Q2 2023 Canada Goose Holdings Inc Earnings Call
Okay.
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 the session you will need to press star.
One one on your telephone you will then hear the message that your hand is waste.
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, CEO , and Jonathan Sinclair, EVP and CFO Cary Baker President.
Today, including the Q&A portion contains forward looking statements each forward looking statement, including our financial outlook is subject to 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 and capture demand globally.
There is no doubt that the macroeconomic backdrop continues to present challenges, but I'm 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 co.
Covid related disruption, excluding bulk orders locked down in <unk>.
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 rollout.
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.
Our strong top line flowed through to the 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 in 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, a full assortment of Canada goose earlier in the season, but also opens the door to potential reorders.
Yes.
In North America, where do you see retail network was a particular standout with 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 lot 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 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 their leases and securing new leases for stores is a testament to the brand strength, we've 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 as I've 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 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 prevalence in Japan, but I am pleased to see our brand elevating our reopening 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 are.
Our performance has already exceeded our expectations and gives us confidence not only in our partnership with water.
Strategy.
And the opportunity ahead of us in this highly intellectual Margaret.
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 our new store at Cherry Creek in Denver.
We also plan to open two more temporary stores. This fall one in Aspen.
And Detroit.
And 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.
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 and 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 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 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 selection.
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 deliver so strongly 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 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 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 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 are 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 <unk> 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 have 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.
Certainly want to thank our teams around the world for their laser focus efforts 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 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 will 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, whether it is meaningfully different and avail.
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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 mandatory quarantines to name, but a few of the factors consequences.
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 patterns pre pandemic.
Okay.
Turning to performance by geography.
Revenue increased in North America and in EMEA.
CA, while Asia Pacific declined slightly.
The gap between reported and constant currency growth arose with 33% if 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% on a constant 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 as increased U S tourism.
That said the macroeconomic environment is challenging with soaring inflation.
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 opt.
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 demand.
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.
Yeah.
Quarter, two gross margins increased 180 basis points to 59, 8%.
Was favorably impacted both overall and at the 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 DAP.
Yeah.
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.
Diluted share, which also exceeded the top end of our guidance range of 14.
I'll need to check.
Turning to our balance sheet, we ended Q2 fiscal 'twenty, three with cash $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 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 Hasnt increased weight starting in October .
After a positive shift in momentum during Golden week restrictions and other disruptions of whats the trend.
The reality of upholding dynamic zero Covid 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 merely 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 for DTC 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 sold last year, we continue to expect 60% to $65 million in revenue from the Japanese market.
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.
Two 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 down, especially in the warmer parts of the year as we continue to expand these product categories.
<unk> complements the colder periods of the year.
When sales of heavyweight down are 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 one dollar go into.
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%.
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 million to $155 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.
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.
Prospects are exciting with a wealth of opportunity for our brand to grow significantly globally overtime.
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 you mean.
Joseph time, we ask that you. Please keep your questions to one please standby will they come back the Q&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.
Question for Danny then I have one follow up.
I guess, Dan just at a high level.
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.
Yeah, 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 all of our brand in 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 in thing Jonathan spoke to in the script.
Very 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.
That suggest that.
I encourage all of US that are brand continues to be strong in China further to that.
To talk about China, specifically, we continue to sign leases with landlords.
And the most important mall to the most important places.
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 sign those leases with us.
It is unfortunate that 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 highlighted 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 I think when it comes to the cost control measures.
Businesses have.
Discretionary spend with Burberry.
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 either for this year over the next.
And therefore, we've tightened up across the piece in that.
You are talking about the head count that you talked about the discretionary spend.
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, whether we're talking about rental credit card commissions or various.
Store labor components, typically do very in line with revenue and therefore, you've 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 do.
Drive demands otherwise.
We've got a way to go in a way that's just not feasible.
Good.
That's the other component when the stores were opened in China, taking moving to your second point.
Actually we're seeing really good productivity, we're seeing performance in line with expectations both in our existing stores added in the new ones, but unfortunately, it's just the 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 and as 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.
Is there 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 against e-commerce versus.
Versus our bricks and mortar stores and what 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 you talked about being a wide range I think one of the reason 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 regardless of the macroeconomic.
<unk> 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 now October's Burger concept.
In September on September <unk> 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 through 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.
And when it stopped by to talk 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 vessels. So that's been.
A big important when it 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 to our confidence in the brand is just our strong wholesale order book.
Both in 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 thought 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.
I wanted to dive in deeper around some of your comments on North America.
On the 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 maybe you could talk a little bit more about the balance of your business across North America from east to West.
Okay.
Numbers around.
What that opportunity could mean and then also 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.
And if not where.
Et cetera.
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. We're just on.
And the faster growth is happening with your customers.
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 classify the first product being a winter product that coming into lightweight down that's coming into that they are really seeing a variety and so we're able to present.
A more fulsome 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.
Yes.
One moment for our next question please.
And he 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.
Thanks for the question.
Yeah.
It's really important to try and.
So in the end what we're seeing is.
One particular sector.
Sure.
Circumstances.
We were expecting.
Platform on the mainland China.
As a result.
The impacts.
Is <unk>.
Mainland China business and its not on the other.
Beyond the components.
Obviously the other.
Those components.
As a result of <unk> in Europe .
A more challenging economic backdrop, but fundamentally they're performing in the way that we do.
Perfect.
Now within mainland China, our business is down.
We expect it to stay down.
And so if you've listened 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 low to high teens.
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 and life 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 articulated to ensign leases or and then maybe just going back to China.
Can you 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 stores, we're 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 loss here 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.
To prepare to open a smaller number of us.
If that's correct 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.
It will be a meaningful player in this space for decades to come.
I think with regards to China.
Okay.
China I think that.
Sure.
I would think that it will.
A reasonable to expect that.
As the busy season ramps up and the ability to store and abilities to or.
Unwillingness to go out to stores.
Certainly resolved on transfer to more online sales of our speculation is hard to.
Hundred dollars on 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.
Tim.
Yes.
<unk>.
They can do that.
I'd add to that.
Perhaps unsurprisingly.
China was by far our best performing website business within the <unk>.
Sure.
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 it's a study says is most comfortable way for 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 Terry 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 what channel that you continue to manage very closely so I guess two questions.
It is 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 hold.
Tail accounts in terms of the assortment. Thanks.
Okay.
Thanks Mark.
Wholesale no so.
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 has always been to user Jonathan Jonathan Chairman managed economies that we work with them.
Don't give them everything they want.
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 editing 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.
No name for our next question please.
And it comes from the line of <unk> <unk> with Barclays. Please go ahead.
Good morning. Thank you for taking my question two questions one on the wholesale DTC mix in NGL mix on.
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 sort of 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 it.
6% for the year. The reality is therefore, the timing differences coming up.
Is the component that.
Is above 6%.
That's that's timing that's something 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 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 shape, we would 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 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 youre acquiring some offshore production earlier and obviously the sales forecast has been lowered about $100 million just how should we.
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 guys from season to season.
And that's something that isn't new at it means that it becomes a hedge against inflation. It reflects the fact that we're our own manufacturers as well.
<unk>.
Our normal expectation.
Some et cetera. This is how we would expect to pan out is that.
Revenue and revenue growth and inventory growth should move more or less in line.
That said of course this year, we got a bit of distortions 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 in.
And there is $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.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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