Q3 2020 Earnings Call

options were considered and applied

And 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 well as in the risk factors section of our most recent annual report filed with the SEC and Canadian Securities Regulators. These documents are also available on the investor relations section of our website. The forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these statements are commentary today will include certain non-ifrs Financial measures, which are reconciled in a stable at the end of our earnings press release issued this morning and available on our investor relations website with that. I will turn the call over to Danny.

Thank you, Patrick and good morning. Everyone. There are two things that I want to accomplish with this call today. Number one. I'd like to share a third-quarter results which continue to reinforce of rent health and long-term growth trajectory. And secondly, I'd like to address the coronavirus Health crisis and its material impact on our fourth quarter performance. So let me start with a good news bought a brand is strong and our third-quarter performance results are a testament to that. I'm really encouraged about the health of our brand and as energized as ever about our long-term potential to me what matters most wage is is driving driving traffic and sailed at full price. We are delivering best-in-class product and experience and we are building deeper relationships with our consumers. We are not only suggesting at all of this but excelling

this was a recently reflected in the list index where Canada Goose was included as one of the top 20 hottest brands in the world and

The last quarter of 2019 to compile this list the analyze the shopping behavior of more than nine million Shoppers across 12,000 designers and stores online considering search Dead online sales as well as social media and engagement statistics. It is a great external validation of what we already know to be true.

That Branch Frank let the strong performance our third quarter Revenue increased by 13.2% to 452.1 million dollars and adjusted EPS per diluted share grew 12.5% to $1.08. This was achieved with wholesale Revenue decreasing by 8.4% due to a planned and communicated timing shift module recall last quarter. We had a shift in the order book to the left and we forecasted a mid-teen decrease in Q3. Nonetheless. We out performed our expectation because of strong demand for reorders further demonstration of our brand.

You also grew our direct-to-consumer business by 28.3% even though our stores in Hong Kong which prior to the prior to the protests were amongst our best in the world were severely impact disruptions.

And what has been called a challenge retail environment and winter shopping season the commercial energy and our stores was incredible. We continue to have frequent lineups across our store Network including our order location such as life in SoHo and our new experiential store at Sherway.

not ability to drive traffic and in full price sales also applies to wholesale are carefully curated best-in-class Partners regularly call us out as a brighter bulb, shifts aside the fact that we have grown wholesale Revenue by 11.2% year-to-date while editing down or points of distribution is a testament to how strong our brand is in the quality of the partners and we've chosen

Well, most While most other outdoor Brands were discounting frequently throughout the season to drive business. We were not we had a great Black Friday one of our biggest sales days of the year without any promotional entirely to see Channel and we saw the same strength for Cyber Monday and for boxing day that tells me that we continue to offer consumers something unique which they truly value and are willing to invest in we are not prepared to participate in a race to the bottom with which other brands are many of you about your own channel checks, and you know what I'm talking about.

discontinued brand

All started with great product. We've been methodically.

Adding depth and diversity to are offering for years the results this season tell us that we're on the right path three of the top five new Styles across both genders were light weight down which is which is incorrectly versatile product for a wide range of conditions and for climates. We also saw the large hoodie core lightweight jacket that we've had in our collection for years become one of our top sellers in DTC Thursday. No doubt that our strategy to move Beyond just the park is working.

In it where we also continue to see encouraging results. It is growing well above the business as a whole the significant volume increase is complemented by an additional outlet from pricing.

For the first time the category category approach double-digits in a percentage of percentage of sales and number of retail stores. Not surprisingly. I've seen in Hong Kong and Milan given the climate as well as month.

As we all know retails undergoing transformation and success requires new thinking and bold moves as I mentioned our last call. We opened the journey and Innovative new retail concept that we launched in Toronto in December 3rd, which is a great example of that breaks or innovation. We've seen an incredibly strong reception from from consumers already during a three-week period in the heart of the holiday shopping in December over 8,000 gas completed the journey designed to take 15 minutes and is a guided and intimate tour to explore the brand or digital content interactive displays and the next generation of our award-winning hold room as they finished their Journey guess have the ability to browse and purchase the full assortment of Canada Goose online with local same day home delivery and them

As an experimental omni-channel concept there are a lot of valuable early learnings from the journey that we were reflecting on.

Has it has proven that an inventory of restore environment can be commercially viable for us with this format enables a brand ambassadors to focus exclusively on guest experience education in service walk-in customers access to the full depth of our online inventory at the snap of their fingers with same-day delivery. We consider this experiment to be a big success in this concept of something that we are very excited to explore further.

I also want to provide an update on our supply chain, which we discussed last quarter. Now that we have sufficiently built out our own manufacturing infrastructure. We're in the process of rationalizing our third manufacturing capacity by approximately two-thirds. We expect that this will bring in-house production as a percentage of total output from the low fifties at present to approximately 70% in the next month.

As we have said before in the short-term, we plan to continue to ramp up our own facilities building inventory ahead of near-term growth for next year to maximize efficiency and continuity moving into fiscal 6021. Our plan is have inventory levels to be much more in line with sales as total output comes down in a planned way and we expect to see inventory normalize relative to growth by the third quarter of

Now, let me address it in the Dynamics around the Corona virus outbreak, which has hit our biggest current growth Market first and foremost our hearts go out to everyone who has been affected and we stand together with everyone in China and the rest of the world and in addressing this Health crisis so that end we have made a 1 million RMB contribution to the charity Federation and we hope our humble contribution can be of help to swiftly win this battle.

The health and safety of our team and greater China is our top priority and we're closely watching the situation and adjusting our operations as needed in cooperation with the local authorities. I'm proud of how our team is off to the situation. They've demonstrated incredible, and professionalism and their behalf and on behalf of all of our fifty three hundred employees around the world. I want to express our gratitude to all of health care workers who are working tirelessly on the front lines rare. China is incredibly resilient and we hope for a swift resolution to the situation.

As it is to everyone.

The luxury industry. This is obviously a major near-term headwind understandably people are staying home and avoiding shopping for their own health and safety in China and abroad. So we're seeing impact on our stores and Auntie Mall in Georgia and it also in stores located in major International shopping destinations in Europe and North America due to extensive flight cancellations and travel restrictions.

Well, we expect this to have a material near-term impact. This is a temporary disruption. Nothing about the situation impacts our fundamentals and our future growth potential remains intact we know ahead of time and we believe we have the financial and brand strength to write it out with confidence from a supply chain perspective. We expect that any impact that may occur in in the long-term will be offset by the law inventory that we have built over the last year unlike many other manufacturers our current our current finished goods inventory gives us high confidence in our ability to fully satisfy demand for next year.

We've built an incredible business.

And greater try and a short time and we are ready to continue or rapid expansion there as soon as this is over.

In closing, I believe I deeply believe in our long-term potential and our strategy to get there. We continue to work diligently on our product extension plans are brand is strong and we have a break positioning all of our key markets. We already command of the things that we can control and we have the strength to navigate the things that we can do. And with that I'll turn it over to Jonathan and to go over the details of our financial and revise up.

Good morning, everyone and thank you for joining us.

We delivered robust growth in revenue and earnings in the third quarter in line with our expectations across key metrics as we contended with the external disruptions and a plan a timing shift in the wholesale business is Danny mentioned the continued strength of global affinity for our brand and the blowing growing International diversity our business from false with that said, even the immediate and material negative impact of the Corona virus outbreak is having in the fourth quarter the just six weeks of the year left off. We have adjusted and your outlook and I'll return to this later.

Through the numbers in detail, please note that all the figures are as usual quoted in Canadian dollars.

43 compared to the same quarter last year Revenue increased by 13.2% to 452.1 million dollars or 13.7% understand currency basis starting with wholesale Revenue decreased by 8.4%. 150% three million dollars or 8.1% on a constant currency basis as we discussed a law school. This is mainly a function of when we shift this year. We were able to deliver a higher proportion of total order shipment sooner than last year in response customer request and enabled by manufacturing flexibility.

As a result of strong in season three orders late in the. We outperformed direct communicated expectation of negative mid-teens growth. You see Revenue increased by 28.3% to 301.8 million dollars or 28.9% on a constant currency basis home was a very severe headwind in the third quarter with the anniversary of ifc's exceptional opening and despite the opening of an additional store this year in Ocean City, New Jersey.

Beyond

Joins in tourism and traffic. We also had to contend with frequent reductions to regular operating hours.

In the quarter. I have C had 21 days of early closures and three days of full day closures while Ocean Center had 27 days early closures and two days off elsewhere while we were pleased with this year's new store openings. They generally have lower Revenue contributions in the quarter relative to last year.

This is Jude two differences in the market characteristics and business problems for these stores with the exception of Short Hills, which is a great local store the other four four openings last Montreal Beijing and until the disruptions Hong Kong are all among the most significant top-line contributors live in our retail Network.

Looking at our fiscal 2000 things show way is experimental and experiential band is our first-ever store in a resort town. And Edmonton is a strong but smaller markets with Milan and Paris as well as bam. We also expect a proportion of sales to occur outside of our typical peak season in Q3 off of Lee. This is due to high levels International retail traffic in these markets in the summer months.

with the network only

Twenty stores globally we are still incredibly underrepresented in some of the world's most important luxury retail markets a great example of this is our new store opening. In fact, this was a standard the standout performance in Q3 from our openings this year.

Shanghai is trying this wealthiest and largest city by war was over twenty million people. It's also the nation's fashion cannibal with a highly sophisticated Global shop.

We knew going in that local demands exceptional thanks to the team own information at our location at the poodle IFC mall is world class.

More broadly the post about DTC business was great during the holiday shopping season. We believe our brand continues to define the performance luxury space driving exam little traffic and consumer engagement with our stores and e-commerce sites as the destination for those who want the best product and experience.

it's

Great to see our oldest stores in our most developed markets your balance Soho perform. So strongly it's well-documented that as our first two locations globally they open to a great Fanfare in three years later and during the peak season that going from strength-to-strength with frequent lines and exceptional results throughout the water.

Online but mainland China through T-Mobile and the the way growing significantly relative to last year that momentum speaks to the incredible digital run that we have in those two major markets.

Moving on to revenue by geography. We're making great progress in our Evolution as a global luxury brand.

Well, Canada is almost developed market in terms of distribution relative to size. It is and will continue to be important with further growth potential informed the sector looks globally we believe that we have larger longer-term growth opportunities in other parts of the world and we're moving the needle on them starting with Asia hear our top line down to ninety four point seven million dollars from 46.4 million dollars. This was driven by incremental revenue from expanding DTC operations in Greater. China had the last year.

There's a whole.

Sell distribute to Market you will also recalled from previous quarters that Japan had a particularly large timing shift. Japan was not a positive contributor in this quarter though its trajectory in the the date remains very strong.

In Europe and rest of world Revenue increased by 11.9% on a constant currency basis.

DTC perform well across the region and drove growth.

In the United States Revenue increased by 10% on a constant currency basis strength online and in-store offset the impact of negative growth in wholesale.

Through a year-to-date lens and adjusting for timing issue shifts. Are you a business has outperformed the whole church wholesale travel as a whole significantly month. We continue to to be an incredible driver a full price business for our carefully curated network of best-in-class us parts.

Lastly at home in Canada Revenue decreased by 11.6% wholesale Revenue declined more than other regions due to those timing and the more challenged Retail Landscape brothers and two other markings. We have reached a stage where our wholesale presence is at maturity. And so we are looking to adjust the balance of that going forward with the Lobos tools and although both stores continue to produce it exceptional levels. We also had tough comparisons from very strong at opening periods in both Mangia and Vancouver as I mentioned before

Moving on from revenue Consolidated gross margin was 66% compared to 64.4% last year and that increase was driven by the change in Chad.

As expected wholesale price module was flat year-over-year at 47.7% This is a 20 bits improvement from Q2. As our comparisons have like the first half this level is right in the mid-to-high forties area that we want it to be in.

This is to realize prices were a meaningful and positive tail with.

We used the benefits of that fund cost inflation and the Strategic investments in product mix with lighter-weight jacket Styles growing significantly significantly Even in our most significant. Have you wait all cool time.

From an elevated comparison that said 6.1% gross margin came in at 75.1% again pricing was a Tailwind in this case the combined impact of higher input costs as well as high freight costs and duties from International sales more than offset the benefits.

Well, this quarterly results came in under expectations as in the it is right on the mid-seventies level that we think is appropriate over the long time to sustain direct gross margins of these levels while growing significantly in newer categories speaks to the power of our pricing.

Wholesale operating income was 56.5 million dollars an operating margin of 37.6% compared to 40% last year this climber driven by the operating leverage on sg&a given the timing shift in Channel Revenue to the first half of the fiscal year.

Excluding priest or opening costs in both periods. DTC operating margin was 56.6% compared to 58.8% in the third quarter loss this reflects. The decline in Channel gross margin already described as well as lower contribution margins from current year store openings.

Allocated corporate expenses with sixty one point four million dollars compared to sixty one point three million dollars last year while allocated depreciation wage is no point 1 million dollars from 2.5 million to 2.6 minute.

While we concentrated more of a marketing investment in this quarter anger to have a head of residence. This was offset by cost efficiencies as well as high higher non-recurring costs in the comparable. Relating to the Baffin acquisition and the secondary offering last year.

Combined this resulted in a total operating income of 161.4 million dollars compared to a hundred and thirty nine point nine million dollars on a non-ifrs birthday. This is just leave. It was 163.8 million dollars compared to a hundred forty four point seven million dollars with a flat adjusted margin of 36.2% this year and lost net income was $118 or $8.07 per diluted share compared to a hundred and three thousand four million dollars or 93 cents per diluted share last year adjusted net income was 119.7 million dollars for a dollar and eight cents per diluted share a joke compared to a hundred and seven point two million dollars or $0.96 per diluted share last year.

exciting to the bottom

We ended the quarter with net debt of 296.5 million dollars. This now includes two hundred nineteen point seven million dollars in lease liabilities under IFRS 16.

On the spot basis at the quarter-end net debt-to-ebitda and a trailing 12-month period remains very strong at one point one times.

This reflects the Cecil Beaton peeking cash generation and full repayment of our short-term facilities.

Net working capital was two hundred and eighty four point seven million dollars compared to a hundred and seventy point seven million dollars in the same quarter last year.

This reflects continued build of inventory as we move more production in house partially offset by increases in accounts payable and accrued liabilities. I'm looking at the composition of our 348.1 million.

Inventory position in detail the vast majority is being staged for the next financial year that captures essentially all of the war materials and work in progress wage manufacturing as well as over eighty percent of our finished-goods given our current guidance.

I also want to provide an update on the third party manufacturing rationalization. We discussed last quarter. We are in the process of reducing Canadian third party capacity over two-thirds in the near-term Our intention is to constantly built and stage in inventory at your head of near-term growth as we further accelerate in-house output of efficiency and continuity moving into fiscal twenty one has the rationalization takes effect. There will be an offset to the growth you're seeing now by Q3 of next year will expect to reach an inflection point with investment levels of in inventory normalizing relative to growth

No turning to our revised guidance of fiscal twenty.

As I mentioned at the start of my remarks are full water performance today is being materially impacted by disruptions from the out from the outbreak of the Korean in Greater, China.

The. Going into the Lunar New Year is one of the peak shopping times for our brand inevitably it perform. Well under our expectations and our experience life.

Is the last major window of opportunity in the forward to selling season as you're well aware throughout mainland China retail traffic has fallen sharply bulb consume this tight staying home and avoiding formed on the central shopping as a Health Report.

This includes almost significant symbol on markets such as Beijing and Shanghai in Hong Kong. This is another blow to a market which was already heavily interrupted travel restrictions have essentially cancel all traffic from mainland China and local activity is almost at a standstill SARS. Unfortunately still fresh in my phone numbers.

It respected.

I'm reduced operating hours.

Revenue is now negligible levels across the entire store Network and female in Greater China.

abroad

impact is spreading globally two major shopping destinations in North America and Europe.

The us as with others in the sector traveling Shoppers from the region account for a significant share of global luxury demand that is being largely and suddenly bounced off with flight cancellations and travel restrictions both contributing.

Well our brands well our brand continues to be in great health globally and is a stand-out performer in each of our markets. This development has caused us to revise a guidance as well as annual revenue growth of 13.8 to 15% implying revenue of 945 to 955 million. This is seems wholesale growth between nine and 11%

Ebit margin contraction of between 280 to 330 basis points implying an adjusted ebit margin of 21.6% to 22.1% annual growth in adjusted. Net income per diluted share of negative 2.2% Mm 2.7% implying EPS pathologist share between $1.33 and $1.37. There are a couple of Faith to consider in assessing the short-term revision.

It starts with the success we have had in rapidly scaling our business in Greater China with the revenue base that is almost entirely due teasing. This makes the impact took immediate and more material. We believe that the southern changing consumer behavior is temporary and unrelated to underlying demand for our brand wage. We believe that we're poised to resume how strong person projector in Greater China when this is over with regard to margin and earnings. The timing is also relevant your remote control that we close and traded our sg&a growth Investments early in the year to secure strong momentum throughout the peak season. We had expected to force Drive our annual operating margin improved as I was an offset and taper.

With this sudden development, we lose that leverage and we don't have enough time left in the to make significant.

adjustments on those reflected in this guidance

In summary, I'll Grant underlying business model our strong as ever. We continue to have deep conviction in our strategy and we're really encouraged by the progress. We've made this year.

Well, we will make surgical adjustments to our forward plans as you'd expect. We won't lose sight of the long game phenomenal long-term potential of this brand will be in the always be the full front of every decision we made and with that I will hand back to Danny for his final months.

Thanks, Jonathan. I would be remiss if I didn't take this opportunity to encourage you all to check out our new project antique collection. This year's expanded collection features. Ninety, bespoke piece that's created by Eighteen With designers from twelve communities in Canada's North who retain all the rights to their designs all proceeds from the sales will benefit to any way communities across Canada, which is a National Organization which supports self-directed in education employment and cultural preservation programs Arctic stewardship has always been a part of our business is something that I'm very passionate about we're leveraging a global platform to share anyway craftsmanship with the world and to create significant economic development in the areas that need it most watched closely as we have a big long-term vision for project antiquing and we are just getting started.

Well, we activated this important initiative. We also just launched our Global spring campaign with new boosters and

Around supermodel entrepreneur and actress Kate is a passionate advocate for polar bears and protecting their habitat.

This year's collections. It's five new spring styles for a polar bears international capsule including rain where wind where and lightweight down options $50 from East jacket goes to funding for critical and advocacy. I have always believed that what is good for business must all must also be good for the world. So I'm really excited about how closely our commercial efforts are married who are long-standing corporate citizenship home initiatives. We're doing it in our own authentic way true to where we come from and we're doing it at a greater scale than we have ever before. We look forward to releasing our first sustainability report in the near future with that. I will not turn over to the operator to begin here.

Thank you at this time. I would like to remind everyone in order to ask a question, please press star. Then the number one on your telephone keypad. We ask that you limit yourself to one question and one follow-up wage. If you wish to ask more questions you make you up again. Our first question comes from the line of Irwin ramberg from HSBC, please go ahead your line is open.

It's thank you.

Good morning. Gentlemen, I'm quite surprised by the magnitude of the revision of the guidance given that North America is still sixty percent plus of your sales. So, I was just wondering if you could give us details in terms of how much Chinese consumers account for in terms of your sales. I mean, we we can have a look at Asia and take a view of what greater China accounts for but wage, I guess more importantly it would be interesting to to understand how much Chinese Travelers accounts for in terms of sales in in Canada. And so, I don't know if you can give us an assessment of same nationality, which would be quite useful in in understanding the this revision. Thank you.

Hi, so I think a guidance revision has been it's important to understand is driven by the impact of the outbreak on our own business in the fourth quarter having had a third quarter in line with expectations across our key metrics in China. What we're talking about here is that we home of negligible Revenue across our entire store Network, including two months and while local demand in North America and China continues to be strong International birth control. These consumers is essentially shut off due to travel cancellations and restrictions and for us and for the sector generally off these they are the largest buyers of luxury goods.

No.

The impact is called less severely unit by unit basis the size of our business outside of Greater. China is much larger and larger in terms of distribution revenues you say month for those reasons and this is reflected in our guidance. We also expect material Revenue declines in North America and Europe historically, we've always said that God, we have a a mix of clientele which always varies by store but

On in aggregate. It's a 50/50 mix between domestic demand and international demand and I think that's what you're seeing play out here.

Thank you and and just maybe a follow up on wholesale. I think you you mentioned that Canada was close to maturity. I'm just wondering if you could give us a an update tons of where you signed in terms of the number of doors. I think I think you went gradually down from you know, 2500 to close to 2,000 or maybe a bit below. Where do you stand today in terms of the doors at wholesale?

So so in fiscal eighteen, we were at 22 physical nineteen. So we were 20 218 on a gradual journey of editing towards about the two thousand miles.

Okay.

Thank you.

Our next question comes from the line of Omar Saad with Wi-Fi, please go ahead your line is open.

Morning, thanks for all the information. I appreciate the update. I just kind of wanted to follow up on the you know, the commentary around China and the coronavirus impact, you know, just to cut a couple of questions and Thursday within that. Did you see a a sharp drop off both in mainland China and with a tourist business outside of Mainland greater China, could you see that really Stark drop off post that kind of January 23rd timeline that everyone's pointing to and then I guess if I look at your revised guidance, it seems like the implied fourth quarter growth that was implied in the guidance previously, you know is probably dead round plus twenty and now you're it looks like you're talking about -10 to -20 for the fourth quarter. Does that mean that the Chinese consumer does that apply to the Chinese consumer is roughly Thirty forty percent of your overall basis right way to think about it including the the traveling Chinese consumer. And then are you last piece on the last question was trying to piece are you seeing any you know, what's happening in with your e-commerce business in China? We've heard from a couple of dead.

The e-commerce business is holding up.

Better because people don't have to leave their homes, and they can still shop online and have stuff delivered. Thank you.

Yeah, I mean in terms of of the big picture like I think that you know, the the fourth quarter was the impact impact on the guy into the fourth quarter would rather die off and and also to Chinese tourists traveling in the the overall travel bans that have taken effect and airline cancellations and that has caused a decline in traffic over also understandably. People are staying home.

and not shopping, you know taking care of their health with you know in stores or online as much as they were before and you know, and that's that's the macro reason why I ask

I don't think it's fair to say that, you know the the drop off in traffic in miles and in shopping destinations in China was sudden dramatic and happened and affected the entire sector around the time you suggest

And that applies to mull just as much as it does physically to the stores.

How interesting okay. Thank you. Thanks for the call a great job.

Our next question comes from the line of Kate Fitzsimmons with RBC Capital markets, please go ahead your line is open. Yes. Hi guys. Thanks for taking my question. You know, I am too early obviously to give guidance for fiscal 21 just given the business is facing some headwinds right now between Hong Kong and China, you know, Danny you've been pretty clear that Asia is a big part of the gross story go forward off, you know, and you have seen tremendous growth in recent quarters. Despite what you're seeing right now, I guess when we were thinking about fiscal Twenty-One growth plan, how is what you're seeing in the business right now adjusting how you were thinking out the gross gross levers and two fiscal twenty one and then longer longer-term. Can you just speak to your confidence that this headwind doesn't impair growth below that 20% plus 3 year top-line outlook. You guys put out about a year ago. Thank you. Thanks for question. I mean, we're very confident in a long-term prospects for the business. They just do a U-turn business impact and there's a long-term business impact.

Let's see. It's a major headwind near-term.

Long-term, you know, we're very confident Financial strength of our business and we're poised to continue our expansion and we're very comfortable that we need to do. So, you know on the same page. So much for that. We have been growing our business, you know, especially in China where we just started just over a year ago building that business unit and growing very rapidly and it continues, you know, there's so much runway there. We're excited to continue that growth once once this um, once once this crisis passes and once we get we as World get through it off and

And you know, I think you could point the things like the you know, the the fact that we were included as one of the hottest brands on the list into action, you know in in in the last quarter of 2019 at that I think are very important external validation of what of-of are Brandon of what we know to be true. You know, that's on top of it is a growth that we have. We see great strength in as a continues to grow. So we see a lot of really positive signs. We see I think the concept store in fact, we're taking a leadership position and redefining and finding out, you know, the new new generation of experiential retail that's really important to us to not be complacent to continue to to to to feel that that

That's all really important.

So, you know once we get past this this this this temporary and specific, uh matter, I think a very confident are continue to deliver.

Great. Thanks so much.

Your next question comes from the line of Jonathan comes from Baird, please go ahead your line is open.

So we can't hear the speaker off about that. And also I can't hear the speaker Jonathan, I'm not able to hear you if you could remove yourself from speaker phone.

You want to move on to the next one and we can take Jonathan after he reach you certainly our next question comes from the line of Michael binetti, please go ahead your line is open.

Thanks for taking our questions here. So I want to follow up on the coronavirus impact. It looks like you're you're implying margins in that business. And that was lost sales rep was similar to what we've seen from some of the other Global businesses recently. Um, but in the I'm trying to figure out is that is the is the you know, $55 million dollar reduction wage. Is that concentrated in global DTC or was there any did you lower the plan at all for wholesale that you had in the fourth quarter? I would seem like most of that would be

It seems like you're putting your assuming most of that impact will happen in direct-to-consumer would be helpful to understand kind of what you're seeing here for you. I don't know if you're seeing any wholesale Partners cut orders in the near-term this quickly considering Thursday. It's really just hit, you know, the news wires three weeks ago.

I might just Jonathan that you're you're absolutely right. It's this is a DTC story wholesale is is relatively low in this quarter. Anyway, it's all in Palm Spring business is proceeding as planned. This is all about DTC.

Okay, I guess I just I want I would love a little bit of help understanding some of the metrics of indeed to see because the business has grown is become a lot more complex and a lot harder for understand. We're trying to reconcile between Dynamics like 29% data see growth in the quarter. The store count was up 70, you know, depending on the footage if we have it, right? It looks like it might be fifteen numbers are significantly higher than the 28% total D to see growth. I know you'll you'll laugh a difference in productivity As you move out of the real power centers and in SoHo and things like that, but it's hard for us to understand the componentry of how the Legacy stores are are growing on a year-over-year basis is eCommerce growing globally within within that data see number just because of the number three lines that are feeding in there. Is there anything you can help us understand? So so we get a better understanding of the economics of the of the news stories as they're coming in and you really move out of you know, the shopping center wage.

It's not going to be.

Shopping centers right like like outside outside of Soho with the kind of economic like that as you go forward and I think it's becoming more important important for us to understand as the store kind of grows bigger for you.

Okay, so two or three things number one, we've got twenty locations in a world where there are way more than that in terms of prime high-wage active retail luxury locations. So it's not a question that we're sort of going down the list as it were and some only having the best stores in the first year of everything else is was not so second Point inevitably that for different cohorts of stores have different characteristics and the issue is kind of old two stores happens to have a set of characteristics, which is somewhat Different Page when it comes to the the sales densities that we experience for a variety of reasons and I enumerated those on the call. It might sorry my prepared remarks in the

Sense that you know, we've got stores which are into it.

Locations or we've got stores that are in resort locations or experiential schools and therefore extrapolating the sales density of the existing Fleet into those and expecting that to to be how the number of themselves is is probably oversimplifying it is as a result and but that said when we look at the future Runway and the dead but let's see a a Rosey stores and and the and the and the sales from those stores into the future. We have huge amounts of white space to grow them to grow the brown when it comes to online we've seen strong performance in our online pretty much around the world. I think, you know, we've certainly seen call. The the strength of performance in America. We've pulled out the strength of forms and in China both of which are huge e-commerce markets and both of which saw significant dead.

As we get further into omni-channel, I see that as a point of Leverage across the entire.

operation

Can I just if if if Corona comes and goes within the March quarter, I don't know about the timing is this a 20% multi-year Revenue growth algorithm business long as we get into twenty twenty-one.

for a variety of of of reasons we've we've made the case as to why this business is a fraction of its eventual size the impact of this month terrible in Sutton Health crisis is temporary, you know View and it doesn't affect our view of of our strategies kind of the potential of this grind and evolve but as he continued to grind,

Okay. Thank you.

Our next question comes from the line of Jonathan come from Baird, please go ahead your line is open. Yeah apologies for the last time maybe just to re ask my question. I really want to understand is you're planning the business how you're thinking about the ongoing impact from the the coronavirus crisis and you know, you think to the months in quarters ahead just any more color choice on how to think about the seasonality as it changes, you know in the relative mix of of the business being impacted and then also your ability to to react more from a from a cost or marginal perspective.

so I think you know we

Being responsible in the way that we plan to business. Obviously, none of us know exactly how this plays out and over what period of time but what we're what we're doing is if you like looking for business through two lenses one is our long-term growth our long-term potential and ensuring that we are taking the right decisions to to continue to grow this brand and on the other hand with things so that we are good Financial Straits of the business.

I agree. I understood.

And then and then is it I'm sorry. Go ahead Danny.

You know, I was you know, I I think that you know, your German long-term and the near-term we're being cautious and long-term on, you know, I I'm an optimistic person. I have a friend this tremendous amount of optimism about the future of this week.

Okay, great. Then just one follow-up, you know both related to some of the comments around Canada and the tough retail environment and then the obviously the Dynamics in China just when you took the inventory you have today like how different is it on hand versus what you would have expected, you know ninety days ago and just any thoughts about, you know the risk to the the balance of current Goods that you have on hand. We're really happy with what we stand with her reverse our inventory as we've explained and this kind as we planned we've really been building building are in his capacity to wage war strategy bars from beginning and we've we've successfully reached a point where we're very happy with that the the our our in-house facilities to a point where we're now analyzing a third-party contractor. And so, you know as a result of this bill, but built a lot of inventory and and through this rationalization, we're going to see the ratios. I inventory-to-sales come down and I'll become dead.

and the third quarter

Next year, you know also as a result, we have a we have a good amount of inventory all all this inventories is staged for next year as Jonathan mentioned his prepared remarks over eighty percent of it is money is made for next year and and it's all good inventory. So and we feel like we're a really good position, especially given, you know, the unfortunate events that off the different buyers presented to to be able to deliver all voters for next year as well with this inventory.

Okay, I appreciate the color. Thank you.

Your next question comes from the line of Oliver Chen from Cowen and Company you're line is open.

I thank you as we model the gross margin on a on a longer-term basis should we expect continued pressure from freight cost inflation? And as you enter newer categories, the the negative mix impact would love your thoughts.

Thanks, I think from our from our point of view. We nothing's changed in the sense that we talk we talk about tailwind and we talked about how wins and a half hour longer. It doesn't change in other words, you know, we don't see margin over time going up or down what we see is ourselves managing a balance in Channel wage between the tail Winds of green wool production in-house pricing efficiency, and it reinvesting that in the in addressing the cost of the inputs that we have as well as in the development of our product.

So we don't see anything.

It's really changing that program.

Okay, and the newer categories it looks like consumer reception has been really good. What are your thoughts on the inventory planning around newer categories and a different kind of risk profile as you were sort to year-round product versus some of your core course high-margin Staples.

We're really excited about how the how the reception to our new products and I think that the reason why that we've been able to deliver great new products to Market is because of our strategies your time around new products and making sure the right for the marketplace and we're very conservative and how we build it inventory through our new products and new product offerings, which is why they build slowly and we're home and and overtime I would believe that's the right way of doing it and leave a long Runway ahead of us. Thank you, Leslie. Are you thinking about in terms of your strategy and what what you're considering for growth opportunities and synergizing your talents?

We are not.

history questions

Our next question comes from the line of Sam poser from Susquehanna, please go ahead your line is open. Good morning. Thank you for taking my questions a couple of things life prior to the Slowdown of the traffic due to the coronavirus. Was there a change in the manner The Filling orders that were off from from retailers that was planned for fourth-quarter. I mean, was there any impact on any other thing in the fourth quarter, you know, maybe due to weather and said that that impacted your fourth-quarter reduction and guidance as well.

No, I mean if anything we what we saw was that we took more than season orders and we thought because we guided as you'll recall to to mid-teens to climb in in Q3 at wholesale and we actually came in and they sent also Decline and and the Delta that was the n Season reordered. So, no, absolutely not.

but nothing impact

The expectations of so some of those reorders may have been pulled from what you're expecting in fourth quarter, but but nothing else changed and and to be honest, he was in the inventory in Q3 when they can sell it. They they were looking for it in the country are our our wholesale orders in Q3 were higher than expected. Now if we shift a lot in the future and we expected a year-over-year decline, but it was the last time we thought

best regards

Thank you. And then secondly, are you doing anything, you know with your logo, you know adding more Black Label maybe developing authors new logos going forward, you know, I noticed that within like the Soho store that there's just a relative to others as a very large swath of black life there. But I and and I was just wondering if you had any, you know, anything in the works in that regard.

Thanks for question. We we we are trying to have a good believer that consumer choice and you know, we you know, we recognize a different consumers have different tastes and preferences and that that's you know reflected in the you know colors of the logos that are available on Market.

All right. Thanks very much and good luck.

Our next question comes from the line of Mark Petrie from CIBC, please go ahead your line is open. Hey, good morning. I just wanted to ask about the relative sort of pricing levels wage and price increases that you've taken across the portfolio this season. Not sure if you can quantify what the overall sort of price increase would have been for this year and sort of interested. I guess specifically with regards to park has but also then in lightweight down and you called out the success there and then you know, you have been introducing many new products at the higher end of the range. I'm not talking about but just in terms of the core portfolio wonder if you could talk about the performance of those newer products at the higher end and your perspectives on pushing prices further in fiscal 2021. Thanks God so volunteer your question to pass. I'll talk a bit about pricing. I've always talked about taking price in the mid single-digits and that's that's something that we continue to do.

Not applied.

Across the the product Collections and then we deploy that around the world in line with the global pricing and threats index followed by a month. So nothing's changed that we continue to do that.

Jonathan's, in regards to put a new parts into the marketplace at higher price points that has definitely been a strategy about hours and I'm happiest is working extremely off and tend to continue to do so.

Okay, and then I just wanted to follow up on the previous comment just about the trends in Q4, you know that there is does seem to be a pretty healthy inventory levels throughout throughout the week channel the wholesale Channel. I know you haven't seen sort of evidence of discounting but could you just talk about your conversations with your wholesale Partners to this point their level of sort of comfort with inventory levels today and and how you see that playing out of relationships with partners with always aligned ourselves with the parts just to share the same values that we do and we you know conversations are really easy because we you know, we first of all we we are a brand that that helps Drive traffic to stores as long as many of our also fires have called out themselves and and and and so, you know the nature of the conversations are very easy, like it's you know, we're we're we're an outlier and that we dead.

And that you know, we don't believe in being Promotional and our partners share that vision.

Okay. Thanks a lot.

Our next question comes from the line of Ike boruchow from Wells Fargo, please go ahead your line is open.

Hey, thanks for taking the question. Good morning. Everyone. I think Jonathan just two questions for you. One is the clarification is very simplistically. I'm curious prior to the Corona virus outbreak given what you've had in in your pocket for for Q3. Would you guys have planned to reiterate or raise your fiscal year outlook or is there something else on top of that wanted to clear that clarify that an age when I digging in more on Q4 and maybe even Beyond can you just talk about the gross margin implications? Because when you think about the revenue issues that you're having at DTC, it sounds like gross and should be should be under pressure because of the mix of the business shifting in the more towards wholesale but then but then within that I'm assuming that there's even more margin a margin declined because the of the higher what I assume is a higher-margin DTC Revenue within those those stores in China that are going away. So I guess there's any color on the on the Q4 gross margins and and Beyond as well.

Okay, so I think two things first of all, we've we're being very clear that we were.

And U Street and what's changed in the fundamental thing that has changed is the is this terrible situation with the coronavirus off that is the sum total of the change in the business. That's what we're talking about here and its impact on dropping consumer dropping turns around the world month. So that's the first question you asked as far as the price margins are concerned. We we're all record as saying that we see high single life forces as it for wholesale Grossmont. It's a mid-seventies for DCC gross margins has the right place for this business what you see here is exactly that's that's something that I expected to pay out of the time. I don't see any change to that you'll see some seasonality when spring is stronger margins for the time being a little bit wage.

Spring this week because with the diesel margins are a bit stronger, but fundamentally you're looking.

So the wholesale press apology more that's where it is. Did you see margin more or less where it is going forward and then the Optics of the business will change has wholesale assumes the same proportion of offices and DTC seems to pick up a portion of the business know nothing changes.

What can you what can you comment on cue for specifically given what's going on with with DTC under pressure and and China within DTC Under Pressure. I'm trying to understand how much gross margin pressure we should expect for Thursday. You should be reading things into Q4 that there should be any real difference in patent of what we saw a year ago in Q4 because ultimately to the extent people are behind they're buying the same mix of products that have been buying a year ago.

Our next question comes from the line of Alex from Goldman Sachs, please go ahead and your line is open.

Good morning. Thanks so much for taking the question here. My first question is on the the Canadian Market you made some comments about you know challenges there. I wonder if you could elaborate I did. Region full short of your expectations coming into the quarter or was that you know embedded in in expectations before and then my second question is on the on the European market a couple of openings there this quarter, you know any color on, you know performance there and how that's you know, changing your thinking on the opportunity in the European market and thanks so much.

Yeah, thanks Alex. You know I think our wholesale business in Canada is reaching a point of maturity. The retail environment here is softer than other markets including including the US and

and frankly some of our partners did not have a great fall winter season and we are in the process of rebalancing our presence ending it down and this is natural occurrence. It's not concerning to us, you know, Canada South America in terms of distribution routes at the size, you know in the immediate term. We've also we also have to contend with the impact of the of the of the virus of birth and just do travel and the effects it has on travel and tourist traffic in that that's going to be a headwind and none of this none of this at all concerns me when it comes to our brand health or continue to see strong potential and our expansion again at the commercial energy in our store that seems tense and the consumer sentiment behind it is is it remains extremely strong?

Great, and then maybe a comment on the on the European European market?

European market remains very strong

No.

Yeah, we open to new stores there this year and we're very excited about that. First of all on Earth in Paris. And you know, we we see, you know, I mean Europe Europe Europe relation to all of our markets has the lower lowest percentage of TTC. So we see a large large amount of Runway they're going for

Fantastic. Thanks for what color?

This concludes our Q&A session for today. I will now turn the call back to Danny Reese for closing remarks. All right. Well, thank you. I'll very much for taking the time to be here with us today often times. We appreciate your interest in and your support of Canada Goose and I very much look forward to speaking to you again at the end of the year.

This concludes today's conference call. Thank you for your participation. You may now disconnect.