has resulted in having a little bit more inventory because we obviously in our view, it's better to have more good inventory into not they're not enough inventory and the thing or whatever that support.
For you know our company is that were different than many end that no.
Approximately two thirds, 75% rooms and of inventories carryover inventory and that's the stuff that we're making so yes, there's no excess inventory risk parents aren't risky inventory its inventory that that will be sold a full price and its inventory will be available and hasn't available for many for many years. So I think that you know I'm not worried at all but that inventory inventory.
The risk.
And the sort of inventory position.
It's something that we're used to I can use even going back 10, 20 years or smaller company, we have more inventory relative to to sell that wouldn't bother us at all because because that does that that's where I'm.
That's why our company worse.
John I.
Yeah, I mean, just building on that.
We we build inventory in manufacturing ahead, because I'm in pool in co products and we've done it's just described.
That means it doesn't line up hopefully so sales trends.
Trying to do.
And particularly it with with sort of wood.
Messing up the transition throughs, CMT rationalization and that puts us in great position that new growth in fiscal 21 as well.
So on the one and we do that so dynamics, we necessarily expect to change.
In the near term, but we do expect the position to improve relative.
To to revenues once the effect of the rationalization takes effect and I think I'll take you back something I said law school that.
We look at inventory in terms of tons in this business once you strip out.
On a manufacturing raw materials and work in process and that level of tons on an average basis puts is pretty much in line with where others arent false movings highly seasonal businesses like this.
Got it thank you.
Yes.
Your next question comes from the line as Michael Binetti with Credit Suisse. Your line is open.
Hey, guys. Good morning, Thanks for taking my questions here.
So I.
I guess you reiterating the guidance for wholesale the up high single digits for the year, but then you gave some color that we we think they'd be down mid teens in third quarter I.
I think that leaves us with a pretty wide range of outcomes wholesale for fourth quarter, where from positive double digits to even slightly negative, but I think Dan you described that is period. When you start shipping for spring and also replenishing for winter can you just help us understand the upside risk the downside in that guidance that you know speak to the scenario that could result in something near the low.
So when they're even negative at fourth quarter, and then I also wanted to stay within the.
Within that guidance I'm sure wholesale revenues were down in the third quarter. What region. Do you think will see most impacted that is that largely U.S. given given the second quarter growth rates and we just saw thank you.
Yeah, I mean it.
We like the wholesale business works, we come into the knowing noting the the wholesale load of a full full the seasons and therefore to some extent it.
Describes it as a managed economy.
To sum to some extent that fall in that we know we know it's and that's why we assume.
Hi single digits within our guidance and therefore, there's an inevitability that we supply it sooner. The if we if we supply it sooner than than the reality is the order book is fulfilled now none of that stops all wholesale <unk> is coming back and asking for more but you'll also.
Recall that we operate an allocation.
And the allocation mobile is privileges, our installs bus and or that already told us that we consider how.
Even though wholesaled is where it makes sense to do so and that's consistent with what we've done in the past. So so clearly we got.
As a when those those requests come through we looked at them in that context and against that model.
I think you know the reality is as you look.
Forward, obviously than we've built a new season with a being supplied in the Fulfils, which is spring summer and that's got decided on them incident.
But from our point of view, we looked at the whole host wholesale channel.
It's important and in the sense of being a very strong channel and also important in tons of its role it plays and the Brent.
Great.
I don't.
So.
Our wholesale business over the years looking only at the end up was after we thought it would and we're really happy with that and you know Michael you asked about like in the range would have downsize upsize that there's no.
Given that we feel very confident and signed up.
Where we thought it would that that's not a there's no downside there at all it's just it's exactly what we thought.
And you know.
Inventory available reorder should there be should that be or should that come into play.
Okay. Thanks.
Yeah.
Your next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open.
Hey, Danny Jonathan Patrick Good morning, Let me add my congrats.
I guess, Jonathan or Danny I, just a question two questions on the wholesale you guys have talked about the pull forward effect. Many times in the again like the brand is so strong that you're clearly getting orders earlier I'm just kind of curious is there anyway to quantify the pull forward to so we can kind of think about the dollars that may be shifted into Q2 from Q3.
And then Jonathan there's been some normalization on the wholesale gross margin and you've been very helpful to kinda talk us through what's going on there any color on how to think about the wholesale gross margins in the back half and specifically Q3, just busy trying to figure out if there's any more normalization or dynamics, we should keep in mind is as we model that out thanks a lot.
That's okay.
So I think if we let start with the the timing of when our customers.
I want to stay ship, but I mean that we're very much in the ads and in that sense and when they elsewhere.
We do all level best it to ship it.
The best way to look at this is to remember it was all fully a assumption is underpins our guidance, which is high single digits and if you looked at it not context.
To the extent that is way about that then then that's what we've got customers seeking to get in production.
I think that's that's the best way to answer that I think when it comes to to the wholesale gross margin no right, where we want to be at 47 office and Q2.
But that's that's really the right the rights will decide in this business comparisons inevitably with last year has distorted the read and they get easier through the remainder of the.
No.
So different reasons, both Q1, the Q2 dollarstwo.
Options in that in the 50 area and we've been calling that out as a typical and you saw last year that we had it landed at 48.1 person. We continue to believe that the right way to the this is mid to high Fortys and in the wholesale business in the sector.
Great. Thank you.
So.
Your next question comes from Alex while this with Goldman Sachs. Your line is open.
Good morning, Thanks, so much for taking the questions here. Some first questions on the operating margin guidance, you've reiterated the guidance for the for the full year implants and expansion in the in the back half I Wonder if you could talk us through the drivers of this between mix and then some operating leverage in each of the divisions and what side one of the <unk>.
Key components of that Oh.
My second question is on the at the the Bronto product I think you had mentioned that this isn't intended to reach a new consumers I wonder if you can elaborate little bit on that point I mean, you planning to distribute it all through two new channels I'm going forward and how could that.
Expand the relevance of that Brad Thank you.
So so let me let me on to the John .
Piece.
I think you know.
Relative.
We were guiding.
To 20% revenue growth of 20 520 at least 20% revenue that's at least 25 cents earnings growth.
This yet now as we move into the second semester, clearly DTC moves to the full that's good to be the principal characteristic in the second we will continue to invest.
Heavily in marketing.
As we move as we move through the the particularly the said Smith, a so called <unk>, which is which is see I'm very important.
And that will.
Allow us to to really leverage that China, which as we know it's all it's almost profitable.
Well I think that's the fundamental dynamic that's going to.
Shift as we move into the second Paul.
But the weight of the marketing insight in the so called like me to me the that will push margin expansion and towards the end of that.
Hmm and I'll jump in.
Oh I wasn't talking for Brent tell you know rent Brent is something we're relaunching, we how do we we had to Brent or pause in Atlanta number years ago, and I think were a bit earlier with them or you know at this point. We received written today, we're seeing tremendous demand for them is right. There there they continue to be obviously function first products.
There are also pinnacle process and are there really.
There are intended to define performance luxury everywhere and to redefine forms.
Performance loss, rather were not and not just to follow what's already been done obviously isn't a completely different way and I think that.
Pinnacle product, it's that's a aimed at the top to top of the Paramount and.
Consumers, who have been tend to use fans for a long time, who want the something new and different and the a and and it's really working you know and enable us to set our fans in new ways into reached new audiences with this kind of initial product so.
Not that thinking behind right and why we relaunched now and.
I'm I'm really happy that we did.
Your next question comes from Mark Petri with the IB see your line is open.
Yeah, I wanted to follow up actually on that to light of questioning around brand to and I guess more broadly you know you've been pushing prices up and also introducing new parkas at higher price points and sort of push through some of the barriers that I think you have talked about previously so I guess you know what have you seen in terms of response.
No you already addressed brand to but I guess in terms of the core parka business and how does that impact how you think about positioning the portfolio going forward.
I think that I think that yeah. Other category is behavior of luxury outerwear something it hasn't didn't exist 10, or 15 years ago and that we should we help create and I think that it continues to grow I know, it's a growing category and certainly we're introducing new products at higher prices and that's working well for us the products that were built into them.
But.
That are there that are priced higher and.
Hi, perform extremely well, so I think that bodes really well for the future and we're very excited about.
And and I guess, just a follow up on the wholesale gross margin a topic a it is also down slightly from the level two years ago, presumably there is some leverage from the greater it has manufacturing. So what are the most material sort of headwinds on that on that number versus two years ago.
So I think the yeah, it's worth reminding ourselves as the gross margin algorithm that we work with it.
The tailwinds and headwinds because we do Craig Tailwinds, we we do that because we want to address that that wins.
Wins that we that we deal with of it obviously a pricing in Scotland insulting.
I think that's.
Those are the things that help us the most in terms of moving on large unfolded, we have cost inflation in labor, which was probably more significant in the second half lost in the other parts of this year.
Then.
We also have calls price inflation in materials and of course, we have reinvestment in new product.
As we continue to develop the the product offering in both our existing and new categories.
And so how would you talk about sort of the product level margins in wholesale.
Oh, <unk>, but I'll, probably level, our product level margins and the whole seller find them as they absolutely whether they below there's sort of an industry pricing structure and we would very much in line with that.
And ER that fall that determines what were your wholesale margins to though which is why we continue to say mid mid to high Fortys is exactly what they below.
[noise]. Your last question comes from the line of Oliver Chen with Cowen Your line is open.
Hey, Good morning. This is Ross Collins on for Oliver I, just wanted to follow up on the retail formats. The pop up that you mentioned I'm, just I understand kind of timing of them what they just before the holiday period or kind of a longer term basis and then.
I'm also that the kind of inventory and assortment implications of does does pop up.
And lastly, just geography, where they just the within all I can tell they deal with all of your geography, either our justice and one or two thanks.
Thanks, a question Yeah pop up some its you know these are important things I think I wouldn't characterize it was a new strategy for US you know, we've done and pop ups for a number of years both of wholesale partners.
On our own no it's kind of ever catch all phrase and their use the used for a moment in time from for a moment in time brand experiences in for Vance and it's also the also really a useful tool and figuring out future appearance or locations. If you could show up somewhere for a brief.
At a time and see how about works you know.
So for example, Tysons Galleria, specifically, which is broken surely it's about a four and testing if you know that these humor and area and see how oh.
Progressed overboard in that marketplace.
And Oh, I think in today's retail environment, the pop up strategy.
Well executed is really important and.
I think that its oh, the retail environment, changing it's important to be nimble and wrapped with it.
The thing because because our experiment and because the <unk> learning experiences for the financial contributions they make for of course, most significant retail sales.
It's important to keep that it might there's a wide range of sizes of durations.
They represent and of course will that is factored into our guns.
Got it thank you.
There are no further questions at this time I will now turn the call back over to Daddy rays for closing remark.
Thank you and take thank you all taking the time to be here with US today. We appreciate your interest and your support Canada Goose.
Yeah. This is our last earnings call for the year and in fact for the decade, we'd like to tissue great holiday season, early happy new year, and I very much look forward to up to you on our progress report our third quarter results next year. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.