Q4 2020 Canada Goose Holdings Inc Earnings Call
[music].
[noise]. Good morning, My name is Chris and I will be your conference operator today I.
At this time I was like to welcome everyone to the Canada Goose fourth quarter 2020 earnings call.
All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question answer session to ask a question during the session you'll need to press star one on your telephone. Thank you.
I would now like turn the call over to Patrick Burke, Vice President Investor Relations you May begin your conference.
Thank you, Chris and good morning, everyone with me are Danny Rees, President and CEO, and Jonathan Sinclair VP and CFO.
After prepared remarks from Daniel Jonathan We will take your questions. This call, including the Q and a portion includes forward looking statements. Each forward looking statement is subject to risks and uncertainties that could cause actual results to 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 well it's in the risk factor section of our most recent annual report.
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.
Our commentary today will include certain non IRS financial measures, which are reconciled in the table at the end of our earnings press release.
With that I will turn the call over to Danny.
Thanks, Patrick and good morning, everyone.
I'll be your families are all safe and did you all finding your way through these times as best you can.
Before we begin I want to acknowledge recent events of police brutality against black people across North America.
The marches protests and demonstrations happening around the world are important this discussion is important.
We support and we stand, but those were speaking out against any quality and justice.
As you know the World has also facing global health pandemic I believe that crisis convert I believe the crisis can bring out the best in people and.
And I've seen the I've seen that here in Canada use as well we've been challenge in completely new ways and I'm. So proud of our company has responded.
At all levels, our team has gone above and beyond to help the business weathered the storm, while supporting each other and the communities that we serve.
I want to give special mentioned towards human or partners in greater China.
The first part of Canada Goose to deal with his global pandemic, where we are grateful for all of the wisdom and encouragement that they've shared with the rest of the business.
Throughout the crisis.
To all of our employees. Thank you for your resilience and your determination during these trying times.
All crisis necessitates focus and decisive action. During this crisis. We've spent a lot of time asking ourselves what's important we're keeping it simple our plan is first to do everything we can to support people. So that we can emerge from the pandemic together stronger and second to put put the business and the best possible position for a strong.
On recovery whenever that happens.
These two things are at the core how we're approaching the year ahead.
Clearly we are in uncharted territory covert 19 will have a well how far reaching consequences for the entire apparel industry for global economy and for society at large.
Every company is facing extraordinary uncertainties and unknowns.
So instead of pretending that we have a crystal ball, we're focusing on the knows the things that we know to be true.
With that in mind here six themes that gives me great confidence in our future and in our ability to come out of this stronger.
Number one.
First quarter is likely to be the most heavily impacted and it is our smallest quarter.
Most of our stores on a wholesale partner stores have been closed since late March.
Retail is now starting to open back up in North America in Europe, and Asia is also continuing its recovery.
This means the high point for suspended revenue will soon be passed us for Kennedy was specifically this coincides with a time of year when our revenue was already at its lowest.
This reduces the impact he was a long runway before we hit our peak selling season the winter.
Two we have the financial strength to weather the storm.
Profitability and cash flow have always been very important to us. So we always had a strong balance sheet.
Oh, we already had a strong balance sheet a win win when we began to feel the effect of the pandemic.
Over the past few months as a crisis intensified meant we made an additional considered effort across our entire business further reduce cash outflows and bolster our liquidity.
At the high margin business with a clean balance sheet, we remain remain firmly in control of our destiny I know that we have we have the financial resources to weather the storm Jonathan will share more detail his remarks shortly.
Specifically on inventory, we're happy with what the amount and the complexion of our existing inventory.
Despite having production facility is closed since late March we largely have what we need to meet demand this year and because of our own manufacturing infrastructure, we have the ability to quickly make more as needed even with the required physical distancing measures.
Number three we make authentic best in class products, our promise is simple and timeless.
We make function for survival products. They are now also fashionable and earnings and in urban settings at their core they deliver protection, we know that in previous times of crisis people have gravitated to Canada goose as it looked for investment products will be functional and the velocity years not seasons.
Now before we're leading the way and sustainability send ability has been.
An important issue in the global landscape for years and hasn't highlighted more acutely through this pandemic for us to there's a ton of momentum building around sustainability.
Well not a new issue for us we accelerated to accelerate our efforts in 2018, when we established our corporate citizenship department with the mandate to more deeply embedded sustainable practices across our business.
In the past year, we've taken a hard look at our cells and develop the plan the title pressing challenges any much bigger way than ever before.
The result is our sustainable impact strategy, which is outlined in our first ever sustainability report that we released in April.
This includes aggressive targets and from deadlines are under carbon footprint and key raw materials and our supply chain.
To us this is a major milestone for the year end something I'm really proud of we're putting a stake in the ground and we're leading the charge.
[noise], which we all know needs dot, leaving the leading the changes, which we only need to happen within our industry.
Number five we're well positioned in an increasingly digital world.
We've always been digitally native ecommerce is where we started our direct to consumer journey.
Weve investment Weve invested heavily for years with a long term view, having that foundation already in placement that we are not scrambling to build an ecommerce business overnight.
What we are doing is quickly reallocating really significantly advance our global omnichannel capabilities by our peak season.
Working.
We've seen great spicy factoring sustainability in it initiatives and new product releases.
Like our overboard yellow spring jackets.
We're also seeing positive trial Tropic and transactional trends. This tells me that we continued to be a highly relevant brand and despite these difficult times and during the smallest quarter and it gives me confidence that.
Even in the event at the second wave, we will do well position to meet consumer demand.
Number six Kennedy use thrives on change.
One thing that I have embraced again and again in my career is that our company is innately capable of dealing with change.
In facing our biggest challenge as we have always found a new gear and continued forward to create new opportunities.
Entrepreneurship is a core competency Canada use we've followed our own playbook in succeeded and doing things I've never been done before.
Our temporary shift to manufacturing PV is yet. Another example of this entrepreneurial spirit action.
I always believe that occurred in Canadian manufacturing infrastructure. It was a strategic asset, but never more so than now.
When the world shutdown and the need for P. became urgent, we pivoted or manufacturing answered the call. Although we actively manage the business through this challenging time.
And under three weeks, we retooled our supply chain facilities and workforce to produce desperately needed PE for frontline workers.
With eight factories across the country nobody any any Canada was better position to help and we knew that it could not win today. Our team is producing approximately 100000 units of gallons every week and cost for prevention posses to do more as needed.
We are truly embracing the uncertainty of these times and.
And reset to best position ourselves.
For continued success, we can take whatever comes our way and come out even stronger on the other side.
Important we're focused on the important things.
We'll be relevant in a pandemic.
And to post pandemic world.
Remains strong and I continue to believe in the power of Canada Hughes in a brighter future for the world.
Thank you and with that turn over to Jonathan to go over the details of our financial results results.
Thanks.
Good morning, everyone.
Thank you for joining us.
I hope you'll saisons.
So.
The focus of my remarks today will be different.
The reach and intensity of Cobot 19 at all business.
Has changed dramatically since we last spoke.
The initial impacts as a pandemic, we're limited 12 fast growing Asia business and travel related demand in international destinations.
This became a much larger more global headwind at the end of the fourth quarter.
That's North America, and you're close down the vast majority of our revenue sources as well shuts off.
Yes.
With that sequencing.
Overview of our results.
And the current situation.
Looking at all key metrics for fiscal 2020.
You'll see a business that still delivered strong growth I'm robust profitability.
I see this despite the significant external headwinds.
Total revenue increased by 15.4% to $958.1 million adjusted EBIT margin was 21.6% at adjusted EPS per diluted Chad was a dollar in such a two cents.
These levels of performance speaks to the resilience of a high margin business model.
In the fourth quarter specifically.
There are a couple of revenue impacts I want to highlight.
Starting with revenue by channel.
DTC decreased by 6.7% to 114.
Yes.
A near doubling of all store count.
It was offset by disrupt purchasing from Asia.
And consumers globally.
The height of the leading regional outbreak.
Peak fall winter shopping around the lunar new year.
Okay.
And this was largely confined to that.
Central shopping is of course.
Outbound international travel and shopping from the region.
That's it.
In wholesale revenue decreased by 24.2% to $25 million.
Coming out of peak season, we started to see accelerating weakness early in the fourth quarter.
This was particularly prevalent in Canada.
<unk>, which we discussed on our last cool, that's having a more challenged retail environment.
We make the cold to move quickly back shipments in response.
From where we now sit today, we all in a much clean inventory position as a result.
As cobot 19 started gaining momentum elsewhere, we realized we put in for a longer I'm more than 10 stone than we initially expected.
We move quickly I'm boldly to bolster what was already.
Very strong financial position.
The end result is something uncommon in the industry today.
A business that can still be meaningfully cash flow positive on an annual basis with long runway through additional liquidity coverage.
This includes P.P.E. manufacturing, which we expect to be cash flow neutral.
In the.
First quarter fiscal 2021 11.
We have reduced anticipated cash expenses and investments by approximately $90 million.
More than offsetting the cash flow impact of lost revenue.
The largest driver of these savings is working capital.
The mandated suspension of downfield Jack production.
Has eliminated our biggest use of cash at this time if yet.
With 300, and starting to goods on hand at the end.
No. We currently plan to make significant inventory investments in the first half of this fiscal year.
That's retail reopens office comparable is an incredible advantage over those with outsole just in time multiples in offshore jurisdictions.
With fiscal 2021 sales largely supported by inventory on hand.
We can easily accelerate all delay that at least also production as needed.
From a problem.
Built around enduring like homes with two sets to three cool.
This is a revenue by collection.
This is really quite good.
So this molecule Miss.
Yes.
Terry other the inventory from.
<unk> period more seamless.
It's like.
In costs. This includes lower executive compensation, and lower variable SGN <unk> from temporary resell and manufacturing closures.
We've also refocused our investments in Mo.
Good rent abatements.
And deferrals from many.
Partnerships or.
Given take we write the EPS, who have worked with us.
Finishing with investments in both retail and manufacturing expense.
We can no longer needed in the current environment.
We are currently planning around the.
<unk>.
No spend relative.
To the $75.2 million that we spent in <unk>.
As needed we have the flexibility.
Oh planned spend is mboe for DTC, driven by new store openings.
We are comfortable delaying and canceling convinces openings, especially if tends to work with this new environment.
We now negotiate.
As a matter of course.
New leases.
[noise] alongside cash flow all balance sheet is another point to strike.
We have increased borrowing base in the asset backed loan.
<unk>.
Alright.
Up to $50 million lost out facility.
As that June 120, 20.
We have cash on hand about $119.7 million and Undrawn credit facility capacity of two up in $39.4 million.
Yes.
Most importantly.
We have maintained low leverage.
Low interest rate low interest costs, and a highly flexible covenant lite structure.
Moving on to current trends.
From what was a total stand still a few months ago.
We are seeing signs of a gradual recovery embrace a choice.
On the retail side.
Thoughtful around all locations in Shanghai, and Beijing engine hearing continues to be impacted.
However, we are seeing some early green shoes.
Conversion has been great for those who do venture out to show.
Ill spring collection has resonated well.
Not surprisingly the recovery has been false stuff online.
Team.
The one exception to this in Asia is hopeful.
Restrictions of council the flow of inbound tourism, which is the primary driver of luxury market traffic.
Oh tenancy around purchasing.
Uh huh.
I don't.
Travel segment remains restricted.
I'll two stores that all still heavily pet.
That brings us to North America in Europe.
With that.
[laughter] of Cobot 19, a more reasons.
A lot 16.
We announced the closure of <unk> retail stores outside of greater choice.
That represents 75% of all total fleet.
We have just had a first reopenings in Paris on May 20.
Followed by the middle.
On May 29, Montreal yesterday.
We continue to evaluate further reopenings.
On a rolling basis.
The first that of course is regulatory approved.
Approaches a very significantly by jurisdiction and we expect that continue.
We also want a high degree of confidence in the safety of all gas.
I didnt sustained levels.
Sufficient traffic.
Well, we came to reopen on network.
It's a home.
Is much more important than doing it falls.
Like everyone in the sector all stores are going to have to go through an adjustment period.
Based on what we've seen we expect slow styles with rigel assumptions of traffic.
As an experiential brand.
We believe consumers will continue to value in store experiences in them on but Rob.
With changes to travel we will need to take a more localized approach in certain locations.
But we know that these stores are still very productive on local demand 11.
We also have a well established footprint in greater China, just sort of what it typically are most active international shoppers, but Uh huh.
When it comes to E commerce, as Danny mentioned consumers Oh, because humans are living look much more digitally.
We have seen strong engagement and significantly higher traffic on our web sites driving.
This Smith.
Brian strike.
Secondly, as a time when People's lives have been turned upside down.
That said, it's is nowhere near offsetting the much larger temporary revenue shortfalls.
That's a low points in the Oh well in purchasing.
In a buy now wear now world.
Natural given the limited in season relevance of offering.
Based on historical patterns, we expect E commerce to become much more of a needle mover in season.
During the fall and winter months.
Moving on to wholesale.
We've had a knits harmful socks off of shipments since the end of March.
Due to the closure of a positive retail operations.
This is continued through to the presence.
That's the channel starts back up.
You will see us take an even more disciplined approach to our partners answer the shipment volumes.
It remains strategically important.
We are increasing and.
Just on DTC.
Particularly in the early stages of Rio.
As you know this allows us to control the consumer experience directly.
While earning double the revenue in triple the profit.
Unit basis.
[noise] reiterates, what Danny said in relation to the current trends I've just described I want to underscore just how well positioned we all with regards timing.
The temporary loss of our primary revenue souls is has coincided with our slowest period.
Just a 7% of fiscal 2020 revenue was generated in the current quarter.
We don't get into peak sales and earnings until the winter months in the second health the.
This reduces the impact and gives us much more buffer relative to the ongoing uncertainties everyone in the sector is facing.
In summary.
With a resilient I'm flexible financial profile, we believe we're well positioned to come out of cobot 19, even stronger.
We will continue to play offense I'm focused on the long game.
What we stand for as a brand has never been more relevant.
And our distribution is highly adaptable to how the consumer shopping evolves.
Cobot 19 has changed the courseware on but not the destination.
The foundation of our long term potential.
From channel geography to product remains the same.
With that I will pass it over to the operator to begin Tonight.
Thank you at this time I was like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. The first question comes from Camilo Lyon VTR Jim.
Line is open.
Hi, Good morning, everyone. Thank you for any yeah, the commentary any update.
Thank you. Thanks, Jim Gray. Thanks, you know you shared a lot there Johnson at the end and they wanted to delve into something about the points he made.
Yes first one of the last comment you just made a increasing focus on DTC I think that was in light of.
The the shutting of demand from the wholesale channel.
Did you. So could you just provide some more color on on what you mean by that and maybe shed some color on the discussing that you're having with your wholesale partners about fall shipments.
And ER and then how you're tying all they seem to youre well positioned inventory.
You have on hand.
Yes, if if we take the first part of that which is how would focusing on DTC clearly weve talks about the.
Investment program that we've got lined up.
We see significant opportunity to continue to develop all retail portfolio as well as to work with all existing stores at our existing client base that.
We're also investing strongly behind our online business, which we see as pivotal as this.
It's time as possible Copart about DTC channel.
Yeah Okay.
Okay.
I was I didn't talk also.
And.
Oh, we will great relationships with a wholesale partners and you know obviously as everyone stores were closed for a period of time, there's more store inventory in China.
And that's a natural along.
That's a natural byproduct of of Robin.
But.
So as a result.
As a result, our order book will be slightly lower wholesale perspective going into next year.
That said.
Largely our Ah our product sarnoff discounted and our business model remains intact and we're feeling very good about the partners. We have there many of them are expecting us to be one of the brands to help lead them through the recovery and and so.
See signs that.
Oh, well always set the whole so important part of our business they continue to be important.
Great so that to suggest that the inventory at at wholesale right now is relatively sufficient for the upcoming season and that's what's going to make you focus on your DTC channel. All the more you now that you may have some fill in product to create a more full representation, but for the most.
Part what exists that retail at wholesale is sufficient <unk>, whose areas more there's someone will host inventory and channel than is typical that said our order book on for we're happy with it it's exists as strong as long as far as last year, because we haven't heard as a child, but.
There will be will suffer Mrs. Here.
Significant wholesale shipments this year and one reason why we're focusing on D.C. So much is that especially as we've seen in this environment. That's that's where people have engaging seen great engagement, there and we know that no matter what happens and their future. So unpredictable dresses virus that no matter what happens people will be online people.
Engaging in shopping online and we want to have our strongest.
Possible omnichannel experience for his many peoples as possible.
[noise] on our website and that's why we're focusing there but a wholesale is in to the extent that Google maybe available is also would it be channel the people shop.
Oh, well overall, saying is it's just a bit too early to cool exactly what that looks like but that's done. He said is we fully expect healthy shipments in the channel.
Is there a direction that you can provide to it it's either positive or negative on the order book.
At this point.
So I.
I think the key thing to think about is that.
The visibility of the wholesale channel is much lower than is typical.
At this time of year.
No reasons I'm, just saying you know weve shop shipments since March and and that's continues to answer today. So I.
You should in in relation to last year, you should expect lower shipment trials.
Lower shipment levels, sorry, and added similarly late to timing.
But beyond that it's really too early to cool.
Got it understood. Thank you and then just it's okay provide some color on your variable versus your fixed costs. You. You mentioned that you take out about 90 million in expenses. If you could just maybe help articulate.
You percentages of variable to fixed.
You to think about this.
Well space in the three components in which I know they describe it.
So.
Right call saw Kindle costs.
And typically we're able to two new suddenly when it comes to the.
A favorable rental.
And so people cost, which it to the big components.
Second cost bucket is marketing, which we would normally expect to stay at the same portion of revenues and wall Street don't pick that ounces a specific number we do say.
The the amount of that varies pretty much in line with revenues and then <unk>. The third component is overheads and when it comes overheads that is somewhat more fixed although obviously, we take the appropriate actions at itron size out for the business.
As a size.
[noise], ladies and gentlemen, moving forward. Please limit yourself to one principal question and one follow up question.
The next question comes from like for a show of Wells Fargo. Your line is open.
Hey, good morning, Danny Jonathan Patrick I Hope, you're all doing well.
A couple from me a Jonathan our Dan Im not sure he wants to take it but first off can you just maybe break out the major buckets of the 90 million in cash savings and how that should be spread across a for the year that'd be helpful. And then just on the inventory or really helpful comment I'm, just kind of curious given what you're saying how your.
Managing inventory.
How does that limit your ability to potentially introduce newness. This year given it sounds like you're trying to sell a lot of inventory. It's already been produced and is there a situation where obligations the manufacturing P. P potentially limits your ability to produce regular.
Hi, Thanks, guys.
So let me take the the Uh huh.
Those which is around the cash or cash reduction and then I'll pass it on me.
So as I said.
Did you saw cash expenses and investments by approximately 19 million in the quarter over.
The two thirds of that comp comes from working capital.
Oh, just use of cash.
At this time if yeah.
He supported by inventory on hand <unk>.
Really does great human juice out needs of the other investment.
The remainder is split roughly evenly between reduced operating costs and reduced capex.
What I'd also want to school.
We've got the flexibility to reduce cash outflows as a year of olds should the need to rise.
<unk>.
We weve so.
The answer earlier like my comments.
We're very happy with.
The amount of inventory, we haven't this inflection there and whether we have also because you'd have the ability to or we did you ever can you didn't have the ability to manufacture I'm more of it as needed and inventory than we do we have stage was always planned around fiscal 2021, and there was always lots and then is built into it. So a lot of the so lot of our new programs.
For half a 0.1, our are alive and well and.
We will be.
For for this year as we speak run whose name is into it I agree in China.
With and we're seeing great success.
Including our.
Spring Brenda collection.
Great. Thank you.
Your next question comes from Kate Fitzsimmons of RBC. Your line is off of that hi. Good morning. Thanks very much for taking my question I guess, if you could you talk about the emphasis on the direct channel you had alluded to some greater in Boston and E Commerce and omni channel.
Could you just provide some greater color there and then Jonathan I guess, just how are you.
We're approaching jar opening into fiscal 21, and as we think about the productivity recovery as the year Progressive I'm. Just how are you approaching it just given the strong tourist business that you guys typically have I compare to local customers. Thank you.
So that's it.
That's that's taken I can say funds, which is which is around a initially the around the he told us that clearly there's a that weve as I said in a.
In my prepared remarks, we're putting a lot of emphasis on on the DTC channel. The consumer is is acting more digitally than ever.
And as a digital first Brian that puts us in a very strong position.
We continue to develop the functionality into web sites, we continue to.
Well that with or without stalls, we don't smoke omni channel function now, let's see here in Canada last year last fiscal and that's something that we see as a platform going forward.
When it comes to all store openings.
Early to call it with with integrity, you know whatever love them.
Got mean timelines negotiation soundtrack others.
<unk>.
Well as your goals.
We do have some world clause.
Locations already secured.
Couple of Exalt sends a one in Shanghai and.
The <unk> PML, we also have significant flexible well as I said before in a window.
It's all standards, if the business pace is there a little bit that.
[noise]. Your next question comes from Omar sorry.
Evercore ISI your line is.
[noise]. Good morning, Thank you for taking my question.
[laughter].
<unk>.
You are you are really one of the first out there to sound the alarm, even though it's still very early in the pandemic I'm of the impact on the Chinese consumer, especially the true traveling consumer and how that impacted your business.
Maybe we can you maybe give a little bit more of an update on what you're seeing with that Chinese the all important Chinese consumer whether it's through digital whether it's in stores.
And obviously, there's probably not a China a lot of Chinese traveling a tourist up there.
Maybe a little bit more update in terms of how about Chinese consumers are doing in the last couple of months ourselves in that market has reopened thanks.
Hey wants Danny its Oh, Yeah, you know China is on the road recovery.
Over sort of open and recovery.
It's happening and.
Yes.
I mean.
No it's reasonable to speculate that though we lose about who is next year and.
What the I've known as the bridge where people shop.
For all Brad.
The shopping behavior and behavior behaviors and patterns of people.
[noise], whether they shop in their own country, and how you know.
They're not traveling and no and I think this is oh brought back online. That's one of the reasons why we invested so much on.
Online E commerce capabilities for this years I think that.
I think that yeah can you tend to people go out to shop.
Makes sense those numbers or reduce the warm, but it's sort of them really well I don't think numbers.
Oh, the people that are going.
And that means that.
Those who are those who are who are shopping or shopping with attack.
[noise]. Thanks for the update then it good luck guys.
Hey.
Your next question comes from Jonathan Komp affair. Your line is.
Yeah, Hi, Thank you I, just maybe give an update kind of your broader sense. When you think of the economic sensitivity for Europe.
Yeah I was a question that may vary pretty widely.
Hey across geography or use but in terms of you have any any pressure on discretionary spending.
About the ability to withstand been and remain relevant.
Thanks for question I think that you know our brand.
It will too.
Withstand and even grow through a menu prices over time that provide a functional products I think our products last for lifetime.
And there they are a oh.
Their safety protective problem I think I think the reason for that reason our people got its work like that I think especially.
This winter when his holdouts I people [noise].
I don't feel comfortable go outside very much for one of them for a while I can't think of a better item to purchase on kind of use product, which is I think our items are seen as investment I never that I think that that's why we feel very confident that.
We are we're more relevant than that.
Okay. That's that's really helpful and maybe just one follow up what do you think about your key partners.
Well, it's been Canada, I know, it's bad topics the last few quarters, but.
How do you think about the health of your your wholesale partners and especially if you have other brands were to be more promotional or or impact the margin structure for for some of your partners.
How do you think about kind of distribution and what are what that may look like.
Oh, Yeah, obviously monitoring the situation.
Wholesale how that how it unfolds, we feel very comfortable and we feel very secure with their relationships with our wholesale partners are very strong and.
And ER you.
And also the way that Iran is perceived and that we are full price ran I think that it's an exact the wholesale landscape changes.
Sure I said, the library and I think that any changes in that and not landscape for more heavily into our direct to consumer trial I think that's a good thing for our business.
Okay I appreciate the color thanks, everyone.
Thank you.
Your next question comes from Pedro <unk> of Barclays. Your line is.
Good morning, everybody I'm glad you're everything well Danny I guess my question is on E. B supply chain I want to talk about the ramping the gradual assumption it down so jacket production.
How many still day in contract manufacturing versus direct maybe.
You know currently and what do you expect that to be up the ended the year and is there a significant portion of the down sell or the Romit Shah that's actually source it kinda class Asia.
I'm sorry last question.
But oh right I mean I.
[noise] over over eight factories right now are there at the moment, they're all mini foundry beauty opt for for government contracts and you're worried we are able to in some cases.
It depends its province by province in terms of.
Which ones are able to open it was time, but we're able to organize as needed to continue to me faster downhole products, while rather raw materials will need.
House and.
Well, we're fully able to pivot to me fashion.
The need.
And Ah you asked about the percentages.
Majority of our production at this point isn't it has not true I think isn't.
So 70%.
Right.
Okay, great and that Jonathan on.
You made a comment during the prepared remarks, you said, obviously keep see yeah, absolutely double the margin where are you referring to gross margin or four wall margin you know the DTC side or EBIT margin. So my my Oh my comment its own before the profitability of retail buses.
Wholesale so is there was this the retail margin.
The bottom line retail margin.
Okay fantastic. Thank you very much that's the black.
Your next question comes from Mark Bekri, Oh C or D C.
Your line is open.
For a for all the commentary I just wanted to ask on a on the marketing strategy and initiatives in the past thought of its been sort of grass roots in end market and event, driven obviously that looks very different in a pandemic, a and even post pandemic and I'm just wondering how you're thinking about marketing initiatives and brand building over the next year.
Yeah. Thanks, you for question I think.
So our cost me a marketing.
Well I think.
It's very social media, driven it's very injuries, very internet, driven and a lot evolve. It exists online I think that's very important I think that.
I don't like this.
One of one of the tend to.
I think that well brands Oh companies a for a half is the first <unk> marketing and a I believe that spending in marketing is a wise investment on with it.
I think that it's important especially for around like ours that we have authentic and real stories to tell.
And and we continue to do that in the primary shall for that is online.
Okay. Thanks, again and also just wondering you mentioned some of the positive web trend or online traffic trends that you've been seeing I'm. Just wondering if you can provide a little bit more commentary in terms of you know how that's looked by region and then what sort of the the pacing of that band if its coincided with sort of.
Walk down being need and broader spending we're covering or what that's about right.
Oh, well, we don't break out by region our.
Yeah, you know, we've we are very encouraged from overseas.
Well actually about it it's a difficult this kind of environment, which is which is so on certain and also you know.
Well too.
To look at any and you this data.
Now on it as a leading indicator.
The trends are very positive or more <unk>, which is rapidly.
Thanks, a lot all the best.
Your next question comes from Sam.
Poser from Susquehanna. Your line. Thank you for taking my questions. Good morning.
I wanted to I just wanted to follow up when you think about just I know you're guiding but when you think about the back half near do you think that given the.
The revenues the mix benefit of selling goods directly that you'll be able to offset.
Maybe some wholesales more than offset wholesale shortfalls by the increase business or theoretically be increase business in your direct business specifically digital.
I think I think that I mean exact.
That's good.
You know it. It's the reason why are not right Ryan like I am just because it's so hard to predict you know we are our super encouraged about a lot of although there's a lot of things are looking at with a great my optimism but.
You know, it's having said that its yeah. It's there's so much uncertainty in the world today that that that Oh, it's impossible to to provide any sort of topic.
Excellent. Thank you and then secondly, do you believe I mean.
What's the feedback have you been getting both from your direct consumers and from your wholesale partners in many of the initiatives that you've been taking vis-a-vis what you've done in producing P.P. any as well as.
The sustainability efforts or as far as I'm sort of improvement or changes or or evolution of the developer of the brand of the Canada Goose brand itself and.
Oh, and and and despite a warm winter last year or some of your wholesale partners.
You know.
Warmer than they might have been a without those initiatives swimmer warmer to you.
Would've been up without those initiatives.
[laughter] headwinds around candidate useful with a wholesale partners and with her.
Tumors remains very strong.
Yeah.
Hi that I talked about TV manufacturer and the reason, we decided to me PV.
As soon as we were became aware of the urgent need for was because of the right thing to do it since everything.
Benson and they're calling the prison lots of it today and you know that or do you need to position in Canada, having the.
I wanted to anyone else with a capabilities that we have to do what we're doing out to see other we're doing and where do we not because.
<unk> situation, where we were able to help and that's right thing to do I think that's yeah, I I'm very proud to go to do that I think a.
From a corporate citizen point of view in our sustainability initiatives. These are we all know that the apparel industry has to change and there's a lot of conversation around that and we are committed to being a leader in that I think that that I think that I think everybody.
Our consumers and our retail partners.
Happy to see that was with anybody because I think that's a that's a side will need to add something.
Paul This is a major.
Thank you very much and good luck.
Okay.
Your next question comes from Michael Binetti of credit.
Probably a commentary today congrats on a nice quarter managing very tough macro you know I wanted to ask I know you get some commentary on the annual trends in the in the press release and so on the call, but the changes in the D to C gross margin.
It was up I think fourth quarter was up about 550 basis points on a two year stack in the middle of a pandemic. So something somebody is going to her very right. There I'm just curious what the composition about was specifically in the fourth quarter and if that could be a change in how we should think about it goes forward.
Backing up and Danny I wanted to ask you you know on do you see a you know I'd love to know what a multiyear basis, how we should think about the physical store fleet. You know I know you said, it's too early to look out this year.
Here, but you know the E commerce opportunities continuing what your store fleet could look like longer term I think the real value creation.
So this brand.
Yeah. These stores that clearly generate returns well above your cost.
Stores opened in Comped negative the mom settle in need I know, there's been a lot of volatility in figuring that out from the financial world, but you've got it.
Absolutely source. It is very different economic difference how close do you feel like Florida, having a prototype where you can drop in 50 or 100 locations in North American market repeatable prototypes with more consistent economics better leverage on the Preopening process I think it you know it's important 'cause it.
Pointed out earlier in Q in a lot of a wholesale channel partners that you have do have some level of financial distress today, that's going on this call.
Predictably.
The gross margin also that I think what.
Lots about way in which we manage all I'll quit smoking in terms of the the Tailwinds that we created the headwinds we've seen.
We've seen the algorithm playing out could affect what we see is that we the the with with a combination of pricing sourcing.
That we're able to create some very positive tailwinds in in gross margin you see that playing out in DTC, that's compelling combined with type mix when it comes to both products and geography.
And that helps finance the investments that we continue to make from new product development as well as the inflation remit pressures, but what I would like that we see all job over time as keeping all kind of margins roughly where they all in the mid seventies.
And that's that's broadly speaking king how we see it playing out over time.
That's not changed.
Got it.
Yeah, the comment on stores I think that.
I think it's reasonable for for a used to consider us rule when a similar number of stores next year as John mentioned in his remarks, and and you should use years young we do not see yourselves and Brian.
Especially in today's Reis, Alaska has 100 stores, we Uh huh.
English foreign locations along with balloon.
I think that.
I think that.
It depends on I think.
Physical retail system important, especially so I feel we've demonstrated that whether it's through agile storage if there's a we.
Actually uniquely positioned.
This year.
[laughter].
It is very social doesn't distance.
Inherently I think that so I think that anyway.
Right as you can do you really have stores, but we don't have a specific target other than that we were not hundreds of stores.
Okay. Thank you very much.
[noise]. Our final question for today comes from for one Romberg of HSBC. Your line is open.
Yes, hi, good morning, gentlemen, and thanks for taking my question I, just wanted to come back to Asia, because the repatriation of growth in China started a wait before Kevin 19, I think of and I can just an accelerator a lot of your luxury pure there are matching the fact that they're growing up 60% plus.
I'm wondering if you could qualify what you're seeing there because I think you're saying that tropical <unk> is still down but conversion rates are pretty good.
And because you had a lot of purchases from Chinese Kleinfeld, a in North America I'm wondering if you can quantify what you are seeing in China.
And maybe if you have a better approach today in terms of what your sale by National you look like globally are you what is the proportion of sales you you do with Chinese a in your view today.
So.
I think the comment the commentary that the the we give them. This is.
A very much around the fact that you know were to point in time, where sales levels on a fairly low.
No. So any any context I'm, giving around this is is against all local into India, and therefore, you get a lot more noise and sick.
Even when you use you look at all the <unk>.
No what we have seen for show is we had seen the some early signs of recovery you know what just for China as I said <unk>.
And as I said to merger Oh is still heavily impact because it's just to come.
Fleet absence of movement inside and outside the country.
Oh, yeah, when it comes to mainland China, which we all seeing good strong performance.
Coming back.
We gradually high conversion rates, particularly standing out that doesn't matter, whether I'm talking about Shanghai, Beijing, or Shanghai, and I'm, saying, it and <unk> and I'm seeing it more strongly on line.
<unk>.
Well this quarter at Hong Kong.
Good news. This is this this is good purposes. This relates to every every other retailer by retailer in Hong Kong and that's that latest speculation is that right now there's a fortune day mandatory according to Korea, Hong Kong. So very few travelers are coming from mainland to Hong Kong and they're talking about talking about especially if others are not in early July.
Hey, Matt happened, but whenever that does happen. That's good news for anybody who has retest <unk> because they'll do much worse than what people for mainland to first off and I know that's something.
Hi, Thank you and just a quick follow up on Asia also most of your luxury appeared there thing. That's a Korea is also a rebound in quite nicely I mean, I don't think any Korea stores were actually shot.
During the Kirby 19 pandemic I don't know if you haven't footprint. There. If you can tell us a bit how you think about that market in terms of potential.
Oh for is very strong for us.
It's even better next year, we certainly would you can do this.
Overall, the long term potential.
We continue to be extremely extremely large.
Yeah.
[noise] that was that file to distribute smoking.
[noise] that was the final question for today I will now return the call Stoney River for closing remarks.
Thank you and I. Thank you all taking the time through those today. We appreciate your interest in your support of Canada Goose I stay safe and we all the forwards we enjoy again.
Very soon take care.
This concludes today's conference call you may now disconnect.
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