Q2 2021 Canada Goose Holdings Inc Earnings Call
[music].
Thank you Patrick and good morning, everyone. Thank you for joining us on the call today.
I'm really pleased to be here today to provide you with an update on our performance for the second quarter to reiterate our strict shift their strategic approach to navigating the COVID-19 environment and highlight trends that we see across our business going into our peak selling season. This winter.
Like everyone. We continue to navigate the ongoing complexities in todays world and witness how the pandemic is reshaping the global economic plans.
Okay.
As I've said before I believe the adversity.
Positive traction we've seen this quarter, which resulted in revenue growing more than 10%.
Within that growth, we realize an increase some momentum in September.
Moving past few too we've seen further acceleration and continued improvement across our business.
Digital obviously play an important role in the future to retail and we will continue to invest in expanding wholly owned international E Commerce and our Omnichannel solutions.
The strength of our E Commerce business will remain an important asset and business driver.
Adoption continues to grow among consumers globally.
Next onto our continued expansion in China, where we continued to successfully execute against such strategic growth plans for our business.
I am very pleased to report that our business in mainland China has it recovered to pre covid levels with revenue growing this quarter by more than 30% compared to the same quarter last year.
The important.
Now I'd also like to touch on how we're thinking about consumer behavior as it relates it relates to trends, we're seeing across markets heading into the winter season.
We strongly believe this trend will build on foundational strengths, which we consider to be a tailwind tailwind headed as we head into whose season.
First this year, we have seen the word protection take on a new meaning in the world and by extension across our business.
Experienced that we gained for network.
The reaction from consumers was exceptional with the collection nearing sell out in many regions.
Again, our extension into a new product category has been validated as we expand authentically into a variety of new offerings are promise to consumers has has always been that we will only make best in class product.
Delivered on that promise has proven to the foundation of our success products and category expansions have become a core competency competency for us the Kennedy years.
As well.
Billy and methodically expand our consumer relevant as a lifestyle brand.
And we believe that this core competency competencies a solid foundation for our business ahead of our footwear launch next fall.
Third doing good is good for business.
Last month, we learned that the students of the new Jack School Arctic Bay, Nunavut needed winter clothing.
Inbound shipments to the village had been impacted by the pandemic.
So in partnership with Ryan Reynolds, we announced the donation of more than 300, Kennedys parkers as well as bathroom goose to help keep the students swarms. This winter.
At the same time, we also announced the expansion of a resource Central program.
Until now we have donated over 1 million meters of fabric and other materials. The community in the north throw a resource Center program now the program will also see thousands of Repurpose Park is donated to any with communities across the dark Arthur.
Refurbish parkas.
Only deliver warmth and protection to communities in the north, but they will also deliver against our commitment to operate more sustainably.
We are building a more circular business model, reducing waste, while strengthening our commitment to communities in the north.
Finally bricks and mortar remains important connection to consumers long term.
I've already spoken about our investments and mainland China in the growth we've realized through our expansion there.
I am also pleased to give an update about our yorkville store here in Toronto.
During the last quarter, we completed an important expansion to airedale nearly doubling its footprint.
<unk> has consistently proven himself to be one of our most productive locations since opening in 2016 and I look forward to continued success, especially heading into RP selling season.
Moving beyond North America or stores in Europe have been impacted by non essential business closures, London MLM. Both begin a full disclosure today and tomorrow, respectively. In Paris was closed for at least two more weeks.
I am proud of a retail team and a strengthened leadership that they continue to display as we navigate this current climate.
In closing I believe a performance this quarter reflects a discipline flexibility in our strong financial position.
We've shown that the strategic approach we've taken to navigating the current environment is driving results and with confidence and are accelerating trajectory.
Racing, Alice and limited occupancy levels.
Within DTC E Commerce was a bright spot we had double digit revenue growth for the quarter with a significant acceleration in trend in September.
We are encouraged by this positive momentum moving towards peak online demand in Q3.
From a geographic presence mainland China was the first market to return to growth with DTC revenue increasing by over 30%.
From a near total shutdown only nine months ago. This is a powerful recovery.
Traffic is normalized the consumers eager to spend and brand momentum is strong.
Cash flow was the same as it was a year ago.
We moved quickly to resize him refocus our investment funds starts with the pandemic and it's paid off.
Working capital, specifically with half the peak and where an agile position.
As a matter of fact for the stages inventory earlier, we expect the plans will down about finished goods to generate significant cash and for winter.
A unique model built around evergreen product and domestic in house production also gives us lots of commercial flexibility in season.
Relative to more rigid offshore supply chains, we believe we can adjust to demand upside much foster if orange it.
On the financing side, we upsized all alone to 300 million U S.
And extended its maturity through 2027.
This shit's a portion of our short term borrowings to a more permanent capital base, while maintaining low leverage and a cup flexible covenants like structure.
Moving to operations, we are on track for peak season, and manufacturing, we've had a smooth and successful restart downfield jacket production at all eight facilities across Canada.
Doing this in the middle of the pandemic Anzalone Slide Pte manufacturing is no small task.
It is truly a testament to the grid of our amazing team.
We've also completed a third party logistics transition during this time to enhance the scalability about distribution and R. E Commerce service levels across the globe.
The first phase about digital cross border initiative is complete with 18, new countries turned on during the second quarter.
We're excited to continue expanding the global campus of our in House E Commerce business.
In store Omni shopping is also getting like as we speak and U S retail.
We expect this to be a real knievel move for experience and the conversion.
In terms of new stores, we continue to execute against the seven committed openings, we discussed on a hospital.
This includes mainland China.
There are fossils.
Two high conviction locations in Toronto and Ultima.
And Berlin.
Performance to date and a new stores in China in particular has been very encouraging.
Finishing with current trends, we're seeing further improvement across all business, particularly in the DTC channel.
Retail in mainland China is now at three pandemic levels.
Our performance during Golden week was reassuringly strong with a notable pickup and traffic driven by domestic tourism.
Digital momentum is also encouraging online altimo, including the growing non Parker penetration.
Unfortunately, Hong Kong is a very challenged albeit contained situations.
As you know operations that would disrupted at this point last year, but we are still seeing significantly lower revenue.
Ah near total shut off of inbound and outbound tourism continues due to quarantine requirements and local economic conditions of therefore challenge.
In North America, all of US stores are currently in operation while in Europe. Three stores are now closed again due to the mandate free directives.
For those that are open material pressures on traffic and capacity remain but we're pleased to see local guests gravitating back.
Irrespective the pandemic, we remain confident in the strategic value and profitability of a highly selected network.
Assuming no further closures we.
We expect to offset a greater proportion of these retail declines through E commerce.
Across key markets off sites have continued to accelerate since September.
At the time of year, where it really matters for our performance digital is moving in the right direction with higher growth rates on a bigger base.
And wholesale we expect to see a better rate of decline relative to two two driven by late to shift and timing with more of an in season fulfillment level.
We're in a good and clean position due to the proactive measures we've taken throughout the pandemic.
Operational and financial risks remain including the recent closest and your we.
We will continue.
To take a brand first approach, while increasing our strategic emphasis on TTC.
Lost I want to touch quickly on a not for profit PPE manufacturing activities.
We are now nearing the end.
Of completion of the current contractual obligations.
As a result, we expect revenue in the other segment in Q3 to be down to just over one third of the level, we have in queue too.
In summary, it's getting Canada goose cold.
Just the right time consumers.
Consumers want to be outside more than ever and they won't best in class products to protect them.
With the first half of the fiscal year behind us top by momentum is accelerating.
Cross our business was seeing improvement and we're reaping the benefits of our financial residents.
Critically with doing this while preserving the agility to react and to accelerate.
While uncertainties remain in the situation it's for sure fast evolving we are encouraged by our progress and we're excited about what lies ahead.
With that I'll pass it over to the operator to begin Kevin.
I think I need to have a constant please pastel right then and there for one and your telephone Asthma reminder, please let me ask you one question.
Yeah. Our first question comes from I Hope I can comment.
Hi, Thank you good morning, the the DTC strength in China was really impressive how would you contrast that against the overall Asia.
Performance, which was down around 15% in any details there I would also love your views on that remodel inventory in the next few quarters had you expect inventory versus itself the trend in the current status on freshness. It sounds very good. Thank you.
Right. So it's taking notes in sequence. Thanks Oliver.
First of all are Asian business of course is broader than just great just mainland China mainland China to performance that I've already described on the call on also describe the headwinds we're facing in Hong Kong and we all have components of all Asian business are about wholesale lab, we will.
And he said that there's a difference in timing some so between the difference in timing and Hong Kong they are headwinds.
Compared to the tell them, we've got the mainland China.
Now turning to inventory.
I think the the key here is the although we don't provide guy.
Guidance so.
That includes inventory.
Obviously it depends on how.
Revenues evolved during the remainder of the year, but I think that I can say, what I've said in the past that we expected that we expect it to be down meaningfully by the end of the fiscal 21.
Yeah I'll go shopping.
Danny and inventory point.
And Jonathan side of and just.
Point out that is his and has been.
The plans to visit more doing us and all other plans and our intention is that inventory levels of material.
Lower than they are now and lower than they were last year relative to ourselves.
We seem to be on track to do that and trajectory is very strong.
And is looking.
Probably.
Your next question content, Adrian you'd like Barclay.
Good morning. Thank you for taking my question I guess my question on the story at.
Seven four.
All of them. It looks like you had 26 listed on your website.
No. One wanted to be opened are all of them actually open at this point and then in terms of the inventory just a little bit more color there.
The inventory and your channel partners also expected to be exceptionally call or what are you calling from your order books from your channel partners in the during the evening. Thank you very much.
Yeah. Thank you. Thank you for your question with regards to the stores.
We've opened our most of them.
Blue through more stores that we plan to open in China. This year.
Most of those most of the shows have been open and.
I would point out that really driven.
To confirm successful our business in China is doing real well and accelerating and down through.
There was a opens on to add to that all sorts of inventory of security Jonathan.
Yes.
As we as we discussed.
And the prepared remarks, we've been very disciplined about.
Feeding the channel.
Channel this season.
Very careful in the way that it's being done and therefore, the inventory is very clean and channel.
And would they come we're being very.
About that.
To the extent that we we start to get wholesale Reorders final set of those both remember we all prioritizing DCC, we're not focused on chasing wholesale business here.
Okay, great. Thank you very much and good luck.
Thank you. Thank you.
Your next question comes from Kate.
Like RBC capital markets.
Yes, hi, good morning. Thank you for taking my question I guess just quickly on Hong Kong can you.
To the duration of the drag.
Associated with some of the store I guess that the weaker traffic level you are theme how much longer do you expect Hong Kong.
Will be a drag on the Asia business and Danny just higher levels on your view on the store base in that market in the brand conditioning, there and then really quickly Jonathan on the channel gross margins very resilient. This quarter, how should we think about some of the puts and takes on the channel gross margin as we look ahead.
Just getting the benefit of the government subsidies this quarter. Thank you.
Hey, Thanks for your question is Danny.
Yeah, I think that down.
I think with regards to.
Hong Kong was your question and.
We are.
We're cautious we're cautious about it.
No one really knows when.
Hong Kong is going to reopen.
And not have the unfortunate day quarantine and our internal.
And our internal the way we looked at rehearsal very cautiously I'll find out.
Although we have exposure there.
Unlike most brands, we only have two stores in Hong Kong and I think that's really important.
Because.
Yeah.
Although it is if I think happen and.
The Street.
Typically be expected to do better.
Larger on a business for all brands that how stores there are explosions limited and that and that's important and hopefully it reopened sooner than later, but.
But it's impossible to predict who and that's going to be so we've we've taken a conservative approach internal Helena.
Just just around that point so.
Before we talk about gross margin.
With the number of stores, if we felt in mainland China.
As we approached the peak in that business I think you'll find that very much the dominant factor in the regions performance going forward.
Now when it comes to gross margin, but clearly we're very.
Gross margin phones in the quarter, but I'll come back to what I've always said, which is.
There is a natural.
Nice that gross mug, we expect gross margins b.
In each of these channels and.
In DTC, we expect it to be.
In order to around the mid seventies and in wholesale mid to high forties. So I was on some somewhere in the fall of the moment. That's the same spot we expect to see to stay in.
Your next question content I can <unk> like about saga.
Good morning, everyone for Danny or Jonathan just two quick ones as we talk a lot about.
Brand heat when it when it comes to the Kennedys brand, maybe Danny could you could you give us your thoughts on where that brand heated.
In today's environment, specifically in North America, and then maybe for Jonathan just longer term plans with the PPE business, just kind of curious how you're thinking about that the next year and beyond.
Hey, Thanks for your question.
We're feeling really really good about a brandy I think that we've never been more relevant today than than we've been.
Then that we've never been relevant we are we are the reference parka we are.
People are looking to spend more time outside and we are a brand that can we can deliver on that and so we feel really good that.
Into our peak season, when we expect to see the acceleration that we are seeing.
Typically and happily enough, we're seeing it as soon as well.
We know the consumers looking to spend more time outside not just for normal day to day versus purposes, but also out of necessity and we believe that this will positively impact our business and.
And so irrelevant as really strong and we believe that.
That that drives our branch heat which is.
Which is which which remains very strong.
When it comes to PTA I think the important things ahead to think it's essentially event driven so earlier. This year there was a need a desktop pivoted in two or three weeks and produce what we've we've been producing for the last few months.
I think to the extent.
That's further requirements from from the country to helps frontline's will be that but.
This stage.
It would be wrong Colin Firth.
I think I just had one thing just about back the brand hidden.
To add some more color to it just to find out where obviously.
As always full price brand and we're seeing the lions outside of many of our stores as we're used to seeing.
This is an anecdote too.
<unk>.
To talk a little bit about the relevance in the heat of our.
Of our brand and the demand for the products that we have around the world.
Yeah, It's Christian concept and ran back with HSBC.
Hi, Good morning, gentlemen, I hope you can you can hear me I just had a follow up unprepared comments from.
Jonathan.
Wholesale I think you've made it clear boundaries were really clean I'm. Just wondering if you could talk about the the mindset of your partners and I think in the prepared remarks, you talked about a better rate of decline and I'm just wondering if ups.
Looking at two three and looking at age too.
And then secondly.
On E. Commerce can you can you talk to any new market you any new partners.
That could impact positively hai sales for that time.
<unk>.
So yeah.
I will address also question.
R.
Are also part is very important to us and we have some of the vessel so partners in the world and.
Our relationships are strong and.
A lot of our wholesale partners are counting on Kennedy used to drive.
There're coverage and we're seeing that happen, we're seeing that what we did see some orders shipped to the right because of the early restore floater that earlier in the year.
Now, we're finding that wholesale partner wanting us to deliver goods more more of their orders sooner and so.
We certainly we're very encouraged by that and.
And we continue to work very closely with them and they are really really important part of our business and.
And.
Certainly.
Certainly outside there.
Two.
The second part of the question was only opening somebody.
I think.
Bolton here a couple of points festival. This is.
E Commerce as we describe it Harris is what we do.
And on the website.
<unk> and where we ship directly either.
<unk>, an amendment trying to ourselves and the rest of the world.
And.
This call so that we sold growth and that was driven by progress I'll major existing markets across North America Western Europe in mainland China.
First holder.
Comments exciting it's a longer term initiative.
<unk>.
Kind of a supposedly.
But that's smaller individual markets, but nevertheless will have been with us for the.
We'll have them with us for the remainder of the overall.
In the mid surface in terms of the total number of lawsuits for shipping too now.
Your next question comes from Oh, My size bed Evercore ISI.
Good morning, Thank you for taking my question.
Wanted to ask a follow up to the China Ah number. So you guys are talking about are great, but we know the Chinese you, probably losing some Chinese business the Chinese consumers with the lack of tourism and traveled you have a sense for how that kind of Chinese cohort is performing with you guys on a more global basis understanding that you're still your footprint in mainland China itself is still really low.
And then I actually wanted to ask a technical follow up on the inventory.
I want to understand I guess, why the inventory is still growing and given the fact that your production has been that limited levels that that has to do with the transition from outsource inventory just kind of want to understand the dynamic there.
Thanks for your question and I'll take I'll take I'll just.
The Chinese tourists business and suddenly there's been a reduction in tourism around the world and.
A lot of those tourists come from come from.
Inland China and.
Now that we've seen the impact of their stores around the world is have all brands we.
I think.
Our strategic approach that we took in China by adding.
Adding physical retail.
In China has helped capture local.
Chinese tourists demand within China, and I think that that's working really well as evidenced by our growth and you can continue continued acceleration.
Even.
Even through October and China and.
And so yeah, I think that's working and I think that.
I think that in in <unk>.
Collaboration with R E.
Congress growth acceleration globally.
Is offset too.
Reduced tourists levels this year.
And when it comes to inventory I think what's important to remembers the.
Q2 is not big order when it comes to revenues for this business so much more than Q3.
And so.
Remember restarting production at the beginning of Q too.
And that was specifically to add new this in depth for winter.
For the forthcoming season. So we're now at the point, where sales really pissed off and that will naturally drive down inventory levels through the remains yeah, unless you correctly points out there's also a transition going on.
With some of our.
Policy Cmt's same time.
Your next question.
Cancer can narrow y M B T I D.
Hi, Thanks, good morning.
I wanted to.
Learn more about the progression of your store productivity levels you.
You went from like a near shutdown mainly on his stores.
It looks like there's been a pick up in store level of productivity certain talked about that in China.
So I guess the question is how how have you seen that progression to other regions with is still senior me.
A pressure on traffic are you driving a point on the business is there.
Better sort of conversion rate that where you guys are experiencing any color on the store productivity levels relative to last year being incredibly helpful.
Yeah, It's a good question.
On.
Clearly in China, we saw we sold the patent establish when they started three nine months.
And sort of that gradually built and that helps us manage our expectations in terms of what we might expect sales where in the world obviously that gets interrupted by your local lockdowns.
You're experiencing right now in your.
But if there is a pattern of gradual improvement as people get used to.
Shopping in the new way and visiting stores and the new way that so that the traffic is challenged but I would say is the people who are out Shaw main shop, and therefore, we do see better conversion.
Yeah, and that's kind of think content foreign policy with physical humor.
Good morning, Thank you for taking thank you for taking my questions.
Just one question if there's a bump in Ah you mentioned that you would prefer to you're focusing more on DTC, but to what degree will you respond. If there is demand from your wholesale partners too.
Their demand goes up going in and out to what degree with you respond in the back half of the year.
We are very flexible we have a lot of beavers at our disposal and we're able to shift as as we choose to do so so we're we're able to service both our wholesale channels and our deputy channels.
And I think it's important.
Our direct relationship where consumers are DTC child is very important to us. So we're going to make sure that has all the inventory news, but we we were deliberate making sure we were in a strong inventory position as we always do and decision of different so that we can service wholesale as well as TTC.
I think the key here is that we're responding Rob and Tracy.
Your next question comes on K L E B S.
Hi, Good morning, this is <unk>.
On behalf of J. So I just wanted to ask if you could provide us a little bit more color on what you were saying about the Bram seat in China, and if you could also talk a little bit more how how the sales.
Progression went through all the quarter the acceleration VTC and how does that trend how does that.
Tests carried on in to October so far and also wanted to ask on the other hand on on the cost side. If you see any headwinds and to this season, particularly for E. Commerce, you know with all ready to fight costs and distribution and shipping and also.
And also on the government subsidies I mean, how how long should that should not be a benefit to the gross margin. Thank you.
Thank you for your question.
Just.
Re addressed the brand he question.
I don't believe I've ever been more relevant given the.
The product is.
As a best in class needed products at this point in time.
For people around the world.
Who wants social distance outside and.
Our acceleration that we've seen to October has been.
Has been has been really encouraging.
<unk>.
Continue to point to the lamps alone at our stores.
In Toronto and worked out in and around the world.
The demand.
Invisible demand anecdotally is extremely strong.
Oh.
And Ah resolving chat pay some of the types of questions.
From from a cost point of view, we don't see particular headwinds I think the point that I was breaking my boxes with very keen to invest where it makes sense.
Where do we see the opportunity and the likelihood of payback will get behind it.
But we are not looking at that particular headwinds I think when it comes to the substance.
In the immediate term, we don't envision any real changes.
When they do and I think we will find ourselves into rather more robust empower excuse me environments, where our business is not coming out of the shopping.
Understood. Thank you you're.
You're welcome.
Your final question content, Alright sound of all of this with Goldman Sachs.
Good morning. Thank you so much for taking the question here.
A question on your comment.
Install omnichannel initiatives lie.
<unk>.
Wonder if you could elaborate home because of being rollout the pasted rollout and then you'll handle thinking about future plans.
Six.
Too.
Connection.
Yes, I mean, it's something that we love from last year, we already pilots did it last for winter in Canada, and we saw it was a real mean legal move from performance was obviously you're opening up.
All of the inventory and all of the sides and all of the tell us the consumer at the same time.
Therefore, it gives you a formal setting power operated conversion power.
As a brand ambassador.
That's something that.
We expect too.
See enacted now in the USA and in due course, we will take the initiative around the world that's something that with starting life as we speak in the U S and we see that is a really important driver of business.
Alomar him to call back can manage bad for closing remarks.
Thank you I would like to take care of grief for joining us here today on a call and I look forward to speaking to you again.
At the end of next quarter.
That concludes today's conference. Thank you for your participation you may not this coming week.