Q2 2023 Canada Goose Holdings Inc Earnings Call

November 2, 2022

Good day and thank you for standing by welcome to the Canada Goose second quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need to.

Press Star one one on your telephone you will then hear the message that your hand is race. Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Amy Schwalm, Vice President of Investor Relations. Please go ahead.

Yeah.

Thank you operator, and good morning, everyone with me are Dani Reiss, Chairman and CEO , Jonathan Sinclair, EVP and CFO Cary Baker President.

Call today, including the Q&A portion contains forward looking statements each forward looking statement, including our financial outlook.

The risks and uncertainties that could cause actual results to differ materially from those projected.

Certain material factors and assumptions were considered and applied in making these forward looking statements additional information regarding these statements factors and assumptions is available in our press release issued this morning as.

As well as the risk factors section of our most recent annual report filed with 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 them.

Lastly, our commentary includes certain non <unk> financial measures, which are reconciled at the end of our press release with that I will turn over the call to Dan.

Thanks, Amy and good morning, everyone I'll start by saying that we are heading into our most important season, we are well positioned across our business to drive after demand globally.

There is no doubt that the macroeconomic backdrop continues to present challenges, but I am very confident that the strong underlying fundamentals of our business will help us navigate them well.

This morning, we released our results for the second quarter of fiscal 2023, which beat our expectations. However, despite our strong performance in the quarter. We are not seeing the level of improvement we had assumed in mainland China.

Covid related disruption, including more quarters, Lockdown and travel restrictions continue to impact traffic.

And as we head into our most meaningful quarter, where CMV disruptions affect an increasing number of cities in which we operate.

As a result, we have updated our outlook for the year, which Jonathan will cover in further detail shortly.

Let me be clear our brand remains strong in mainland China, regardless of the temporary headwinds.

We saw this brand strength during the holiday period Golden week in October and more recently, leading up to singles day in November where both profit and sales trended positive across our network.

These holidays has historically with meaningful shopping events and that has continued for our brand.

This gives me confidence in our long term vision demand and brand strength as we move forward.

Regardless of temporary challenges, we may face our focus for the remainder of the year is clear we will continue to execute against our long term strategy rollout.

For all of our DTC mix deepening our presence in new and existing markets and growing our performance luxury offerings.

Now turning back to the quarter topline revenue grew 19% to just over $277 million.

On a constant currency basis revenue growth was 22% ahead of last year our.

Our strong top line flowed through to meaningful bottom line returns, we significantly exceeded our adjusted EBIT expectation as well as earnings per share.

This performance demonstrates the margin strength of our business, we are in season and delivering.

Turning to channel and regional highlights.

Overall, our performance on our second quarter was driven by strong wholesale performance and continued strength in North America.

Our strong wholesale performance was driven by two factors one our ability to fulfill requests from also partners to ship orders earlier in the season and second an increase in order book value.

Given by higher units and price, particularly in Europe .

This shift in wholesale timing not only allows our consumers the ability to shop, the full assortment of Canada goose earlier in the season, but also opens the door to potential reorders.

Yes.

In North America, where our DTC retail network with a particular stand out the strong performance has continued beyond the second quarter accelerating that we would expect to see heading into our peak season.

In EMEA, we saw our topline growth, 34% and by 44% on a constant currency basis.

This was largely driven by wholesale while our stores benefited from increased tourist traffic mainly from the United States.

And lastly in APAC, our results were impacted by performance in mainland, China, which as I mentioned earlier continued to be affected by Covid restrictions.

Outside of mainland China, we continued to execute against our regional diversification strategy.

South Korea through our new distributor loss Hay group and in Japan through our recent joint venture.

Moving from the quarter to an update on progress against our growth strategy to four key tenants of our strategy to include number one grow our direct to consumer mix overall to increasing our penetration in key market three re envisioning our product offerings and finally, expanding our margins.

We are at the early stage of development and the majority of our large international markets and we are driving our penetrated higher in the U S EMEA and APAC, including Greater China, Japan, and South Korea.

Last quarter, we spoke about our plans to open more stores in China, and a leading shopping districts with excellent adjacencies.

The fact that we are renewing leases and securing new leases for stores is a testament to the brand strength was built in China.

Our DTC progress in China also demonstrates the confidence we have in a long runway ahead of us, especially compared to many other luxury brands as I've said before we are investing in China for the long term.

This week, we will unveil our pavilion, a fifth annual China International import Expo the preeminent event perform business in China.

At the event, we plan to highlight our China specific programs collection and investments.

I'm excited that our brand is showing up so strongly at such an important event in China.

In Japan through our joint venture, we opened a store in Osaka in October the.

The performance of the Osaka Star is a very encouraging.

Also we are on schedule to open in Ginza, one of the most prestigious shopping district in Tokyo. This December .

Not only are we expanding our presence in Japan, but I am pleased to see our brand.

<unk> opened in some of the most influential luxury retail locations in the country.

In South Korea in partnership with our new distributor lot Hay group, we opened 40, new shop in shops.

Our performance has already exceeded our expectations and gives us confidence not only in our partnership with latte.

Our strategy.

And the opportunity ahead of us in this highly influential market.

In North America, we have begun our quest quest in the United States as we deepen our penetration in key markets across the western United States.

There remains so much potential across many cities in the U S.

As we mentioned on our last call we will open the Wynn in Las Vegas in the coming days, followed shortly by a new store at Cherry Creek in Denver.

We also plan to open two more temporary stores. This fall one in Aspen and our second in Detroit.

In Europe , we opened a new permanent store in Manchester in October .

<unk> sits on new to Federal Street in the heart of the city's luxury retail district.

We will continue to look for further strategic opportunities across the UK and the continent for this fiscal year.

Our DTC strategy is working.

Excluding mainland China, we generated 28% DTC revenue growth in our DTC comparable sales growth, excluding China was three 2%.

I think it's also important to point out the relative newness of our DTC store network since the onset of the pandemic, we've opened 25 stores and for many we have.

Get to see their full potential we continue to see tremendous opportunity across our existing store network globally.

Moving from our DTC business I'd like to give an update on our key product launches heading into peak season.

Enhancing our product offering expanding categories as a core competency for our brand and a key pillar in our long term strategy.

Our new collections and collaborations are resonating with consumers driving traffic and buzz around the world.

Last call, we spoke about the opportunity we have to increase the share of our women's business.

We plan to grow this business from the 50% we currently see to more closely align with the industry approximately 60%.

We are taking meaningful steps to do just that while continuing to build on the strength of our highly successful men's business.

For example last quarter, we spoke about our new fall winter collection with thousands silhouette designed with this in mind.

And then lever that shopper campaign, which featured a cost of amazing women.

Sponsor the campaign and collection has been tremendous despite having only launched in September we're making meaningful progress against the objectives, we set for the collection.

Motivating our target consumer Gen Z and millennial women and driving awareness for our womens business.

As of today Gen Z and millennial women make up the core customer for the classroom combined they represent two thirds of the collections consumer as well our first ever all female campaign is reaching and resonating with new audiences with more than 60% of purchases being first time buyers I'm happy to see this new collection delivers a strong again its objectives.

As we push our women's business to new Heights.

We also see an opportunity to deliver on our goal to grow our women's business through collaborations reaching new audiences with influential partners.

In December we plan to launch a new collaboration which will lean into our more feminine expression of Canada goose functionality.

This collaboration will offer a fresh perspective of the brand exactly the type of disruptive design that will help us capture consumer's attention and their imagination.

Our most recent collaboration with Shanghai based Bank Chang Wang was unveiled in September in Paris fashion week in October we hosted impactful launch events in both Hong Kong and Shanghai to celebrate the launch the multi dimensional head to toe assortments leans into fangs innovative and deconstructed approach.

The design and exciting interpretation of our brand and the initial reaction has been strong, especially in APAC.

As part of our growth strategy, we continue to reinvigorate our offerings and expand our new product categories. In Q2, non heavy weight down sales grew by 46% to 44% of total sales. This is up from 36% of total sales in the prior year quarter.

Following the success in Q1 fleece and knitwear sales continued to performed very well growing more than 60% from the comparative quarter last year.

Police was the standout with sales growth of almost 170%.

We continue to make meaningful progress against our strategy to expand our product categories and I'm excited about the opportunity ahead of us.

This November also marks the one year anniversary of our launch event of footwear.

We continue to grow the category at <unk> earlier this year in August with another three set to launch before the end of the year.

The opportunity we have in front of us in footwear is meaningful and we will continue to execute against our strategic playbook to build the business for the long term.

Importantly, this category expansion has not come at the expense of gross margin.

Our made in Canada vertically integrated operating model continues to benefit our business specifically, we've been largely insulated against the extra freight costs and supply chain issues, we have seen impact gross margin across the industry.

Before I pass it over to Jonathan to go over our results and outlook in more detail.

Sylvia I want to thank our teams around the world for the laser focused effort on driving our brand success.

I am confident heading into our most important season that we have the right product to capture consumers imagination and attention and therefore drive traffic stores and some of the most exciting retail location in the world and the right team and partners to deliver a stellar experience for our customers across our channels globally.

We continue to see massive growth potential across our business and we will continue to drive growth even in today's macroeconomic environment.

As I have said before our business has grown through every recession save the first wave of Covid and this year will be no exception.

And with that I'll turn it over to Jonathan to over our results and outlook in more detail.

Thank you Danny and good morning, everyone.

Today I'll be comparing the second quarter ended October three 2022 with the prior year quarter, which ended September 26, 2021, unless I say, otherwise I will be quoting reported growth rates as well as growth on a constant currency basis, where it is meaningfully different and avail.

<unk>.

As Danny mentioned total revenue grew 19% and 22, 3% on a constant currency basis to $277 2 million in the quarter.

This growth came from continued outperformance in North America, as well as growth in wholesale.

DTC revenue increased 15, 6% or 18, 5% in constant currency to $94 $8 million.

We enjoyed the benefits of continued retail expansion and an increase in existing store sales in North America and in EMEA.

Asia Pacific continued to be impacted by Covid restrictions, which reduced store traffic through store closures restricted store hours mass testing, a mandatory quarantines to name, but a few of the factors consequences.

Yeah.

DTC comparable sales declined by 4%.

Excluding mainland China DTC comparable sales growth was three 2% this quarter last year mainland China DTC revenue was up 86% with materially less COVID-19 restrictions in place.

Wholesale revenue increased 21, 2% or 24, 7% on a constant currency basis to $187 million.

Related to earlier shipments requested by customers and an increase in order book value, particularly in Europe .

Fulfilling orders through our wholesale partners helps us drive a better shopping experience for the end customer and in turn creates the potential for higher sell through.

<unk>.

Importantly, the earlier timing of shipments represents a full return to normalized shipping patterns pre pandemic.

Okay.

Turning to performance by geography.

Revenue increased in North America.

While Asia Pacific declined slightly.

The gap between reported and constant currency growth arose with 33% of our revenue denominated in Canadian dollars this quarter compared to a lower number of some 25% which is typical in a full year.

We enjoyed U S dollar revenue tailwind offset by headwinds in other currencies.

North America was again the standout this quarter with growth in the U S and in Canada of 23% and 25, 2% respectively.

We have four new stores coming online in the U S part of our best performing region globally.

They are opening during our peak season in a territory that is completely underpenetrated by our retail network.

As Danny mentioned EMEA grew 34, 4% and 43, 7%.

Instant currency basis.

That's largely due to the expansion of our wholesale business with key partners across the region and to a lesser degree from improved productivity in existing stores compared to the prior year quarter.

To an extent business has inevitably transferred from online stores, even if that online business remains substantially above where it was two years ago.

Europe has continued to benefit from travel Garridos reopening and increased U S tourism.

That said the macroeconomic environment is challenging with soaring inflation today.

To date, however, we have not seen any material impact on demand and the luxury consumer appears to be quite resilient, but we continue to monitor this closely.

As we have said Asia Pacific results were impacted by Covid restrictions in mainland China as well as the temporary closure of our Macau score.

Although these challenges have been more prolonged am restrictive than anticipated.

Optimism about the strength of our brand in this market is unabated as evidenced by our continued investment in the region.

Further we have diversified the regional mix through our joint venture in Japan, Deepa wholesale partnerships and a revitalized distributor partnership and Korea, all of which helps offset some of the challenges in mainland China in the second quarter.

Despite very tight restrictions, particularly around Beijing, leading up to the party Congress mid month, we saw sales momentum improved during Golden week in the first week of October .

Since then however, we have not seen the business build in line with our expectations for our peak season.

Dynamic COVID-19 restrictions closures mandatory quarantines and lockdowns in most of our key markets, where we have retail distribution have cub store traffic and consumer buying.

Turning to gross profit we grew consolidated gross profit by 22, 8% to $165 8 million.

Primarily driven by higher revenue and gross margin expansion.

Quarter, two gross margins increased 180 basis points to 59, 8%.

Favorably impacted both overall amitiza channel level by pricing or by lower product costs from increased production efficiencies.

We also have less distributor sales, which attract lower margins compared to the prior year quarter. Following the creation of the Japan joint venture.

As a result of these factors, both DTC and wholesale gross margins expanded coming in at 77% and 51% respectively.

We were able to deliver stronger margins compared to the prior year quarter.

Despite inflationary pressures and the diversification of our product mix away from a concentration in heavyweight tap.

Adjusted EBIT increased 17, 1% to $29 6 million well ahead of the top end of our guidance of $18 million, reflecting the impact of higher revenue as well as strong gross margins and cost control.

The increase in adjusted EBIT was primarily due to higher gross profit and the timing of marketing spend partially offset by incremental personnel costs as well as the expansion of our retail network and investments in strategic initiatives.

Adjusted net income attributable to shareholders increased 63, 1% to $23 million.

And 22 cents per diluted share, which also exceeded the top end of our guidance range of 14.

Diluted share.

Turning to our balance sheet, we ended Q2 fiscal 'twenty, three with cash and $97 1 million compared.

Compared to $98 9 million at the end of the comparative quarter.

Net debt, including capitalized leases was $734 1 million.

Compared to $582 million at the end of the prior year quarter.

The increase was driven by the timing of our buyback last year the expansion of our retail network the impact of foreign exchange on our U S. Dollar denominated term loan as well as the financing needs of the Japan joint venture.

We're very comfortable with net debt leverage of two seven times adjusted EBITDA at the end of the quarter.

Inventory was 511 5 million compared to $416 $4 million at the end.

The comparative quarter.

Just over a quarter of the increased 27 4 million was related to the Japan joint venture.

Inventory levels have increased ahead of our peak selling season as domestic production gradually returns to pre patent manufacturing levels.

We have mitigated supply chain risks through earlier acquisition and higher volumes of offshore production in support of growth relative to the comparative quarter.

Now turning to our outlook.

As many of you know and appreciate as we build in our peak season. Each successive week has an increased weight starting in October .

After a positive shift in momentum during Golden week.

Frictions and other disruptions have worsened the trend.

The reality of upholding dynamic zero Covid policy against a very transmissible current variants has meant fairly consistent periodic disruptions persisted.

When you consider this alongside the broader global macroeconomic uncertainty we felt it was prudent to meaningfully revise our guidance ranges.

It is extremely challenging to predict the bulk of the us trading based on mainly a few weeks of visibility.

But recent events impacting trends are not supportive of our original outlook.

Critically this does not change our confidence in our brand strength globally, nor in our conviction in China is a significant growth market for Canada, goose, especially given how underpenetrated.

For all the reasons, we've detailed we remain excited about our future prospects here.

We now expect total revenue of one two to one 3 billion compared.

Compared to previous guidance of one three to one 4 billion.

The DTC this assumes comparable sales will be down in the low single digits at the bottom end of the range and up in the high single digits at the top end of the range.

The decrease in our current assumption from our original low teens comparable sales growth, which drove $1 $3 billion revenue reflects this larger headwind.

On the other hand, we've been able to add a number of temporary store openings, which we've been able to finance through SG&A savings.

Excluding the impact of these additional China headwinds, we would have been inside the ranges we previously detailed.

See comparable growth.

DTC sales are still expected to comprise 70% to 73% of total revenue and wholesale revenue growth is maintained at 6% for the year.

Roughly double the contribution we saw last year, we continue to expect 60% to $65 million in revenue from the Japanese market.

Awfully split equally between our DTC and wholesale segments.

Moving to profitability, we now anticipate adjusted EBIT of 215 $255 million for a margin of 17 nine to 19, 6%.

Compared to previous guidance of $250 million to $290 million for a margin of 19% to 27%.

This revised outlook assumes that the revenue reductions in the DTC segment are somewhat offset by cost control measures for the balance of the fiscal year.

We continue to expect a lower underlying SG&A growth rate compared to growth in fiscal 'twenty two.

We assume consolidated gross margin will be in the high <unk> as a percentage of total revenue.

Gross margin benefits from our vertically integrated made in Canada manufacturing model as well as from the conversion of our Japanese business from a distributor arrangement to a joint venture.

This more than offset the impact of a product mix in favor of non heavy weight down, especially in the warmer parts of the as we continue to expand these product categories.

This complements the colder periods of the year.

When sales of heavyweight down a more prevalent.

Flowing through we now expect adjusted earnings per diluted share of $1 31 to $1 62 compared to the previous outlook of $1 60 to $1 90.

This does not assume any incremental share buyback activity.

Lastly, I will cover outlook for the third quarter.

We expect total revenue of $580 million to $660 million.

This implies a split of revenue in the second half between Q3 and Q4 of 50%.

And 22% of the fiscal year, respectively.

Remember that Q3 fiscal 'twenty two.

Included an extra 14th week and that 14th week, it's aligned to the 13th week of Q3 and fiscal 2023.

As such the.

First week of Q3 last year ads.

At $24 million of revenue to consider when comparing growth year over year.

We expect adjusted EBIT of 220 $255 million.

We're now at an inflection point for margin and profit.

The incremental revenue from the investments we've made will drive further leverage.

And the uplift from the DTC mix shift will be more impactful.

We expect SG&A to be in the low to mid thirties as a percentage of revenue.

The third quarter.

This flows down to adjusted net income per diluted share.

The $1 47 to $1 72.

In summary.

We feel confident in our revised outlook, given our strong brand heat on new collections and collaborations and the value proposition that our products offer.

While the environment presents challenges, we remain focused on the things we can control.

We are closely monitoring the trends and buying behavior moving through our peak season.

And we are prioritizing increased store productivity across our growing retail network.

Further we are carefully assessing risk based returns disciplined capital allocation of investment and tightly managing non strategic spend.

Our prospects are exciting with a wealth of opportunity for our brand to grow significantly globally over time.

And we remain focused on driving profitable growth.

With that I will pass it over to the operator to begin Q&A.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Of time, we ask that you. Please keep your questions to one please standby will they come back.

Hey, Ross, Sir one moment.

One moment for our first question.

It comes from the line of Ike <unk> with Wells Fargo. Please proceed.

Hey, good morning, everyone.

Question for Danny then I have one follow up.

I guess, Dan just at a high level.

The prior guidance you had indicated I think the low end included some limited disruption in China were clearly getting more than that right now I think thats pretty much a macro.

Dynamic, we're seeing with all of our brands, but I guess, how do you.

How do you keep a finger on the pulse of the brand heat you have over in mainland China. Today is there anything you can talk to too.

To help us understand exactly your vision for the brand overseas. Once these transitory pressures kind of subside.

Yes, absolutely. Thank you Eric for the question and yes, I think thats.

There are absolutely.

A number of macro.

Macro factors, including.

Including the one in China that are affecting of our brand in all brands at this time.

I think.

Our brand is very strong and I am very confident in the strength of our brand in China and around the world and all of our markets I can point to specific things.

For example, I think Jonathan spoke to in the script, but very <unk>.

Accordingly, when the market is able to function normally in a normal way such as it was during Golden week. Our brand performed normally as we would normally expect it to perform similarly, leading up to the singles day event of 11 11, we're seeing extremely extremely strong signs of performance.

I think those are the sorts of things.

That suggest that.

I encourage all of us and I think that our brand continues to be strong in China.

Further to that.

Good to talk about China, specifically, we continue to sign leases with landlords.

And the most important malls are the most important places, which just reaffirms their.

Their confidence in our brand and the extent to which our brand drive traffic to their malls.

That one off the case, they would not be signed those leases with us.

Unfortunately, these COVID-19 headwinds and economic headwinds.

That are impacting the world in China today are in fact doing so but.

We all know that these macro conditions will pass and I'm extremely confident that once they do our brand is very well positioned and very well beloved by the global consumer to continue on its growth trajectory.

Thank you one moment for our next question.

Any comes from the line of Michael Binetti with Credit Suisse. Please proceed hey.

Hey, guys. Thanks for taking our question here can you.

Speak to the cost control measures you spoke to for second half maybe just highlight a couple of those buckets are it looks like the new guidance.

Thinks about I think the new guidance is about $5 $90 million to $650 million of SG&A for the year previously 600680, so a meaningful cut and I'm, mostly curious.

What are the buckets that might have to come back next year.

If the environment is better and then on.

I guess just anything we can we can here on China on the stores that you've opened over there what is productivity look like in those stores. When COVID-19 lockdowns are not in place just to get a sense of how the business is tracking thank you.

Yes.

Thanks, Mike So.

When it comes to the cost control measures.

Businesses have.

Discretionary spend win.

Very very focused on making sure that we are targeting our spend on strategic initiatives in the business.

To secure the future growth and that has not changed.

But at the same time, we are making sure that we.

Specific hassle on the decisions that we're making in that.

Only investing where it is going to make a difference either for this yields the next.

And therefore, we've tightened up across the piece in that.

We are talking about the head count that you are talking about discretionary spend it.

That's that's really a very strong focus and it's a very strong discipline in this business.

Add to that the fact that there are variable costs in the business as well.

Talking about rental credit card commissions or various.

Store labor components, typically do very in line with revenue and Thats why <unk> got a third of the component of that.

The one other thing I would say we are maintaining our marketing investments in this business. It's very important for the brand is very important that we.

Drives demand otherwise.

Other way to go oriented way, that's just not feasible.

No.

That's the other component when the stores were opened in China, taking moving to your second point.

Chile, we're seeing really good productivity, we're seeing performance in line with expectations, both in our existing stores and in the new ones, but unfortunately, it's just the way.

Windows when that can happen at the moment of Walgreens.

One moment for our next question.

And it comes from the line of Oliver Chen with Cowen. Please go ahead.

Alright, Thank you and good morning, Dani and Jonathan as we think about China and Asia going forward.

Are things within your control.

<unk> <unk>.

Reset enough in terms of what Youre seeing I know, it's a very dynamic situation. There are a lot of uncontrollable factors.

Any interplay with your digital footprint.

And Jonathan I would love your thoughts on Europe .

Inflation.

As a factor however, you expressed some optimism or a solid luxury consumer there as well. Thank you.

Yes. Thank you.

Thanks for your question.

Yes, I think that you know the things within our control are.

The extent to which we expect.

Deploy our marketing resources against e-commerce versus.

Versus our bricks and mortar stores and then we're going to continue to do that I think thats.

No I think that.

I think that.

One of the reasons why the range Tahoe being a wide range I think one of the reasons is why is that is really really difficult to predict the span of outcomes over the next few months.

<unk>.

In the region and even in the world with regardless of the macroeconomic.

The situations and political geopolitical situations that exist now one thing I do know to be true over the last.

25 years of being in this business is that October .

October is better.

In September on September September and November is better than October and December is bigger than than than November I believe that that is something that is going to remain to be for this year and.

And the variables that we control.

The degree to which.

That is true.

Going to depend on.

Some of the things that are outside of our control.

And we will continue to focus on those things that are within our control.

I think when it comes to.

Europe .

Our results.

I'm going to start by talking about our results are and just the prospect.

Our results were mostly in line with our expectations.

We look we've launched a new website right at the end of the quarter, which.

To service.

Perm region, we're very excited about the initial performance that we see that has having significant scope for growth. We're also looking forward to the launch of Omnichannel services starting in the UK when we see that also as being important.

When we consider the performance of the stores in the quarter actually.

Each of the stores by one and then only slightly while up one was very slightly down and the rest of them were all up so actually we're seeing really good health.

In the region, and we see that as grounds for optimism.

Even if we're sanguine about the macroeconomic environment.

Just one point to add on that is I think one other point that look through my confidence in the brand is just our strong wholesale order book.

Price and volume so that is a huge sign of us for us.

In terms of our continued strength in addition to what we already saw in stores.

One moment for our next question please.

And he comes from the line of Omar Saad with Evercore ISI. Please proceed.

Good morning, Thanks for taking my question.

Wanted to dive in deeper around some of your comments in North America.

Pick up.

Yes.

There are you getting indications in markets for whether it's getting coal and some of that reacceleration.

You also mentioned that kind of quest, where maybe you could talk a little bit more about the balance of your business across North America from east to West.

Got it.

Numbers around.

What that opportunity could mean and then also in North America are you seeing more new customers coming into the brand or the growth youre seeing more existing customers buying more from a brand new category.

This malware.

Thanks.

Thanks for the question I think when you look at North America, I mean, the growth is happening everywhere.

I'll answer your last question first then new customers are Danny <unk>, our new campaign that focus on women with a new collection are so happy to see it's attracting a new female customer.

That doesn't mean, it's not resonating with existing customers where just.

And the faster growth is high.

And with new customers.

Our quest with again, our health in North America, and we're seeing it across channels I think we're seeing it across regions.

It just there's more white space opportunity as we go west and introduce our brand in a different way. So seasonality plays a factor there. They're also I think I talked about this last quarter people.

And west are not just coming to us as part of the first product being a winter product that coming into lightweight down coming into that.

Seeing a variety and so we're able to present.

For some view of what Canada Goose is a luxury lifestyle brand anthem and they're picking up on that.

So I think bottom line I think we have lots of growth in North America, and hope to see that continue throughout the rest of the year.

One moment for our next question please.

And it comes from the line of Brooks relative with Goldman Sachs. Please proceed.

Good morning, and thank you so much for taking our question you mentioned a wide range of outcomes that are possible over the next few months, which certainly makes sense based on the current environment can you help us flesh out the assumptions embedded for both China and the rest of the world on like for like comps.

And contribution from new stores that drive the high end versus the low end of the updated sales guidance range and then perhaps talk to the level of conservatism. That's now embedded for China closures as a function of COVID-19 versus some of these other unknowable macro pressures in other regions. Thank you.

Yes, I think so.

Thanks for the question.

Yes.

It's really important to try and.

So.

In the end what we're seeing is.

One particular sector.

Circumstances.

We were expecting at that full bag on the mainland China.

As a result.

The impacts.

Is on.

Mainland China business and its not beyond.

Beyond the components.

Obviously, the other components.

A result broker in Europe .

A more challenging economic backdrop, but pardon the pun.

The balance is performing in the way that we do.

Correct.

Now within mainland China, our business is down.

We expect it to stay down.

And so if you listen to the.

Sort of range.

<unk>.

Slightly negative to slightly positive in terms of the overall <unk>.

Thanks.

We would be right for what we talked about originally which is.

It <unk>.

Were it not for the Chinese.

Business being under so much pressure.

So you can see that the slides of the headwinds which in this quarter in license licenses around seven actually expect it to be bigger going forward.

And thats whats baked into these assumptions.

One moment for our next question please.

And he comes from the line of Jay sole with UBS. Please proceed.

Great. Thank you so much would be possible to elaborate on sort of what your store opening plans are for next year just at a high level in terms of the stores you've already committed to in signed leases or and then maybe just going back to China.

Just talk about e-commerce trends, specifically in China, I know you touched on this but just to elaborate what kind of growth rate, you're seeing online and if you've seen any kind of transfer from stores to online as stores have been closed. Thank you.

Thanks, Dave for your question in terms of the store opening plans I mean, we have nothing new to announce specifically.

Terms of what sort of are going to be open and I think it's fair, though that you expect us to continue to open stores at more or less the same pace that we've been open to them. This year last year and so forth.

We will always wait for the best real estate become available and be patient.

For that to happen and when that happens we will we have the bandwidth.

Lastly to open a larger number of stores, if we need to in a year end.

Prepare to open a smaller number of that.

And Thats right thing to do we're always going to.

Keep in mind, the right thing for the brand for the long term health to Brian So that.

He will be a meaningful player in this space for decades to come.

I think.

With regards to China.

Relative to China, I think that.

I would think that.

It's reasonable to expect that.

As the busy season ramps up.

Ability to store and abilities to or.

Unwillingness to go out to stores.

Certainly resolving the transfer to more online sales with our speculation is hard to 100% predicted to the degree to which that will happen certainly we'll do our best to two.

I encourage people to shop wherever they're comfortable offering and make sure that they are aware of the inventory is available and that.

That's it.

And at the Investor.

They can do that.

I'd add to that.

Perhaps unsurprisingly.

China was by far our best performing website business within the <unk>.

Within the second quarter.

It's held its own.

Time, when business was heavily down.

And that that trend is something that we see continuing at the moment because clearly starting says is most comfortable way for people to shop and certainly are.

Initial steps towards 11, 11, Singles' day also encouraging.

One moment for our next question please.

The next question is from Mark Petrie with CIBC. Your question. Please.

Yeah. Thanks, Good morning, I think Kerry you mentioned, just talking about the wholesale business a little bit and I just wanted to follow up on that obviously a point of strength in Q2, but I know a channel that you continue to manage very closely so I guess two questions.

Does the greater macro uncertainty. Thank you think any differently about the role of wholesale and within your business and sort of the penetration level and sort of business mix and then specific to this fiscal year is there any appreciable difference in both the number of doors and then also the depth that you are getting at your wholesale.

All accounts in terms of the assortment.

Okay.

Thanks Mark.

Wholesale no so.

Sure we manage it closely with our partners.

In line with our expectations, but it hasnt changed fundamentally in terms of the role it plays in the ability to serve our customers where they're shopping I think for US I mean, it has always been to user Jonathan Jonathan Chairman managed economies that we work with them.

Don't give them everything they want.

Sure.

Nor will lead so that won't change, but I think it's a matter of working with them, making sure. They are set up for a really good holiday season, which they are we are able to pull forward and move shipments earlier and so we're very excited to have that product available.

And I think that there hasnt been any significant change again, we're always anything around the edges.

But there hasn't been any sort of significant changes in terms of the number of doors are where we're playing.

Our next question please.

And it comes from the line of Al <unk> with Barclays. Please go ahead.

Good morning. Thank you for taking my question two questions one on the wholesale DTC nicked in NGL.

On the wholesale piece of it the 180.

Million, how much of that was earlier shipment and Jonathan you said this is the normalization normalizing the pattern of shipments. So from this point forward, we should expect sorry, the irregularity kind of on a year to year basis. So that's my first question.

Yes.

The answer is if you think about wholesale scrubbing.

6% for the year. The reality is that the timing differences coming up is the component that.

Is above 6%.

That's timing is on that we anticipate anticipated and some of it but also by customers beyond that and that's how we ended up here.

I think that.

When it comes to normalization in the hole, that's you're exactly right to interpret it the way I've said, which is that meaning that this is normalized.

Anything else changing that source of the shape, we'd expect going forward.

Thank you and our last question one moment please.

Any comes from the line of Robert <unk> with Bank of America. Please proceed.

Oh, hi, Thanks for taking my question My question is for <unk>.

Probably Jonathan can you talk a little bit about the inventory levels. You expect going forward I think you guys mentioned production coming back online you are acquiring some offshore production earlier and obviously the sales forecast has been lowered about $100 million.

How should we think of inventory levels for the next couple of quarters.

And then maybe connected to that is there a.

Is there a scenario, where you would maybe need to become a little bit more of a promotional brand or do more in the off price channel.

So I think that.

Let's start with the fact that this is not a promotional brand and that's a core part of the strategy of the brand.

Robbie.

Honestly I, just don't see that changing.

Our inventory is healthy the model that we operate two as Youll recall is very much one which is a continuous active.

Evergreen model, so a very high proportion of what we sell continue as Continuances and go from season to season.

And that's something that isn't new and it means that it becomes a hedge against inflation. It reflects the fact that we're our own manufacturers as well.

Yes.

Our normal expectation.

Some et cetera. This is how we would expect to date pan out is that.

Revenue and revenue growth and inventory growth should more or less in line.

That said of course this year, we got a bit of distortion from Japan.

But I think that's the right way to expect this to go.

Clearly revenue volatility will have some impact, but you got to remember the gross margins in this business are quite wide and therefore.

What we're talking about here is DTC volatility. So the most volatility that you are going to steepen.

And there is $25 million of cost of goods.

And with that ladies and gentlemen.

Our Q&A and conference for today. Thank you for participating and you may now disconnect good day.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Good day, and thank you for standing by and welcome to the Canada Goose second quarter 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one.

On your telephone you will Daniela message that your hands. Please.

Please be advised that today's conference is being recorded.

I'll now like to hand, the conference over to your Speaker today, Amy Schwalm, Vice President of Investor Relations. Please go ahead.

Yeah.

Thank you operator, and good morning, everyone with me are Davis, Chairman and CEO , Jonathan Sinclair, EVP and CFO Cary Baker President.

Paul today, including the Q&A portion contains forward looking statements each forward looking statement, including our financial outlook are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

As well as the risk factors section of our most recent annual report filed with Securities regulators.

These documents are also available on the Investor Relations section of our website.

Looking statements made on this call speak only as of today and we undertake no obligation to update or revise them.

Lastly, our commentary includes certain non <unk> financial measures, which are reconciled at the end of our press release.

With that I will turn over the call company.

Thanks, Amy and good morning, everyone I'll start by saying that we are heading into our most important season, and we are well positioned across our business to drive and capture demand globally.

There is no doubt that the macroeconomic backdrop continues to present challenges, but I am very confident that the strong underlying fundamentals of our business will help us navigate them well.

This morning, we released our results for the second quarter of fiscal 2023, which beat our expectations. However, despite our strong performance in the quarter, we're not seeing the level of improvement we had assumed in mainland China.

Covid related disruption, including mall closures Lockdown and travel restrictions continued impact traffic.

And as we head into our most meaningful quarter, where CMV disruptions affect an increasing number of cities in which we operate.

As a result, we have updated our outlook for the year, which Jonathan will cover in further detail shortly.

Let me be clear our brand remains strong in mainland China, regardless of the temporary headwinds.

We saw this brand strength during the holiday period Golden week in October and more recently, leading up to singles day in November where both profit and sales trended positive across our network.

These holidays have historically with meaningful shopping events and that has continued for our brand. This gives me confidence in our long term vision demand and brand strength as we move forward.

Regardless of temporary challenges, we may face our focus for the remainder of the year is clear we will continue to execute against our long term strategy.

Growing our DTC mix deepening our presence in new and existing markets and growing our performance luxury offerings.

Now turning back to the quarter topline revenue grew 19% to just over $277 million.

On a constant currency basis revenue growth was 22% ahead of last year.

Our strong topline flowed through to meaningful bottom line returns, we significantly exceeded our adjusted EBIT expectation as well as earnings per share.

This performance demonstrates the margin strength of our business, we are in season and delivering.

Turning to channel and regional highlights.

Overall, our performance on our second quarter was driven by strong wholesale performance and continued strength in North America.

Our strong wholesale performance was driven by two factors one our ability to fulfill requests from our wholesale partners to ship orders earlier in the season and second an increase in order value.

Given by higher unit and price, particularly in Europe .

This shift in wholesale timing not only allows our consumers the ability to shop, the full assortment of Canada goose earlier in the season, but also opens the door to potential Reorders Leonard.

In North America, where do you see retail network with a particular stand out the strong performance has continued beyond the second quarter accelerating as we would expect to see heading into our peak season.

In EMEA, we saw our topline growth, 34% and by 44% on a constant currency basis.

This was largely driven by wholesale while our stores benefited from increased tourist traffic mainly from the United States.

And lastly in APAC, our results were impacted by performance in mainland, China, which as I mentioned earlier continued to be affected by Covid restrictions.

Outside of mainland China, we continued to execute against our regional diversification strategy.

South Korea through our new distributor loss Hay group and in Japan through our recent joint venture.

Moving from the quarter to an update on progress against our growth strategy for four key tenants of our strategy to include number one grow our direct to consumer mix overall to increasing our penetration in key market three re envisioning our product offering and finally expanding our margins.

Last quarter, we spoke about our plans to open more stores in China, and the leading shopping districts with excellent adjacencies.

The fact that we are renewing leases and securing new leases for stores is a testament to the brand strength with built in China.

Our DTC progress in China also demonstrates the confidence we have in the long runway ahead of us, especially compared to many other luxury brands.

Said before we are investing in China for the long term.

This week, we will unveil our pavilion fifth annual China International import Expo the preeminent event performed business in China.

At the event, we plan to highlight our China specific programs collection and investment.

I am excited that our brand is showing up so strongly at such an important event in China.

In Japan through our joint venture, we opened a store in Osaka in October .

The performance of Cytosorb is very encouraging.

Also we are on schedule to open in Ginza, one of the most prestigious shopping district in Tokyo. This December .

Not only are we expanding our prevalence in Japan, but I am pleased to see our brand elevating and opened in some of the most influential luxury retail locations in the country.

In South Korea in partnership with our new distributor lot Hay group, we opened 40, new shop in shops.

Our performance has already exceeded our expectations and gives us confidence not only in our partnership with latte.

Our strategy.

And the opportunity ahead of us in this highly intellectual Margaret.

In North America, we have begun our quest west United States as we deepen our penetration in key markets across the western United States.

There remains so much potential across many cities in the U S.

As we mentioned on our last call we will open the Wynn in Las Vegas in the coming days, followed shortly by our new store at Cherry Creek in Denver.

We also plan to open two more temporary stores. This fall one in Africa, and a second in Detroit.

In Europe , we opened a new permanent store in Manchester in October .

The store sits on new to Federal Street in the heart of the city with luxury retail district.

We will continue to look for further strategic opportunities across the UK and the continent for this fiscal year.

Our DTC strategy is working.

Excluding mainland China, we generated 28% DTC revenue growth in our DTC comparable sales growth, excluding China was three 2%.

I think it's also important to point out the relative newness of our DTC store network since the onset of the pandemic, we've opened 25 stores and for many we have.

Get to see their full potential we continue to see tremendous opportunity across our existing store network globally.

Moving from our DTC business I'd like to give an update on key product launches heading into peak season.

Enhancing our product offering expanding categories as a core competency for our brand and a key pillar in our long term strategy.

Our new collections and collaborations are resonating with consumers driving profit and buzz around the world.

Last call we spoke about the opportunity we have increased the share of our women's business.

We plan to grow this business from the 50% we currently see to more closely align with the industry approximately 60%.

We are taking meaningful steps to do just that while continuing to build on the strength of our highly successful men's business.

For example last quarter, we spoke about our new fall winter collection with thousands silhouette designed with this in mind.

And then lever that shopper campaign, which featured a cast of amazing women.

Sponsor of the campaign and collection has been tremendous despite having only launched in September we're making meaningful progress against the objectives, we set for the collection.

Motivating our target consumer Gen Z and millennial women and driving awareness for our women's business.

As of today Gen Z and millennial women make up the core customer for the collection combined they represent two thirds of the collections consumer as well our first ever all female campaign is reaching and resonating with new audiences with more than 60% of purchases being first time buyers I'm happy to see this new collection delivers a strong again its objectives.

As we push our women's business to new Heights.

We also see an opportunity to deliver on our goal to grow our women's business through collaborations reaching new audiences with influential partners.

In December we plan to launch a new collaboration which will lean into our more feminine expression of Canada goose functionality.

This collaboration will offer a fresh perspective of the brand exactly the type of Disruptors, a design that will help us capture consumer's attention and their imagination.

Our most recent collaborations with Shanghai based Bank Chang Wang was unveiled in September in Paris fashion week.

In October we hosted impactful launch events in both Hong Kong and Shanghai to celebrate the launch the multi dimensional head to toe assortments leans into fangs innovative and deconstructed approach to design, an exciting interpretation of our brand and the initial reaction has been strong especially in APAC.

As part of our growth strategy, we continue to re envision our offerings and expand in new product categories. In Q2, non heavier weight down sales grew by 46% to 44% of total sales. This is up from 36% of total sales in the prior year quarter.

Following the success in Q1 lease and knitwear sales continued to performed very well growing more than 60% from the comparative quarter last year.

Police was the standout with sales growth of almost 170%.

We continue to make meaningful progress against our strategy to expand our product categories and I'm excited about the opportunity ahead of us.

This November also marks the one year anniversary of our launch event of footwear.

We continue to grow the category at <unk> earlier this year in August with another three set to launch before the end of the year.

The opportunity we have in front of us in footwear is meaningful and we will continue to execute against our strategic playbook to build the business for the long term.

Importantly, this category expansion has not come at the expense of gross margin.

Our made in Canada vertically integrated operating model continues to benefit our business specifically.

Specifically, we've been largely insulated against the extra freight costs and supply chain issues, we have seen impact gross margin across the industry.

Before I pass it over to Jonathan to go over our results and outlook in more detail.

Really want to thank our teams around the world for the laser focused effort on driving our brand success.

Im confident heading into our most important season that we have the right product to capture consumers imagination and attention and therefore drive traffic stores and some of the most exciting retail location in the world and the right team and partners to deliver a stellar experience for our customers across our channels globally.

We continue to see massive growth potential across our business and we will continue to drive growth even in today's macroeconomic environment.

I have said before our business has grown every recession save the first wave of Covid and this year will be no exception.

And with that I'll turn it over to Jonathan to over our results and outlook in more detail.

Thank you Danny and good morning, everyone.

Today I'll be comparing the second quarter ended October three 2022 with the prior year quarter, which ended September 26, 2021, unless I say otherwise.

I will be quoting reported growth rates as well as growth on a constant currency basis, where it is meaningfully different and available.

As Danny mentioned total revenue grew 19% and 22, 3% on a constant currency basis to $277 2 million in the quarter.

This growth came from continued outperformance in North America, as well as growth in wholesale.

DTC revenue increased 15, 6% or 18, 5% in constant currency to $94 $8 million.

We enjoyed the benefits of continued retail expansion and an increase in existing store sales in North America and in EMEA.

Yeah.

DTC comparable sales declined by 4%.

Excluding mainland China DTC comparable sales growth was three 2%.

This quarter last year mainland China, DTC revenue was up 86% with materially less COVID-19 restrictions in place.

Wholesale revenue increased 21, 2% or 24, 7% on a constant currency basis to $187 million.

Related to earlier shipments requested by customers and an increase in order book value, particularly in Europe .

Fulfilling orders through our wholesale partners helps us drive a better shopping experience for the end customer and in turn creates the potential for higher sell through and Reorders.

Importantly, the earlier timing of shipments represents a full return to normalized shipping patents pre pandemic.

Okay.

Turning to performance by geography.

Revenue increased in North America, and in EMEA, While Asia Pacific declined slightly.

We enjoyed U S dollar revenue tailwind offset by headwinds in other currencies.

North America was again the standout this quarter with growth in the U S and in Canada of 23% and 25, 2% respectively.

We have four new stores coming online in the U S part of our best performing region globally.

They are opening during our peak season in a territory that is completely underpenetrated by our retail network.

As Danny mentioned EMEA grew 34, 4% and 43, 7% on a constant currency basis.

And that's largely due to the expansion of our wholesale business with key partners across the region and to a lesser degree from improved productivity in existing stores compared to the prior year quarter.

To an extent business has inevitably transferred from online stores, even if that online business remains substantially above where it was two years ago.

Europe has continued to benefit from travel Garridos reopening and increased U S tourism.

That said the macroeconomic environment is challenging with soaring inflation.

However, we have not seen any material impact on demand and the luxury consumer appears to be quite resilient, but we continue to monitor this closely.

As we have said Asia Pacific results were impacted by Covid restrictions in mainland China as well as the temporary closure of our Macau score.

Although these challenges have been more prolonged am restrictive than anticipated.

Optimism about the strength of our brand in this market is unabated as evidenced by our continued investment in the region.

Further we have diversified the regional mix through our joint venture in Japan, Deepa wholesale partnerships and a revitalized distributor partnership and Korea, all of which helped offset some of the challenges in mainland China in the second quarter.

Despite very tight restrictions, particularly around Beijing, leading up to the party Congress mid month, we saw sales momentum improved during Golden week in the first week of October .

Since then however, we have not seen the business build in line with our expectations for our peak season.

Covid restrictions closures mandatory quarantines and lockdowns in most of our key markets, where we have retail distribution have cub store traffic and consumer buying.

Turning to gross profit we grew consolidated gross profit by 22, 8% to $165 $8 million.

Primarily driven by higher revenue and gross margin expansion.

Quarter, two gross margins increased 180 basis points to 59, 8%.

Favorably impacted both overall and at the channel level by pricing and by lower product costs from increased production efficiencies.

We also have less distributor sales, which attract lower margins compared to the prior year quarter. Following the creation of the Japan joint venture.

As a result of these factors, both DTC and wholesale gross margins expanded coming in at 77% and 51% respectively.

We were able to deliver stronger margins compared to the prior year quarter.

Despite inflationary pressures and the diversification of our product mix away from a concentration in heavyweight there.

Okay.

Adjusted EBIT increased 71% to $29 6 million well ahead of the top end of our guidance of $18 million, reflecting the impact of higher revenue as well as strong gross margins and cost control.

Adjusted net income attributable to shareholders increased 63, 1% to $23 million.22.

Diluted share, which also exceeded the top end of our guidance range of 14 cents per diluted share.

Turning to our balance sheet. We ended Q2 fiscal 'twenty three with cash $97 1 million compared to $98 9 million at the end of the comparative quarter.

Net debt, including capitalized leases was $734 1 million.

Compared to $582 million at the end of the prior year quarter.

We're very comfortable with net debt leverage of two seven times adjusted EBITDA at the end of the quarter.

Inventory was $511 5 million compared to $416 $4 million at the end.

The comparative quarter.

Just over a quarter of the increased $27 4 million was related to the Japan joint venture.

Inventory levels have increased ahead of our peak selling season as domestic production gradually returns to pre patent dynamic manufacturing levels.

We have mitigated supply chain risks through earlier acquisition and higher volumes of offshore production in support of growth relative to the comparative quarter.

Now turning to our outlook.

As many of you know and appreciate as we build in our peak season. Each successive week has an increased weight starting in October .

After a positive shift in momentum during Golden week.

Frictions and other disruptions of whats the trend.

The reality of upholding a dynamic zero COVID-19 policy against the very transmissible current variance has meant fairly consistent periodic disruptions persisted.

When you consider this alongside the broader global macroeconomic uncertainty we felt it was prudent to meaningfully revise our guidance ranges.

It is extremely challenging to predict the bulk of the us trading based on mainly a few weeks of visibility.

But recent events impacting trends are not supportive of our original outlook.

Critically this does not change our confidence in our brand strength globally, nor in our conviction in China is a significant growth market for Canada goose, especially given how under penetrated we are.

For all the reasons, we've detailed we remain excited about our future prospects here.

We now expect.

Expect total revenue of one two to one 3 billion.

Compared to previous guidance of one three to one 4 billion.

The DTC this assumes comparable sales will be down in the low single digits at the bottom end of the range and up in the high single digits at the top end the range.

The decrease in our current assumption from our original low teens comparable sales growth, which drove $1 $3 billion revenue reflects this larger headwind.

On the other hand, we've been able to add a number of temporary store openings, which we've been able to finance through SG&A savings.

Excluding the impact of these additional China headwinds, we would have been inside the ranges. We previously detailed for DTC comparable drug.

DTC sales are still expected to comprise 70% to 73% of total revenue and wholesale revenue growth is maintained at 6% for the year.

Roughly double the contribution we saw last year, we continue to expect $60 million to $65 million in revenue from the Japanese market rough.

Roughly split equally between our DTC and wholesale segments.

Moving to profitability, we now anticipate adjusted EBIT of 215 $255 million for a margin of 17 nine to 19, 6% compared to previous guidance of $250 million to $290 million for a margin of 19 to 20.

7%.

This revised outlook assumes that the revenue reductions in the DTC segment are somewhat offset by cost control measures for the balance of the fiscal year.

We continue to expect a lower underlying SG&A growth rate compared to growth in fiscal 'twenty two.

We assume consolidated gross margin will be in the high <unk> as a percentage of total revenue.

Gross margin benefits from our vertically integrated made in Canada manufacturing level as well as from the conversion of our Japanese business from a distributor arrangement to a joint venture.

This more than offset the impact of a product mix in favor of non heavy weight them, especially in the warmer parts of the year as we continue to expand these product categories.

This complements the colder periods of the year.

When sales of heavyweight down a more prevalent.

Flowing through we now expect adjusted earnings per diluted share of $1 31 to $1 62 compared to the previous outlook of $1 60 to $1 90.

This does not assume any incremental share buyback activity.

Lastly, I will cover outlook for the third quarter.

We expect total revenue of $580 million to $660 million.

This implies a split of revenue in the second half between Q3 and Q4 of 50%.

And 22% of the fiscal year, respectively.

Remember that Q3 fiscal 'twenty two.

Included an extra 14th week that 14th week, it's aligned to the 13th week of Q3 and fiscal 2023.

As such the.

First week of Q3 last year ads.

At $24 million of revenue to consider when comparing growth year over year.

We expect adjusted EBIT of 220 $255 million.

We're now at an inflection point for margin and profit.

The incremental revenue from the investments we've made will drive further leverage.

And the uplift from the DTC mix shift will be more impactful.

We expect SG&A to be in the low to mid thirties as a percentage of revenue.

Third quarter.

This flows down to adjusted net income per diluted share.

The $1 47 to $1 72.

In summary.

We feel confident in our revised outlook, given our strong brand heat on new collections and collaborations and the value proposition that our products offer.

While the environment presents challenges, we remain focused on the things we can control.

We are closely monitoring the trends and buying behavior moving through our peak season.

And we are prioritizing increased store productivity across our growing retail network.

Further we are carefully assessing risk based returns disciplined capital allocation of investment and tightly managing non strategic spend.

Our prospects are exciting with a wealth of opportunity for our brand to grow significantly globally over time.

And we remain focused on driving profitable growth.

With that I will pass it over to the operator to begin Q&A.

Thank you and as a reminder to ask a question you will need to press star one on your telephone.

Of time, we ask that you. Please keep your questions to one please standby will they come back.

On a roster one moment.

One moment for our first question.

It comes from the line of Ike <unk> with Wells Fargo. Please proceed.

Hey, good morning, everyone.

<unk> for Danny then I have one follow up.

Danny just at a high level.

Higher guidance you had indicated I think the low end included some limited disruption in China were clearly getting more than that right now I think thats pretty much a macro dynamic we're seeing with all of our brands, but I guess, how do you.

How do you keep a finger on the pulse of the brand heat you have over in mainland China. Today is there anything you can talk to too.

To help us understand exactly your vision for the brand overseas. Once these transitory pressures kind of subside.

Yes, absolutely. Thank you Eric for the question, Yes, I think thats.

There are absolutely.

A number of macro.

Macro factors, including.

Including the one in China that are affecting of our brand and I think all brands at this time.

I think.

Our brand is very strong and I'm very confident in the strength of our brand in China and around the world and all of our markets I can point to specific things.

For example, I think Jonathan spoke to in the script.

Importantly, when the market is able to function.

Normally in a normal way such as it was during Golden week, our brand performed normally as we would normally expect it to perform similarly, leading up to the singles day event of 11 11, we're seeing extremely extremely strong signs of performance.

I think those are the sorts of things.

That suggest that encourage all of us that are.

Our brand continues to be strong in China.

Further to that.

To talk about China, specifically, we continue to sign leases with landlords.

The most important mall to the most important places.

It's just reaffirms.

Their confidence in our brand and the extent to which our brand drives traffic to their malls.

That one off the case, they would not be signed those leases with us.

Unfortunately, these COVID-19 headwinds and economic headwinds.

That are impacting the world in China today are in fact doing so but.

We all know that the macro conditions will pass and I'm extremely confident that once they do our brand is very well positioned and very well beloved by the global consumer to continue on its growth trajectory.

Thank you one moment for our next question.

Any comes from the line of Michael Binetti with Credit Suisse. Please proceed hey.

Hey, guys. Thanks for taking our question here can you.

Speak to the cost control measures you spoke to for second half maybe just highlight a couple of those buckets are it looks like the new guidance.

Thinks about I think the new guidance is about $5 $90 million to $650 million of SG&A for the year previously 6680, so a meaningful cut and I'm, mostly curious.

What are the buckets that might have to come back next year, if the environment is better and then on.

Yes.

Thanks, Mike So I think when it comes to the cost control measures and all businesses have.

Discretionary spend with.

Very very focused on making sure that we are targeting all spend on strategic initiatives in the business.

To secure the future growth and that has not changed.

But at the same time, we are making sure that we.

Specific half alone the decisions that we're making in that.

We are only investing where it is going to make a difference for this yield to next.

And therefore, we've tightened up across the piece in that.

You are talking about the head count that you're talking about discretionary spend.

That's really a very strong focus and it's a very strong discipline in this business.

Add to that the fact that there are variable costs in the business as well, whether we're talking about rental credit card commissions or various.

Store labor components typically do very in line with revenue and therefore, you had a third component of that.

The one other thing I would say we are maintaining our marketing investments in this business. It's very important for the brand is very important that we do.

Drives demands otherwise.

We tried other way to glory in a way that's just not feasible. So.

That's the other component when the stores were opened in China, taking moving to your second point actually we are seeing really good productivity, we're seeing performance in line with expectations, both in our existing stores and in the new ones, but unfortunately, it's just the windows when that can happen at the moment our Walgreens.

One moment for our next question.

And it comes from the line of Oliver Chen with Cowen. Please go ahead.

Alright, Thank you and good morning, Dani and Jonathan as we think about China and Asia going forward.

Things within your control and the guidance.

Reset enough in terms of what Youre seeing I know, it's a very dynamic situation. There are a lot of uncontrollable factors.

Any interplay with your digital footprint.

And Jonathan I would love your thoughts on Europe as inflation.

As a factor however, you expressed some optimism or a solid luxury consumer there as well. Thank you.

Yes. Thank you.

Thanks for your question.

Yes, I think that you know the things.

Our control are.

The extent to which we expand.

Deploy our marketing resources.

E Commerce versus.

Versus our bricks and mortar stores and then we're going to continue to do that I think thats.

No I think that.

I think that.

One of the reasons why the range is tahoe being a wide range I think one of the reasons is why is that is really really difficult to predict the span of outcomes over the next few months.

In.

In the region and even in the world with regards to the macroeconomic.

<unk> situations and political geopolitical situations that exist now one thing I do know to be true loss.

25 years of being in this business is that now October's Burger concept.

In September September September and November is better than October and December is bigger than than in November I believe that that is something that is going to remain to be drilled this year and.

And the variables that we control.

The degree to which.

That is true.

Going to depend on.

Some of the things that are outside of our control.

And we will continue to focus on those things that are within our control.

I think when it comes to.

Europe .

All results.

Let's start by talking about our results are and just the prospect.

Our results were mostly in line with our expectations.

We look we launched a new website right at the end of the quarter, which.

To service.

When we consider the performance of the stores in the quarter actually.

Each of the stores are won and then only slightly while up one was very slightly down and the rest of them were all up so actually we're seeing really good health.

In the region, and we see that as grounds for optimism.

Even if we're sanguine about the macroeconomic environment.

Just one point to add on that is I think one other point that look through my confidence in the brand is just our strong wholesale order book.

Price and volume so that is a huge sign for us.

In terms of our continued strength in addition to what we already saw in stores.

One moment for our next question please.

And he comes from the line of Omar Saad with Evercore ISI. Please proceed.

Good morning, Thanks for taking my question.

Wanted to dive in deeper around some of your comments in North America.

Pick up.

Yes.

There are you getting indications in markets for whether it's getting coal and some of that reacceleration.

You also mentioned that kind of quest, where maybe you could talk a little bit more about the balance of your business across North America from east to West.

I kind of put them.

Breaking ground.

What that opportunity could mean and then also in North America are you seeing more new customers coming into the brand or is it the growth youre seeing more existing customers buying more from a brand new category.

This malware.

Thanks.

Thanks for the question I think when you look at North America, I mean, the growth is happening everywhere.

I'll answer your last question first then new customers are Danny <unk>, our new campaign that focus on women with a new collection. We're so happy to see it is attracting a new female customer.

That doesn't mean, it's not resonating with existing customers where just.

The faster growth.

And with new customers.

Quest with again, our health in North America, we're seeing it across channels I think we're seeing it across regions.

It just there's more white space opportunity as we go west and introduce our brand in a different way. So seasonality plays a factor. There. There are also I think I talked about this last quarter people.

And west are not just coming to ask part of the first product being a winter product that coming until lightweight down are coming into that.

Seeing a variety and so we're able to present.

For some view of what Canada Goose is a luxury lifestyle brand and they're picking up on that.

So I think bottom line I think we have lots of growth in North America, and hope to see that continue throughout the rest of the year.

One moment for our next question please.

And it comes from the line of Brooks relative with Goldman Sachs. Please proceed.

Yes, I think so.

Thanks.

<unk>.

Yes.

It's really important to try and.

So in the end what we're seeing is.

One particular sector.

Circumstances.

We were expecting a backhaul peg on the mainland China.

As a result.

The impacts.

Is <unk>.

Mainland China business and its not.

Beyond the components.

Obviously.

The components.

As a result of America and Europe .

A more challenging economic backdrop.

Fundamentally they're performing in the way.

Okay.

Sure.

Now within mainland China, our business is down and we expect it to stay down.

Okay.

So if you listen to the.

Right.

Slightly negative to slightly positive in terms of the overall <unk>.

Thanks.

We would be right.

What we talked about originally which is low to high teens.

Were it not for the Chinese.

Business being almost that much pressure.

So you can see that the slides of the headwinds which in this quarter in life sciences around seven actually expect it to be bigger going forward.

And thats whats baked into these assumptions.

One moment for our next question please.

And he comes from the line of Jay sole with UBS. Please proceed.

Just talk about e-commerce trends, specifically in China, I know you touched on this but just to elaborate what kind of growth that youre seeing online and if you've seen any kind of transfer from stores to online as stores have been closed. Thank you.

Thanks, Dave for your question in terms of the store opening plans I mean, we have nothing new to announce specifically.

Terms of what stores, we're going to be open and I think it's fair though.

You expect us to continue to open stores at more or less the same pace that we've been open to them. This year last year and so forth.

We will always wait for the best real estate become available and be patient.

For that to happen and when that happens we will we have the bandwidth.

Possibly to open a larger number of stores that we need to in the year end.

Prepare to open a smaller number of us.

And Thats right thing to do we're always going to.

Keep in mind, the right thing for the brand for the long term health to Brian So that we will.

We are meaningful player in this space for decades to come.

I think.

With regards to China.

With regards to China, I think that.

I would think that.

It is reasonable to expect that.

As the busy season ramps up.

Ability to store and ability to.

Okay.

Unwillingness to go out to stores.

Certainly resulted in transfer to more online sales of our speculation is hard to.

100% predict to the degree to which that will happen certainly we'll do our best to two.

I encourage people to shop wherever they're comfortable shopping and making sure that they are aware that the inventory.

Available and.

With that.

Tim.

Yes.

They can do that.

I'd add to that.

Perhaps unsurprisingly.

China was by far our best performing website business within the <unk>.

Within the second quarter it has held its own.

Time, when business was heavily down.

And that that trend is something that we see continuing at the moment because clearly starting says is most comfortable wakes people to shop and certainly our.

Initial steps towards 11, 11, Singles' day are very encouraging.

One moment for our next question please.

The next question is from Mark Petrie with CIBC. Your question. Please.

Yeah. Thanks, Good morning, I think Gary you mentioned, just talking about the wholesale business, a little bit and I just wanted to follow up on that obviously a point of strength in Q2, but I know a channel that you continue to manage very closely so I guess two questions.

The greater macro uncertainty. Thank you think any differently about the role of wholesale and within your business and sort of the penetration level and sort of business mix and then specific to this fiscal year is there any appreciable difference in both the number of doors and then also the depth that youre getting at your wholesale.

Accounts in terms of the assortment.

Okay.

Thanks Mark.

Wholesale.

Sure we manage it closely with our partners and in line with our expectations, but it hasn't changed fundamentally in terms of the role. It plays in the ability to serve our customers where they're shopping I think for US I mean, it's always been to user Jonathan Jonathan Chairman managed economies that we work with them you don't give them everything they want.

Sure.

We're very excited to have that product available.

And I think that there hasnt been any significant change again, we're always anything around the edges.

But there hasn't been any.

Again changes in terms of the number of doors are where we're playing.

Our next question please.

And it comes from the line of Al <unk> with Barclays. Please go ahead.

Good morning, Thank you for taking my question Mike.

One on the wholesale DTC mix in NGL mix.

On the wholesale piece of it the $180 million how much of that was earlier shipment and Jonathan you said that this is the normalization normalizing the pattern of shipments. So from this point forward, we should expect sorry, the irregularity kind of on a year to year basis. That's my first question.

Yes.

The answer is if you think about wholesale.

Growing.

6% for the year. The reality is that the timing differences coming up is if the components that.

Above 6%.

That's that's timing of some that we anticipate anticipated and some of it called out providing customers beyond that and that's how we ended up here.

I think that.

When it comes to normalize ace in the hole, that's you're exactly right.

The way I've said, which is that meaning that this is normalized.

Anything else changing that source of the <unk>, we would expect going forward.

Thank you and our last question one moment please.

And he comes from the line of Robert <unk> with Bank of America. Please proceed.

Oh, hi, Thanks for taking my question. My question is for probably Jonathan can you talk a little bit about the inventory levels. You expect going forward I think you guys mentioned production coming back online.

Wiring some offshore production earlier and obviously the sales forecast has been lowered about $100 million just how should we think of inventory levels for the next couple of quarters.

And then maybe connected to that is there a.

Is there a scenario, where you would maybe need to become a little bit more of a promotional brand or do more in the off price channel.

So I think that.

Let's start with the fact that this is not a promotional brand and that's a core part of the strategy of the brand.

Robbie.

Honestly I, just don't see that changing.

Uh huh.

Our inventory is healthy the model that we operate two as Youll recall is very much one which is a key.

<unk>.

Green marble, so a very high proportion of what we sell continue.

<unk> and guys from season to season.

And that's something that isn't new.

It means that it becomes a hedge against inflation that reflects the fact that we're our own manufacturers as well.

Sure.

Our normal expectation.

Some et cetera. This is how we would expect to pan out or is that.

Revenue and revenue growth and inventory growth more or less in line.

That said of course this year, we got a bit of distortion from Japan.

But I think that's the right way to expect this to go.

Clearly revenue volatility will have some impact, but you got to remember the gross margins in this business are quite wide and therefore.

We're talking about here is DTC volatility so the most volatility that you've got the statement.

And it was $25 million of cost of goods.

And with that ladies and gentlemen, we close our Q&A and conference for today. Thank you for participating and you may now disconnect. Good day.

Q2 2023 Canada Goose Holdings Inc Earnings Call

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