Q3 2023 Canada Goose Holdings Inc Earnings Call
Hello, and thank you for standing by welcome to Canada Goose third quarter 2023 earnings Conference 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 automated message advising your hands raised.
To withdraw your question Press Star one again.
I would now like to hand, the conference over to your speaker for today.
MS Schwalm you may begin.
Thank you operator, and good morning, everyone with me are Dani Reiss, Chairman and CEO , Jonathan Sinclair, EVP, and CFO and Cary Baker, President our call 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 forward looking statements factors and assumptions is available in our press release issued this morning as well as the risk factors section of our most recent annual report filed with the 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'll turn the call over to Danny.
Thank you Amy and good morning, everyone. This quarter showed us overwhelmingly brand strength globally remains strong even in the face of short term pressures.
Mainland China consumers return in full force to shop with us for a period of significant disruption in December .
We also saw solid topline growth and I'd say, it's driven by strong performance across our store network and our gross margin expanded year on year for the third quarter in a row up over 160 basis points, which margin with margin improvement across all product categories.
With that said, we did face challenges during a seasonally significant third quarter.
The largest being in mainland China or disruption that were worse than we had anticipated impacting our performance significantly.
North America, we saw a softening of demand towards the end of the quarter.
Few moments I will dive deeper into both of these trends.
These short term pressures will not trend how do we think about our business. We are and have always been building. This brand for the long term now more than ever we are focused on building deeper relationships with our customers strengthening our DTC network and continuing to expand categories.
All while staying true to our luxury DNA.
And we know that our strategy is working we continue to be recognized for it as well we are proud that for the fifth year in a row Deloitte has named us in their global power of luxury goods report as one of the world's fastest growing luxury brands.
Our competitive advantages remain strong our made in Canada vertical integration has enabled us to so far offset many of the cost pressures and supply chain delays facing the industry and.
And we are continuing to deliver a steady stream of new and carryover products to our global distribution network.
Turning to the quarter, we posted revenue of $577 million.
Down one 6% from the prior year period, which included a 50 <unk> week using.
Using the same creating rigs from the comparative quarter in both periods revenues grew two 5%.
Before we dive into our results in more detail I want to spend a moment discussing the pressures that have impacted our earnings.
Really important to note that we firmly believe these trends disruption in China and softness in North America are temporary and our brand strength.
Remains incredibly healthy.
Starting with mainland China, where the original was largely locked down for most of the quarter.
We did expect a certain level of disruption we did not anticipate was the southern reopening in early December .
This led to a surge in infections, which had a significant impact on our business. During what is typically our most productive trading month.
Consumer traffic decreased dramatically in staffing levels were impacted due to illness. We're proud of how our local teams are able to navigate difficult circumstances that they face.
On a more positive note the reopening did give us a clear message from our consumers on mainland China, Canada, Goose's brand remains strong traffic and transaction growth jumps immediately following the disruptions in December and January same store traffic was up approximately 30% year over year and in Hong Kong truck traffic has tripled.
But from the same period last year.
And that strong progress has continued stores are fully staffed consumers are shopping in person and a familiar lineups of return for many of our stores.
We are confident that our brand has retained its full strength.
We also have the added benefit of lunar new year in the fourth quarter, which for the first time in three years with celebrated without restrictions traditionally we see a pick up in store traffic and transactions at about three weeks prior to the holiday and this year was no different.
And we hit another milestone in January surpassing the 1 million followers on Wechat. Another example of our brand strength in the region. All of this clearly shows that our best days are yet to come.
In North America, we're seeing a continuation of mixed results early in the fiscal.
Both in Canada, and the United States store traffic is up more than 30% year over year as more consumers are choosing to shop, our experiential store network with.
With that being said conversion in North American DTC business is lower than we expected early in Q4.
As I said, we believe these pressures to be temporary and we continue to focus on driving brand heat and relevance through exciting partnerships and collaborations.
On that I am very excited about our upcoming collection with NBA All star as part of our long term partnership with that organization, the new collection, which will be our third so far launches next week and it has always created a lot of buzz and hype for our brand.
And in January we celebrated our 11th year as an official sponsor of the Sundance Film Festival in Park City, Utah.
This year, we returned to main street with our exciting Canada Goose base camp experience and pop up retail store.
Sundance is the perfect backdrop for our brand truly the intersection of performance and luxury.
And an opportunity for our brand to celebrate our authentic decades long relationship with the film and entertainment industry.
Looking ahead, we are also moving forward with our store expansion program much earlier in the calendar year than in past years, We plan to open three new permanent stores early in Q1, one in Seattle, and Los Angeles as well as our second store in Las Vegas.
So, let's turn back to the quarter.
In our DTC channel our stores had the strongest monthly comps of the quarter in December with total company DTC comps at nine 3%.
Every single geography posted positive DTC store comps in the month of December .
North America was a notable growth across categories, specifically apparel grew 61% compared to last year, reaching 5% of total sales in the quarter and for the full year non heavyweight down grew considerably up 20% to nearly 42% of revenues year to date.
Up from 36% the prior year as you can see we continued to make progress against our category expansion strategy.
Okay.
Importantly, our gross margins have remained strong expanding 160 basis points, we are particularly proud of this point considering the intense promotional activity that dominated much of the consumer retail behavior. In this holiday season, we bucked that trend our gross margin reflects the strength of our non promotional DCC network as well as our exclusion for much of the <unk>.
Most of our activity in wholesale this quarter.
As we look ahead, although we continued to make significant headway on our key growth drivers we are cautious about the fourth quarter.
The softening of demand in North America, along with China's a weaker than anticipated third quarter has led us to lower our fiscal year 2023 expectations.
We now feel that these align better with the current environment.
Jonathan will give more details on this in just a bit but I want to emphasize our long term expectations for our brand remain unchanged, we are well positioned to see tremendous upside in both the medium and long term.
Before closing I want to share some progress that we've made on our core pillars of our strategy.
Growing our existing network.
There is a substantial amount of room to grow as we continue on our request west.
In the quarter, we opened two permanent stores, one in Las Vegas, and another in Denver, and two pop up stores, one in Aspen and the second in Detroit All four locations included the full breadth of our assortment in our Las Vegas location includes our award winning snow room experience. It has been a big hit in the desert.
Beyond these four store openings in North America, We also opened new stores in China, Japan, and the UK this year.
At the end of the quarter, we now have 51 permanent stores, roughly a 25% increase from last year.
As well in partnership with our new South Korean distributor Latte, we've opened five permanent and 12 temporary pop up shops in only nine months, our progress in South Korea has exceeded our expectations as only the beginning of the story there we still have a long runway ahead of us.
Looking forward to sharing more of that with you in the future.
And we continue to focus on expanding our product offerings, reaching more consumers and more season.
We see opportunity to expand our offering for women and building on our already strong residents of the younger generations.
Innovating in our women's offering to focus on stylist versatility and it's working.
In the third quarter, we saw strong reception to our Aurora in Marlow Park is both achieving approximately 70% sell through a fantastic performance for two new styles.
<unk> continues to be a hit with women, particularly in APAC with the region driving around a third of global sales of the collection.
And lastly, we launched our beautiful collaboration with the <unk> formation in the quarter, which resonated, particularly well in the United States. The reaction of the collaboration generated across our social channels, especially with women and Gen Z was overwhelmingly positive.
On a final note and one that I'm, particularly proud of in November we donated over 10000, Parkers jackets and accessories to Unhcr United Nations Refugee agency in support of their humanitarian efforts in the Ukraine.
Our product went to Ukrainians, who have been impacted by the war and needed protection from the onset of winter.
In conclusion I want to once again, thank our teams around the globe, who have continued to put our customers first.
Our brand remains as strong as ever and we are better positioned than ever to execute against our strategy and accelerate our growth.
We look forward to sharing more with you at our Investor Day next week. Thank you.
And now I'll turn it over to Jonathan Sinclair.
Thank you Danny and good morning, everyone today I'll be comparing the third quarter ended January one 2023 with the prior year quarter, which ended January two 2022, unless I say otherwise.
In order to highlight the impact of the incremental week in last year's results. We have also provided figures that use the same trading weeks in each period.
So.
Turning to our results in the third quarter total revenue declined one 6% and two 2% on a constant currency basis to $576 7 million.
Using the same trading weeks revenue grew two 5% and one 8% on a constant currency basis.
The third quarter of fiscal 'twenty, three revenue fell below our outlook range of $580 to $660 million.
As you heard me discuss the majority of this can be attributed to mainland China.
Since we last spoke to you in early November .
Covid restrictions in mainland China worsens backbones.
And when the country suddenly reopened in early December which is our busiest trading months of the year, a wave of infection suppressed traffic and reduce store hours due to staff illness and in some cases close the stores altogether.
We estimate the impact was about $60 million in lost revenue.
In North America, particularly in the U S. Despite store traffic in line with our expectations.
We saw lower conversion and a PTC network against a tough macroeconomic backdrop and we estimate this represented about $25 million in lost revenue.
Now turning to our revenue channels DTC revenue increased one 5% to $452 million.
Using the same trading weeks, the increase was four 6% and eight 2% excluding mainland China.
DTC comparable sales declined 6% to seven and grew 12% excluding mainland China.
The revenue growth was strong but was.
Somewhat offset by lower e-commerce revenue.
Consumers shopped more in our stores during the quarter and you may recall COVID-19 restrictions in EMEA and in Canada were prevalent in the comparative quarter.
Taking this in the round, our strong store performance and our most important quarter reflects brand heat.
And importantly, we saw this in mainland China with the reopening towards the end of the quarter and up until today.
Looking forward, we believe we have the opportunity to further enhance store sales productivity and we remain very focused on identifying and executing on the drive is to do so we.
We also believe e-commerce is a significant area of opportunity.
We're excited to tell you more about our plans for DTC growth at our upcoming Investor day.
In the wholesale segment revenue declined 17, 3% to $114 4 million in the third quarter using the same trading weeks the decline was 11%.
As we explained in our last earnings call, we fulfilled wholesale shipment request from customers in Q2 fiscal 'twenty, three which was earlier than in the comparative quarter.
This has returned us to normalized shipping patterns pre pandemic.
Now for the performance by geography.
Revenue increased in North America, driven by growth of 11, 3% in the U S from retail expansion at existing store revenue growth.
Using the same trading weeks U S revenue grew 17, 4%.
Revenue decreased in Canada, and in EMEA, largely due to earlier wholesale order book fulfillment and lower E. Commerce revenue. This was partly offset by strong store sales growth.
Asia Pacific's revenue decline on a kind of a mainland China was partially offset by strong performance from stores in greater China as well as the new DTC and wholesale business and our Japan JV.
Turning to our profit metrics, we grew consolidated gross profit by $2 6 million to $416 4 million.
Primarily due to gross margin expansion.
Q3, gross margins increased 160 basis points to 72, 2% with margin improvement in every product category and in both channels.
DTC and wholesale gross margins expanded to 78% and 53% respectively.
Gross margins were favorably impacted by pricing and that was partially offset by higher duty costs product mix and the impact of the fair value inventory acquisition adjustments on sales related to the Japan joint venture.
True to our track record to date, we expanded gross margins. Despite the ongoing diversification of our product mix away from a concentration in heavyweight down.
This continues to give us confidence in our model going forward as we accelerate product category expansion.
As the region Asia Pacific Skews to more heavyweight down sales as a percentage of total sales.
Of course, the region sales were heavily impacted by Covid disruptions.
Operating income declined largely due to the unfavorable foreign exchange fluctuations on working capital and on our term loan as well as investments in technology higher costs related to retail expansion in running stores at full capacity as well as costs associated with it.
Japan joint venture.
These were partially offset by higher gross profit and the timing of marketing spend which occurred earlier in the year compared to fiscal 2022.
Adjusted EBIT decreased to $197 $1 million, primarily due to the higher costs I. Just described and came in below our outlook range of $220 million to $250 million for the quarter.
This was largely due to lower than expected revenue, especially in DTC the donation to assist refugees from the war in Ukraine.
Higher than anticipated strategic investments as well as negative FX impacts.
In addition.
Starting quarter three fiscal 'twenty three we have included pre store opening costs as an operating expense in the calculation of adjusted EBIT.
We use non <unk> measures to help us evaluate the performance of our business.
Thus, we expect to accelerate store openings as part of our growth strategy. We felt it made sense to factor in these costs.
As such comparable periods have been restated to reflect this change.
Our latest Q4 and annual guidance also reflects this.
I'll discuss guidance shortly.
Net income and adjusted net income.
Lower than the comparative quarter, largely as a result of the factors impacting operating income as adjusted EBIT as well as a higher income tax expense.
Turning to our balance sheet.
Inventory was $482 million.
<unk> to $368 million at the end of the comparative quarter.
Japan represented about 25 million of the inventory balance at the quarter right.
Higher inventory levels are primarily attributable to lower than expected sales in the Asia Pacific region.
We monitor the levels of inventory in each of our sales channels and across geographic regions and we align that with demand that we forecast in each region.
Whilst it's slightly higher than we would like we are comfortable with the health and makeup of our inventory.
During the third quarter, we renewed our share purchase program in relation to subordinate voting shares.
We purchased about 745000 shares in the quarter and we will continue to be opportunistic alongside investing in the business, which attracts the highest ROI.
We ended Q3 with cash of $344 2 million.
Compared to $407 6 million at the end of the prior year quarter.
Net debt, including capitalized leases was $419 2 million compared to $238 1 million.
At the end of the prior year quarter with very comfortable with net debt leverage of one six times adjusted EBITDA at the end of the quarter.
The increase in net debt was primarily due to increased lease liabilities on retail expansion.
Financing needs of the Japan, JV and the impact of FX on our U S denominated term loan.
Turning to our outlook.
With worse than expected Covid disruptions and mainland China. There are most important trading rooms and slower momentum in North America.
Towards the end of the quarter ending quarter four to date, we have revised full year guidance.
We now expect fiscal 'twenty three revenue to be between $1 175, and $1 195 billion.
Compared to our previous guidance of one two to one 3 billion.
The DTC this assumes a comparable sales decline in the low single digits compared to our previous assumption of a decline in low single digits to growth in the high single digits at the top end of the range.
DTC sales are now expected to comprise the high six days as a percentage of total revenue compared to our previous assumption of 70% to 73%.
Wholesale revenue growth is maintained at 6% for the year.
We now assume <unk>.
$45 million to $50 million in revenue from the Japanese market, which compares to our previous assumption of $60 million to $65 million as our new stores have had a slower start than we anticipated.
Moving to profitability, we expect adjusted EBIT of $167 million to $182 million.
For a margin of 14, two to 15, 3% compared to our previous guidance of 215 $255 million for a margin of 17, 9% to 19, 6%.
This revised outlook assumes strategic investments will continue into Q4 at a higher rate than previously planned including key leadership hires digital investments.
And strategic initiatives.
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 mobile as well as from the conversion of our Japanese business from a distributor arrangement to a joint venture.
Flowing through we now expect adjusted EPS.
Per diluted share of 92 to $1 three.
Compared to the previous outlook of $1 31 to $1 62.
This revised assumption assumes share buyback activity.
Lastly, I will cover our outlook for the fourth quarter.
We expect total revenue of 251 $271 million adjusted EBIT of $19 $35 million with SG&A used in the calculation of adjusted EBIT assumed to be in the low <unk> as a percentage of Q4 revenue.
This flows down to adjusted net income per diluted share.
Of breakeven to <unk> 12.
In summary.
Fiscal 'twenty three hasnt been nothing short of eventful, we're extremely pleased with the easing of restrictions and the very strong signs of a retail rebound in mainland China, including Q4 to date.
<unk> really reflective of the brand's strength.
We are well positioned to significantly benefit from our DTC network expansion in the country.
We have six times as many stores.
As we did when the pandemic began.
We know the macroeconomic environment is challenging, but we're confident that our luxury brand positioning.
DTC and product expansion plans as well as our focus on the consumer make for the right strategy.
And critically we are focused on executing our strategy to drive profitable growth.
Savi mentioned, we look forward to taking you through our plans at Investor Day next week and with that I'll pass it over to the operator to begin Q&A.
Thank you.
Yeah.
Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
We ask that you limit yourself to one question.
Withdraw your question Press Star one again.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Michael Binetti with Credit Suisse. Your line is open.
Hi, Thanks for taking our questions here and for all the detail.
I guess just the first one I'm just looking at the shape of the P&L in the quarter.
Revenues came in in the quarter, a little down by a few million, but EBIT.
By more than $20 million, maybe walk us through a few of the components there that caused that amount of deleverage just high level thinking and then.
I am curious what do you think is causing the pressure on the conversion rate in North America.
Direct to consumer.
And you said traffic is goods I don't know if you felt like weather was an issue but.
I Wonder what your early diagnostics around the conversion issue.
Okay.
Thanks, Michael.
Let me take the first part of that.
As you said revenue was less than expected.
And that was <unk>.
<unk>, which obviously is our highest.
Margin.
Segment and best quality of revenue.
And as a percentage of total that was less than we expect.
Expected for the reasons I detailed in my prepared remarks.
Well.
Both mainland China and North America.
And that dilutes gross profit and that was worth about five minutes just to put an order of magnitude around that.
We also made decisions to sustain our marketing investment in support of the brand as well as investing in strategic growth initiatives.
And as I said, we'll talk a bit more about that next week, but that's another $3 million.
We experienced some negative.
FX impact.
That was worth.
The 3 million with an adjusted EBIT.
The move of Preopening costs into adjusted EBIT <unk> added a further $3 million and of course, we made the conscious decision to donate around 10000 jackets.
Yes.
Refugees from awarding new crime, so thats really what made up the vast majority.
Yes.
This is Danny just to add on us a little bit I think.
Notwithstanding the challenges we faced.
In China this quarter.
And the pressure because we run this business for the long term and.
And when we feel that we have an opportunity to make an investment for <unk>.
I'm trying to return and to drive growth in the future that's what we do.
As Jonathan said, we look forward to discussing our plans in that regard further and our strategy at our Investor Day next week, but I think it's important to remember that our trajectory is strong and we continue to.
To invest in future growth.
Well, Michael just on your question around conversion I think couple of points here one.
One we saw great traffic and to answer the why the shift from online basket size as we have continued to see.
The traffic was up I think the conversion specifically with the challenge on each.
Keith.
Yes.
We are happy with it.
It's just in general that will lock in conversion.
The overall play reasons for that and I think youll see that across the industry. I think people were a little more nervous in December that spending I think they thought layout remain recession I think all of that contributed to just lower consumer confidence overall.
Yes.
Thank you.
Please standby for our next question.
Our next question comes from the line of Ross <unk> with Goldman Sachs. Your line is open.
Good morning, and thank you so much for taking our question.
Wondering if you could speak to the Reacceleration that you've seen quarter to date in China. I know you spoke to traffic levels rebounding, but can you help quantify the rebound that you are seeing in dollar sales and store productivity levels based on what Youre seeing today, how does that inform the range of outcomes for your China business contribution for the fiscal fourth quarter and into calendar 2023 and some.
Medium term opportunities that you see in terms of brand health and momentum. Thank you.
Yes. Thanks for the question <unk>, sorry, Sam the Reacceleration in China, I think is a really strong proof point of our brand health overall and in China.
We did see that.
As mentioned in December .
We saw that.
The.
And the lifting of zero Covid had a negative impact in the short term and unfortunately that was there are our most important months of the year, but once that past and a lot of people recover from Covid in China, our sales have rebounded there.
Currently very strong and there is lot of lineups outside of our stores and.
And we feel really good about our brand health and in China and around the world.
Yes, and if I can just add to that.
We are really seeing.
Very strong growth virtually every store quite.
In mainland China.
<unk> is up.
None of those increases are measured in single digits. Some of those increases are measured in triple digits.
And equally outside of mainland China, and greater China, we are seeing very strong growth in Hong Kong are seeing great growth in Macau, and we're seeing very strong growth in Taiwan.
Thank you.
Please standby for our next question.
Our next question comes from the line of Adrienne <unk> with Barclays. Your line is open.
Good morning, Thank you for taking my question.
Just sticking on the topic of China.
Wondering if you can help us.
So to bridge the gap between many of the stores were opened during this kind of a three year period, Hong Kong store he kind of.
Protest and then Covid can you talk about the planned sales and EBIT.
Kind of the.
You'll plan, where the doors.
As a group now and what's the recapture opportunity over say the next 12 to 18 months in both sales and EBIT margin for that segment and then secondarily just any color on North America the comp.
Reported and what the comp quarter to date in the North America market look like thank you very much.
So.
Thanks Adrian.
Let's start with.
China clearly that the stores have been performing below what you would expect them to be doing in normal circumstances, particularly during.
Most of calendar 'twenty two.
And.
That's something that we've seen we've seen great rebounds, we've seen the numbers coming back very strongly as I've just said.
In this quarter.
But we've still got substantial runway.
Before went back to.
Normal.
Pricing levels for the full year.
We've come through nine months this year, where we're frankly in the stores.
Either closed or were very very imped traffic.
So we think.
As a significant.
Uptick uptake there and you can see that from the scale of reduction that we've made that's been attributed.
Two.
China performance both.
In the previous quarter and the amount that we've particularly articulated in this quarter.
I think when it when it comes to our performance.
In the current quarter in North America the stores.
Sure.
There is there is definitely a macro impact there's no doubt about that but I will still say that the stores are performing better than they were a year ago, we got most of those up and down.
But what we are saying is is less conversion happening on the website and I think we've just we can see a natural level of hesitance in consumers at the moment.
Which seems to permeate.
The sector from what we can see.
Thank you.
Please standby for our next question.
Our next question comes from the line of <unk> <unk>.
<unk> with Wells Fargo. Your line is open.
Hey, good morning, Jonathan.
Jonathan I was wondering if you can kind of piggyback on <unk> question. This is more specifically in terms of the dollars and productivity in China. I think you said that there was a 60 million shortfall in China. This quarter, specifically I guess, if we could just zoom out high level.
If you look at the store base you built out in China.
What you normally would have planned.
I know, it's hard to think this way with a quote unquote normalized revenue stream out of the region can you talk about.
The revenue dollars that are not currently in the P&L that if things aren't you revert back to normal could come back I mean, clearly like you said $60 million just this quarter, but I'm kind of curious on an annualized basis and maybe you guys are thinking about that.
So if I if I take it.
I'm going to reiterate the point I just made remind you of the numbers.
We are talking about.
100 million reduction previous.
Previous cycle and a further 60 this cycle.
Absolute minimum we're looking at 160 million thats attributed to weakness in the performance in China and that.
Assumes.
We were actually assuming a normal year this year, which we were not so.
In broad terms, we would say that there's upside in those two reductions.
Thank you.
Please standby for our next question.
Our next question comes from the line of Oliver Chen with Cowen Your line is open.
Hi, Thank you regarding the U S. What are the opportunities that you have within your control to improve conversion and what might you see happening ahead with that customer.
As we think about Asia, and China, the inventories and the traffic.
I would love your highlights on how youll manage inventory in a pretty dynamic reopening period.
Third and final as investors often ask about brand heat and give a lot of momentum.
What are the metrics look really strong would love your thoughts on the key things that.
Prove your brand heat is really robust.
As we go forward. Thank you.
Thanks, Anthony you had conversion I mean generally I believe.
David suggested the U S and in conversion is something that we're looking at AAN data I think the.
We're putting a lot of investment in terms of what is that Canadian experience that we deliver so making sure anyone comes online comes in.
Yes.
And while we understand.
Brian .
Again.
Thank you that is seeing us as a lessor.
Brian you want to think about it.
Hey, Brian .
<unk> guided expertise on our brand ambassadors.
And I think that combo and what has helped US win if we can help them.
Yeah.
Grow our conversion on that EBIT, obviously that.
Online I think it continues to be an evolution.
To better understand our consumers in every market.
What are they looking for ones that personalized journey, how do we make it.
And experience.
Yes.
Operating profit of our own products at the right time.
There is nothing.
Specific to add a new program.
I believe that this is definitely a plus.
For us.
<unk>.
A lot more about that.
Five year strategy.
Okay.
When it comes to inventory and particularly when it comes to mainland China.
Makes us a reasonable while to get product into the country I'm ready for ready for sale. So as a result, a lot of the product that we were expecting to sell in Q3 was already staged in China.
In that quarter therefore.
Actually as we've come into Q4, the inventory is all that we can respond to demand.
Pretty immediately and we're not concerned therefore about our ability to meet demand.
In short order and all numbers.
Proving this.
And just this week with Brent up for a moment sorry, just to comment on brand health question I think.
Beside of the China part of it as I mentioned before on that.
We've seen.
In Q4.
Our our store sales have really accelerated quite dramatically lineups outside of stores again.
Which is great.
We continue to see great progress on our strategy, we continue to see our new products adoption varies.
And credit with.
No.
Faster rate than our.
Then our.
Then our existing products and.
The demand was here from our consumers as they're standing.
No macro backdrop.
We're seeing lots of demand for for products.
Great.
Thank you.
Please standby for our next question.
Our next question comes from the line of Jonathan Komp with Baird. Your line is open.
Yes, hi, good morning. Thank you I wanted to just follow up on the inventory if I could could you maybe just share a little more detail on.
On the state and positioning of the current base. If you have any plans to reduce inventory how you plan to do that and then just a broader question when you presumably reduce the utilization at your factories does that does that have a material impact on the Cogs of any new production just maybe if you could walk through the dynamics there.
Yes.
No problem I think that.
Let's start with the macro.
First of all within the inventory number just as a reminder, Japan is non comparable because obviously that was a JV a year ago, and that's about 25 million into the balance.
Obviously, we got.
Somewhat more inventory.
Would've expected at this point in the probably in a little bit more than we'd like but the health of it it's not a concern.
So.
As a brand with a strong record of sell through and the vast majority being continuous if core products.
That we're able to carry that overseas in season, and so inevitably therefore.
Anticipate we may tune all.
Forward production volumes accordingly.
Thats accommodated within our gross margin algorithm and so it's not something that we expect to close the distortion to forward margins.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from the line of Mark Petrie with CIBC. Your line is open.
Hey, good morning. Thanks.
Question around the strength in the non parka categories. I was wondering if you could talk.
A bit more about that was that consistent by region consistent through the period and is that sort of continuing into Q4, and then I also just wanted to ask about the performance in Japan, and if there are any specific circumstances.
That drove the reduction in the expected contribution.
Great.
Yes.
Sure, Let me talk about that at all.
So we did see category sorry across regions.
North America.
Thanks, a lot.
5% of the total.
Sales in the quarter.
How do you rate not having breakdown grew 20%. So that's up 42% of revenues year to date.
Up from 36 and.
And we're seeing that EMEA as well, obviously you had in terms of.
APAC region, just for the reasons, we've all been talking about that we're very happy to see the new categories are growing faster.
Than expected faster than traditional <unk> and again that idea that people are buying into this brand as a lifestyle brand not just us.
As the Parker brand, our cold weather brands that we've been working hard on them and its working its resonating.
I think when it comes to Japan.
What I'd say is that.
As a reminder, the strategies, obviously as the switch from wholesale into retail.
As you know we've opened a couple of stores that one in.
Ah soccer.
<unk> and one in Ginza in Tokyo.
And whilst we're very happy with the locations. The take the initial take up a business is a bit slower than we might've expected and hence we've said, we've seen that business be a bit softer.
And we provide the ranges accordingly.
Thank you please standby for our next question.
Okay.
Our next question comes from the line of Jay sole with UBS. Your line is open.
Great. Thank you. So much I was just wondering if you could elaborate a little bit more I think you touched on this in other parts of the call, but if you elaborate a little bit more on the footwear business and sort of how that played out the season, what youre expecting for next season and beyond that'd be helpful. Thank you.
Yes, Thanks, Jay absolutely footwear has been doing quite well, obviously saw small and nascent category for us.
It has grown almost 175%.
Overall and.
Since.
On this quarter and.
And.
We have big plans for it as you know, we're very pleased with the way our consumers.
I've taken to our new products.
Some of our.
First.
<unk> losses for Supervisors were very strong and.
Follow up to that were even stronger than those in the and we continued to build momentum and strength behind that category.
<unk>.
Super excited about the future of it.
One thing to add on that is one thing.
<unk> been watching it.
Lindon.
<unk>.
I would like for them.
Bin.
And then taking those offline.
Our various categories and we are selling out often having to replenish that quickly. So that's a great in terms of the category growth, but also in terms of how we're reaching.
Women, which is obviously a key focus for us.
Thank you.
Please standby for our next question.
Our final question comes from the line of Omar Saad with Evercore. Your line is open with Evercore I'm sorry. Your line is open.
Thanks for squeezing me in most of my questions have been asked a couple of quick clean up questions I want to confirm it sounds like you don't think weather the warm weather was an impact in North America slow down number one.
Maybe dive in a little bit do you think in Japan do you think there is just the brand awareness and recognition issue do you have that kind of presence with the consumer mind, where it needs to be for the store footprint and then.
Lastly in China, what gives you confidence that the strong recent trends are not just the.
Lunar new year.
Thanks, everyone for your question, whether we <unk>.
Leave that to any particular weather has ever caused us.
<unk>.
This strong performance or <unk> performance, I think Dave we've been able to perform well.
And also whether I think weather is.
And in cold.
Is a relative thing and and also these days.
There is.
Weather events and extreme weather events are more common in localized Williams that's had the snowstorm people do buy more stuff. So there is there is an impact, but I don't think that our over spread over the year from a macro point of view there is a significant.
Significant.
A significant impact on that I think so thats to address the other question on Japan, I think our brand is really strong in Japan.
I'm really excited with this JV.
For years, and I'm very excited to have <unk>.
On an operating entity.
We own there now and.
I think that.
Our stores just opened.
The Japanese economies.
So our stores are new.
To the marketplace. They didn't have an established customer base and its just going to take some time for them to.
Two.
<unk> gained some traction.
I'm very confident in the strength of our strengths of our brand in Japan.
<unk> I don't know how they can be and.
There's no doubt that it can be.
A significantly better than it is today and will be with those two.
Orders will be part of the reason for that.
I think when it comes to the Chinese business.
I mean, that's clearly.
Lunar new year, but the real.
The real driver is pent up demand from consumers.
That's what we've been saying.
That's what drives the lineups youll seeing business.
Adjusting business at the weekends Youll see every single week.
And it's really been very marked in very strong yes.
I'll just close with Ingrid.
I think that.
If the reopening one month sooner sooner I think we would have seen the same behavior in December and how we see the same behavior in December I think the conversation with the quarter will be a lot different but.
And unfortunately, a matter of timing for us.
We are fortunate that dairy in China.
Our Chinese consumers were able to sharpen our stores and online and in the performance speaks for itself.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
The conference will begin shortly.
Jayson lower Johan during Q&A, you can dial one one.
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