Q4 2023 Canada Goose Holdings Inc Earnings Call

Good day, and thank you for standing by welcome to the Canada Goose fourth quarter and full year 2023 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during this session.

Please press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, 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.

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

Our call today, including the Q&A portion includes forward looking statements.

Each forward looking statement, including without limitation discussion of 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. Additionally.

Additional information regarding these statements factors and assumptions is available in our earnings press release issued this morning.

Our updated strategic growth plan and five year financial press release issued on February seven 2023, as well as in the risk factors section of our most recent annual report filed with the securities regulators.

Documents are also available on the Investor Relations section of our website. The forward looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these statements.

Lastly, our commentary today will also include certain non <unk> financial measures, which are reconciled at the end of our earnings press release with that I'll turn the call over to Danny.

Thank you Amy and good morning, everyone.

A strong fourth quarter I can't introduce our stores are busy.

Similar lineups of returns.

Our stores in every market performed well with traffic rebounding, especially in EMEA.

Our business in China in a strong recovery from our third quarter and fiscal 2023.

Continued its momentum into fiscal year to date.

We've seen the same momentum continue across all of our key geographies beyond the fourth quarter, which was a clear indication of the strength of our brand and the demand for our performance luxury products.

This is a great position for us to execute against our strategic growth levers, which are accelerating our consumer focused growth building, our direct to consumer network and expanding categories.

As I look back at our fiscal 2023, we closed the year, having grown top line revenue to more than $1 2 billion.

We have made important progress against our growth plans, including investments in CRM digital people and the DTC expansion.

Store traffic continues to improve as consumers seek out our award winning in store experience.

We've also seen a return to a more normalized operating environment.

Actually in China with the lifting of Covid restrictions late in our third quarter.

We grew our store footprint opening 10 permanent stores in fiscal 2023, increasing our global store fleet by almost one quarter.

Consumer trends are beginning to normalize this includes encouraging initial.

International travel data they received across many of our key markets.

Also ended with your wallet and remains an important channel for us as our DTC network expense as.

As we conclude fiscal 2023, we have a strong foundation in place to execute against our strategic growth drivers going forward and.

Looking ahead, we are confident.

We have built in our business will continue to build.

At our Investor day in February we outlined our longer term plan, we are committed to our strategy to accelerate our growth targeting $3 billion in revenue with adjusted EBIT margin of 30%.

In fiscal 2024, we plan to accelerate our revenue and profitability leveraging the investments we've made over the past year.

We plan to generate revenue growth of 15% to 23%.

We're targeting our adjusted EBIT margins to be between 15% to 16%.

Fiscal year 2024, it will be another year of investment in our business and we expect to realize margin benefit progressively as we drive towards our long term targets.

Later, you will hear more from Jonathan as you provide a deeper dive into our outlook for this fiscal year.

The path ahead is clear and driven by three strategic pillars.

First we are accelerating our consumer focused growth.

We have a tremendous opportunity to further build loyalty with our current and new customers.

We've seen growth in our repeat customer cohort. We ended fiscal year 2023 was repeat customers, making up almost a third of our base.

Finally, we continue our focus on growing this metric through shifting marketing investments to drive greater rois conversion and ultimately lifetime value.

And in fiscal year 'twenty four we will begin to further unlock our CRM opportunities leveraging our customer data platform to segment and personalized engagement with our clients through all touch points much more meaningfully.

Lastly, this year, we plan to launch travel retail we know travel is important to our customer and many of them in a wholly new stage of their journey as a part of our commitment to consumer focused growth.

As you know we plan to open two to three relocations and I look forward to updating you on our progress as it evolves.

Second is building with PTC network.

Over the next five years, we plan to more than double our retail footprint from our current base of procure permanent stores in the next year. We plan to open 16 permanent stores with new store locations in the United States, China, Japan and Australia.

Bass majority of the stores to be fully operational before peak.

Starting with Paul.

When it comes to our store network, we're laser focused on enhancing store performance through our digital platforms and in store experience with.

We see a significant opportunity in our digital roadmap to support our goals by driving more traffic to stores, helping us really known connect with their high value clients.

Optimizing our inventory across our entire network.

Having an omnichannel approach is critical to our success and we are making the necessary investments both in our people and systems.

We're also excited to fully rollout omnichannel capabilities across Europe in fiscal 2024.

Just last month, we announced the hiring of map launch our first ever Chief Digital Officer I.

I am very excited from that lead the growth of our digital programs globally.

Our third pillar of expanding product categories.

At the end of fiscal 2023, we made important progress against this pillar.

We continue to expand our product mix and grow our non heavier weight down offerings, including categories like apparel footwear and fleece.

Non heavy way down now makes up almost 43% of our product mix up from 38, 5% in fiscal 2019.

19% in 2019.

This summer we will launch our first performance Sneaker collection.

Huge opportunity for our company.

The selection of styles forward wearable year round with a performance credentials to suit any adventure.

And early this fall we are trying to continue to expand our women's focused outerwear collections.

Following the successful expansion of our women's collection last fiscal year.

The new styles were incredibly well received with several skus landing in our top 10 styles for the season.

As you can hear.

We are full speed ahead in executing our three pillars and we are clearly on a path to achieving our long term goals.

In the fourth quarter, we kicked off our multi phase transformation program. This is an evolution of our business to support both the strategic pillars and to take our business to the next level.

Work will focus on increasing operational efficiencies by optimizing production and procurement developing people and resources and focusing even more on our consumers to drive sustainable growth profitability and long term value.

We've already begun this work and it will roll out over a number of years.

Now, let's turn to our fourth quarter financial results.

As I mentioned earlier, we saw strength across our business both on the top line and our profitability.

Revenue grew 31% with strength in Asia Pacific up, 65%, EMEA up, 27% and Canada up 41%.

Our adjusted earnings per share were better than our expectations up 250% versus the comparative quarter last year growing from <unk> 14 per share.

Now turning to regional updates across the globe.

Last quarter, we discussed the disruption in greater China. Following a wave of infection seen on the heels of our southern lifting of Covid restrictions in our busiest season.

Since then we've seen a noticeable pickup in sales mainland China reported a record growth rate of approximately 40%.

Versus last year, and APAC DTC comp growth was up 23, 5% versus last year.

Apparel collection saw notable growth in APAC in the quarter more than doubling compared to the same quarter last year approaching $10 million.

We also saw strength in our EMEA business over the last few years, we've seen EMEA gradually stabilize with a steady growth in tourism scale below the benchmarks. We saw in 2019 with a lot of potential offset.

As well almost all of our European stores were opened during Covid and are now benefiting from a more normalized operating environment.

Lightweight down with a standout performance across EMEA in the quarter with category revenue growing more than 30%.

Prior year quarter.

Lastly, as North America.

We saw mixed results across the region as we expected we saw softer sales in the U S.

In our fourth quarter with the overall growth we saw across our stores was offset by lower E Commerce results.

We attribute this to the macro environment in the quarter with economic uncertainty affecting consumer consumer behavior.

You saw an acceleration of the ended the quarter through to the current quarter today, which provides us confidence that the business is recovering.

Canada performed well in the quarter up 41% I am pleased to see one of our most mature markets driving such strong results.

Our apparel collection with the fastest growing category in North America, and Canada growing more than 170% compared to the same quarter last year.

As I look back at 2023.

Europe measured growth through uncertainty.

We ended fiscal 2023 in a strong position and I would like to thank all of our teams who always put our customers first.

And I'm looking forward to the years ahead.

<unk> seen some early and encouraging signs with strong momentum across our markets.

I'm also looking forward to the expertise of our new leaders will bring to our business, especially at such an exciting time transformation and investment.

And finally, I am really looking forward to see your premise in greater China in the year ahead.

And with that I'll turn it over to Jonathan.

Thank you Danny and good morning, everyone.

Today I shall be comparing the fourth quarter ended April two 2023, but the prior year quarter, which ended on April three 2020 and.

Unless I say otherwise.

Overall, we were very happy with our results for the quarter were largely as expected, notably we closed out with some extra momentum.

Asia Pacific and EMEA.

Regions.

As anticipated and indicated with the Q3 results.

Sites with somewhat soft with a tough macroeconomic backdrop.

Although still early days and a smaller quarter for US we are encouraged by the momentum what we have seen across all regions in the first quarter to date.

Go into a bit more detail here shortly but first some more color on Q4.

Total revenue grew 31, 4% to $293 2 million in the fourth quarter.

DTC revenue increased 22, 6% driven by new stores as well as solid performance overall from existing stores.

Ended fiscal 2023, with 51 stores compared to 41 permanent stores at the end of fiscal 2022.

DTC comparable sales grew six 9% and three 3% excluding mainland China.

That was driven by growth within the existing store network more than offsetting e-commerce business.

Humans return to experiential shopping.

As Danny mentioned, we have plans to execute on a number of initiatives many of which are in digitally enabled and that should help position us well to further enhance store productivity and e-commerce performance in the not so distant future.

Wholesale revenue grew 34% in the fourth quarter on timing of shipments delayed from Q3 as well as higher order book values compared to the prior year quarter.

Revenue from the other segment was $22 million compared to $2 6 million in the prior year quarter.

Primarily due to higher product availability to employees friends and family.

Now for performance by geography.

The Americas revenue grew 41, 2% in Canada.

And that was partially offset by a small decline of four 5% in the U S.

Asia Pacific revenue increased 65, 4% without the disruptions from COVID-19 restrictions that existed in the comparative quarter.

EMEA revenue grew 27, 3% with strong growth across all channels.

Turning to our profit metrics gross profit increased $36 2 million, primarily due to higher revenue.

Partially offset.

<unk> gross margin decline.

Gross margin of 64, 9% was impacted by an increase in the obsolete raw material provision as we evolve the materials to be used in production.

Gross margin was also impacted by higher product costs, resulting from input cost inflation, albeit that was offset by pricing and the impact of the fair value adjustments for inventory acquired Japan joint venture.

DTC and wholesale gross margins were 73, 3% and 35, 6% respectively.

Our full year DTC and wholesale gross margins landed at 76, 3% and 49, 7% respectively.

As we expected.

Operating income.

Increased largely due to higher gross profit.

That increase was partially offset by higher operating costs related to increased head count our largest store network higher consulting fees in support of our strategic initiatives, including the transformation program as well as costs associated with the Japan joint venture.

Our adjusted EBIT increased to $27 $6 million.

Merrily due to the higher gross profit, partially offset by higher operating costs as I've. Just described respectively team installed network and the operation of the Japan joint venture.

Net loss was higher than the comparative quarter, primarily due to higher net interest and.

On other costs as well as the income tax expense and that was partly offset by higher operating income.

Adjusted net income increased from the prior year quarter due to the higher operating income offset by higher income tax expense turning to the balance sheet.

Inventory of $472 6 million compared to $393 3 million in the prior year.

Quarter.

<unk> represented around $19 2 million of the inventory balance at the quarter end and therefore represented around quarter to quarter.

Inventory levels are attributable to lower than expected sales in the Asia Pacific region.

Most of fiscal 2023.

As we said at Investor Day, we are focused on improving working capital and inventory turnover.

However, we remain comfortable with finished goods inventory levels at the inventory composition continues to skew the high margin evergreen finished goods.

Our raw material inventory levels were down 15% from the prior year.

We ended Q4 with cash of $286 5 million.

<unk> two $287 7 million at the end of the comparative quarter.

Net debt, including capitalized leases was $468 1 million compared to $333 8 million at the end of the prior year quarter.

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

The increase in net debt was primarily due to increased lease liabilities on retail expansion.

Well as of course at the financing needs of the Japan joint venture.

During the quarter, we repurchased a little over 470000 subordinate voting shares.

Cash consideration.

<unk> million dollars.

Now turning to our outlook.

We expect fiscal 'twenty form rapidly to be between 141 $5 billion.

This assumes that the macroeconomic environment, just don't work and any of our geographies.

DTC revenue is anticipated to drive this growth and comprise Midland of acceptances as a percent of total revenues through the addition of new stores and stronger comparable sales growth.

We're targeting 16 permanent retail stores and for them to be fully operational in the second half.

Approximately half are slated to open in Asia Pacific with the vast majority of the remainder are concentrated in the U S.

This assumes DTC comparable sales growth in the mid single digits to mid teens.

Excluding mainland China.

Comparable sales growth is assumed in the negative low single to high single digits.

Including expected revenue from our new travel retail channel, we assume a 6% wholesale revenue decline as we focus on expanding our retail store network as well as our ongoing editing and upgrading of wholesale partners.

We expect our wholesale door counts to decline approximately 6%, leaving it at around 60% of the size of the network at the time of our IPO.

The challenges wholesale faces affects a wide and hence we have as always manage the demand and continue to supply less when we are asked to keep the channel healthy and clean.

This also gives us a space and opportunity to lean further into our DTC expansion, where it creates further scope for margin expansion.

We expect with a sensitive revenue generated across the quarters to follow a similar pattern to fiscal 2023.

Q1, <unk> Q2, 20% half the business in Q3 and the rest in Q4.

This is anticipated change in the next few years as we create new and expand existing categories for more we'll see some relevance.

But I will say, we are very familiar with and adjusted to the current shape of the revenue split.

We assume consolidated gross margin will be in the high fixed as a percentage of total revenue with DTC and wholesale gross margins remaining stable in the high <unk> mid to high Forty's, respectively.

Moving to profitability, we expect adjusted EBIT of 210 to 204.

$40 million for a margin of 15, 16%.

In fiscal 'twenty, four we plan to invest in talent technology and of course in our store network.

Salaries and the expansion of our retail footprint.

Flowing through we expect adjusted EPS per diluted share of $1 20 to $1 48.

And that assumes an effective tax rate in the low twenties.

<unk> drove income before tax.

We assumed weighted average diluted shares of $106 3 million and we do not consider any incremental share buyback activity.

As you'll recall, we recently launched the transformation program as we first introduced it at our Investor Day in February .

This is a multi phase multi year program intended on achieving meaningful change for the business, which is right at the beginning of its journey.

It spans stalled sourcing products organization marketing and technology.

Paul reaching in scope.

We expect it will contribute.

Actually and increasingly so our margin Jody.

System with $150 million goal, we outlined in February .

Now with two months into our program.

And therefore at this stage, we're about setting ourselves up with the work stream. So it's a bit too soon to include any benefits in our fiscal 'twenty outlook.

As we progress we expect total.

One time costs associated with external support and other implementation costs.

Lastly.

I will cover our outlook for the first quarter.

We expect total revenue of $70 million to $80 million.

Adjusted EBIT loss of $115 million to $105 million.

That flows down to an adjusted net loss per basic share of 89% to 82.

Now, let's get to the top line in some context.

While wholesale is expected to be lower overall.

Working with our wholesale partners on product timing.

And expect some shift from Q1 into Q2.

However, the key point here is that DTC revenue growth is expected to be strong with comparable growth in the high teens to low twenties.

I can underscore our confidence in this regard even that this is a smaller quarter. We are pleased to see encouraging momentum in <unk>.

<unk> networks across all regions in quarter, one as of Sunday night.

Of particular note.

Asia Pacific DTC comparable sales growth.

Let's just turn to triple digits granted this is against easier comps, but we believe that there is no question that it signals brand strength and a good likelihood of sustained momentum.

The region enjoys the whole retail experience.

Grateful restrictions.

Despite a tougher macroeconomic backdrop in the U S. Our new stores.

Still manage to approach or exceed also opened two targets.

More stores to come here. This year as we are significantly underpenetrated and we have so much to cover.

We have seen EMEA retail progress meaningfully we look forward to seeing these stores further establish that presence.

You heard us talk about our confidence and ambition in February for this business.

This year is that one of our plan.

And we are so excited for the year ahead and beyond.

There is no shortage of opportunities, we see and we're ready.

We're focused on executing on our strategic pillars.

Luxury brand positioning and on implementing our conservation program to generate profitable growth consistent with the goals we set.

And with that I'll pass it over to the operator to begin Q&A.

Okay.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Yes.

Our first question comes from Oliver Chen with TD Cowen You May proceed.

Hi, Danny and Jonathan you had really encouraging momentum in China. How does that proceed relative to your expectations and what's assumed in terms of the guidance. It looks like it's trending better but I'm sure there's different factors around the volatility.

And then previously on the U S.

You saw some conversion rate issues.

It sounds like the U S is still cautious are you expecting a fair degree of volatility to continue in the U S.

And then lastly, just as we think about gross margins in the in the overall year ahead.

What's embedded in terms of price increases and there were things we should know that may be recurring or nonrecurring in terms of key overall or specific drivers. Thanks a lot.

Hey, Oliver Thanks for questions Dan in.

China, we're really encouraged.

Obviously by our first quarter.

As you know Q3 when the on.

The lockdowns.

Ill cover was lifted that really in pilots in a negative way because of the timing of that and we really saw that rebound.

Very strongly in Q4 and underscores.

I believe from a brand and the foreign brands.

<unk> market.

A good number of.

A good number of.

Retail locations in China at the moment.

We expect the operating environment, there to get into better and we're excited about the year ahead.

I think that.

Yes, I think thats.

Looking at.

I'd say its market.

It's rebounding.

Nicely.

At the end of the fourth quarter and into Q1 of this year and so we're very optimistic about that lots of opportunity, especially in assets.

<unk>.

And yes.

Characterized.

Yes.

There's tons of opportunity again I've said this before we're still really early in our journey. We've got lots of source plan. There's lots of upside I think E. Comm, we are treading carefully in the macro environment still is what it is in the U S. So we're being conservative, but there is plenty of upside and reason to be optimistic.

Sure.

Another thing when it comes to gross margin we have a very.

<unk> established.

Imaging is always refer to it as our algorithm.

We keep channel margins more or less in balance certainly over the course of you got a bit of noise quarter to quarter, but over the course of the year.

We expect them to stay inbound.

Yes.

We typically see a pricing mid to mid single digits at the time, maybe it's mid to high at the moment.

We fully expect total gross margins to stay where they are in terms of the channel split of them, we don't see any particular headwinds.

Obviously there'll be some impact of channel mix in the overall consolidated gross margin.

Thank you.

Our next question comes from Brooke Roach with Goldman Sachs. You May proceed.

Good morning, and thank you for taking our question.

I was wondering if we could dive a little bit deeper into the assumptions that are embedded at the high end versus the low end of the revenue guidance range is the largest swing factors still driven by China as it was in FY2023.

You think about the sequential stabilization that you've seen in North America and <unk> to date is.

Is that are you forecasting organic growth in North America for the year. Thank you.

Thanks Brooks.

The.

Yes.

White thinks about this is that the.

The range is clearly all about PTC.

With it being the vast majority of the business and the order book being being said inevitably that that's.

That's true.

The range.

A good part of it will be in China, only because a good part of our DTC is in China.

Equally.

Range applies to other markets and you see that in the way that we've articulated.

The guidance and the assumptions around it in terms of the.

DTC ranges.

I will say is that we are expecting some.

Comparable growth.

All of the regions.

Therefore.

By definition extends the U S.

And I think that.

That's.

A fairly responsible approach to all of this we don't see this as something that Scott.

Barry.

<unk> assumptions behind digital we think that this is appropriately page.

Yes.

Add a little.

Context.

High level context around the assumptions.

We're assuming also.

Yes.

International tourist levels remain more or less at the levels are right now, we're not forecasting or anticipating them to go back to pre pandemic levels at this point so that's that.

In that regard, we've we've taken a cautious approach and we believe as a responsible approach to how we have guided and I think that's an important.

Important upside to note.

But what I can add to that.

It is also that we are seeing.

Very healthy comps.

Yes.

I shared in my prepared remarks.

Context around.

What we're seeing in Asia Pacific, but actually where we're encouraged by what we're seeing in all of our regions.

Thank you.

Our next question comes from Ike <unk> with Wells Fargo. You May proceed.

Yes, hi, good morning, this is Kate on for Ike.

I guess I was hoping you could elaborate on the growth you're seeing on Asia Pac.

Triple digit comps quarter to date, I guess honing in on China are you seeing productivity in the region.

Sure even exceeding pre COVID-19 levels, just trying to get some context, there and while you are noting the expectations for growth the comp growth in the region in FY 'twenty four what are you thinking about in terms of productivity relative to pre COVID-19 levels.

And then I have one follow up.

I think so.

We prepaid a pre pandemic.

You may recall.

It's a very difficult compensation trials, because pre pandemic, we had exactly three stores.

In mainland China.

In Shanghai, and Beijing and Shanghai.

Not very.

Easy for us to.

To describe that.

But what I will say to try and give you some comfort I mean, certainly as I look down the list of the store performance is the one thing I will say is it.

We've got a very healthy spread between doubled.

Double digits.

Triple digits in terms of every single store.

Growing and.

I'd also remind you that in the method by which we calculate as all of this we exclude from this.

Sales on days, where we were closed last year. So therefore.

We don't have we're not giving ourselves a super easy base, even if.

So smaller and.

Traffic was heavily in pad.

Alright.

As we look at the sales density the productivity from the stores in the different regions is just top of the tree.

And that's really encouraging to us.

We're seeing.

Really strong performance there the economics are robust.

We're very encouraged by that.

The same time, we're also seeing good strong overall performance and our sales density, which keeps us and above.

Got it.

Sure Brian .

Past Mark if you like.

Full time.

So what I shared on inbound.

Okay. That's really helpful. And then Jonathan just as we're thinking about the EBIT progress through the years you gave some comments in the release about how we should think about revenue seasonality throughout the year.

How should we think about EBIT seasonality through the year, especially just given you guys Orange prepaid income EBIT margin declined in Q1 that would be helpful. Just from a modeling perspective.

Yes.

I think realistically you're going to see the EBIT margin being very heavily driven by the DTC performance.

Inevitably.

Excuse me into the second half.

And that's the way to think about this.

And you see that in Q4.

Albeit small numbers, but you see the margin.

Coming up from.

From the trend that we were seeing before.

And I think that the.

The reality is that we.

With the majority of our DTC business.

Probably always going to be in the second half of the year.

Given the nature of what we all then I think you're always going to skew as productivity increases.

Will skew margin growth in the second half of the year.

Thank you.

Our next question comes from Jonathan Komp with Baird You May proceed.

Yes, hi, good morning, and thank you.

Jonathan I just wanted to follow up on your thinking around that the EBIT margin guidance for the year and yes.

I know in the past you've talked about incremental flow through rate and pressure on revenues driven by the D to C business.

Could you maybe just give us more context. This year, maybe why you went to see more.

Positive developments in the EBIT margin.

Maybe just quantify some of the investments youre, making.

Various growth initiatives you outlined.

I think the.

The way to think about this is that.

We are making investments in.

Different areas, whether it's in talent, whether it's in technology.

Obviously in the stores themselves.

We've got a heavy store opening program this year and whilst once the stores are opened a profitable. We've also got the thing that that comes with a bunch of.

Preopening cost, which.

We absorbed these days into our operating cost base.

We reached that conclusion last year.

We needed to address that I don't think any of this.

<unk>.

Affects the underlying economics and earnings model, we're talking about so what do I mean by that.

We talked about a 40% plus margin in our stores, that's where we that's where we end up.

And that's certainly the way in which we.

We take them through in terms of new store proposals. So the fact that we.

We still made double the.

Revenue and tripled our profit and DTC versus.

Wholesale remains the case and therefore the margin is.

As always going to be accretive.

Just that we have.

Disproportionate burden this year of opening 16 stores in 16 stores as a third of all retail sites at the minute. So that's that.

That's a fairly significant number.

Yes.

Similar to my last point.

We do have a lot of <unk>.

Stores that are opened and a lot of our stores that we opened we opened during COVID-19 and the opportunity to see the opera enter full potential as a very exciting opportunity and obviously, we had done and.

And we continue to have very high expectations for all of our stores once.

Once traffic returns back to normalized levels, which has yet to do and that's it.

That's those are those are numbers that are not.

Thank you.

Our next question comes from Robert <unk> with Bank of America, You May proceed.

Hi, This is Alex Perry on for Robbie Youns, Thanks for taking our questions here Jim.

First can you talk about how we should expect product mix to impact our gross margins this year, especially with the sneaker launch and the accelerated growth of the knockdown categories, maybe just give us a little color on sort of margins by categories versus the heavy weighed down products and then I have a follow up thanks.

Yes.

For your question overall I don't think.

Our new product categories are not going to negatively impact our margins.

In any way.

You mentioned sneakers and other.

We're very excited about launching those.

Let alone the spring early summer.

These are small categories at this point so their margins.

Or are not material to our overall margin and by the time.

By the time this category become material it will be in line with the rest of our margin, that's where we built new categories.

We're excited for all of our new categories, which are performing well so all of our apparel in particular, including fleece and network has been doing really really well across all geographies and thats very encouraging for us.

Footwear is also from Mark.

Nice pace on a small base as is growing quite nicely and we're excited about the future for as well.

I think.

One of the questions that we've been asked over the years and it's a very.

The important question is as we develop the business beyond just tabulate down can we sustain the gross margin.

And I think the answer is as far as I can say it is absolutely because if you think about it today. We have always said mid seven days mid to high 40 is the right way to think about our gross margins.

Between DTC and wholesale.

<unk>.

That's where we are and yet have you breakdown is now less than two thirds of all total business.

So by definition, we're doing what we separately, which is to balance the gross margins. So that we keep them in the channel and we reinvest the tailwind that we create in the product development.

New and existing categories to keep that to keep the earnings imbalance.

I think you can take a lot of comfort from the fact that this is.

Isn't it.

A single point in time statement, but this has been proven over a number of years now that we've held the margins in the same place while we've been growing the business and diversifying the protocol.

Perfect. That's really helpful. And then just my follow up is.

What do you think is driving the strong exit rate in the U S and at the end of the quarter and then quarter to date and then what is sort of expected to drive comp store growth in the U S is it sort of momentum youre seeing in the new products.

How are you thinking about comp store growth in the U S for the year. Thanks.

I think the way, we think about it and I'll start.

Carey appropriately add something to this but the key here.

Here is that yes, we are on an improving trend in the U S. We reported at the end of Q3 was difficult beginning of Q4 was difficult and it has been gradually improving.

Yes.

We're not being super ambitious for this year in the U S.

Looking at the impact of pricing and probably if all else because we think that for this year, the market's going to be a bit more challenging in the U S because of the macroeconomic.

Yes, I'll just add this is Kevin.

Q2 product mix, we're seeing good healthy response to a new category that Danny was talking about apparel growing really well footwear is growing well.

We're not counting on international tourism coming back, but there is we're seeing momentum both in store and online which is great. We have every reason to be optimistic, but we're not counting on that I think Ralph in terms of when you look at the store. We're also excited about it.

The number of stores, we talk about our quest last a lot that is.

Youll see that an auction this year were opening new stores, and new climates, and with new customers attracting that.

A different customer that is looking for maybe a different product. So we're excited to see how that is already starting to to come to fruition.

Thank you and as a reminder to ask a question. Please press star one one.

On your telephone please limit yourself to one question.

Our next question comes from Mark Petrie with CIBC you May proceed.

Hey, good morning.

Jonathan first just hoping you can clarify that.

Comp assumptions in the outlook.

In the Q&A you said you were expecting positive comps in regions, but then I think in your script I think I heard.

A comment about negative low single digit comps ex China. So im just im sure Im hearing something wrong, but if you could just clarify that would be helpful. And then I have a follow up.

Yes.

Thanks.

It's what.

We're talking about.

Bust assumptions on our comps for.

Both in Q1.

For the.

Full year.

What I've said is you should just.

Expect sort of mid single digits mid teens for the full year.

And if you back out China.

From that because obviously, China is a very much faster growing geography and in China.

What what Youre looking at is a range of low negative to high single.

Comps positive.

You may not have had the positive.

And what I said.

So the range outside and so.

Inevitably and this is what I was describing in answer to an earlier question, which is we don't just see the rating this year.

Flying to China, but because of the macro we think range probably applies to other DTC geographies as well.

Okay. That's helpful. Thank you.

And I guess, it's probably a bit of a tough question to answer just given sort of the expected shifts in your business over the next few years three year outlook.

Aspiration period, but at a high level can you just talk about how your store productivity assumptions for fiscal 'twenty four.

Compare to what you've embedded in your fiscal 'twenty eight targets.

Well by definition, they're Stefan a journey.

So.

I've talked today about the fact that we are above our benchmark of $4000 a square foot.

And I have talked about the fact that we're looking for comp growth being positive.

But we don't we do not see that.

And at the end of this year, that's that for us is something which we.

We see us.

Ah repeating mechanism motor pacing way of growing the business.

Year over year. So if you think about the rate at which we're growing this year when you flow it through the <unk>.

<unk>.

That's a sort of way to think about how we develop this business.

Between now and say fiscal 'twenty eight yes, if I may just on tax.

I think that.

<unk>.

Clearly we expect that.

Move forward towards fiscal 'twenty, eight and even.

Sooner than that we expect to see our stores continue to <unk>.

Perform better and better and that's <unk>.

Merrily.

Due to one of the.

Major factors due to the return of international tourism back to is full.

But back to full state it was prepaid.

I don't know if youll recall, we were.

Approaching 25% EBIT margin at the time and once tourist tourist.

Activity returns to that level.

Again.

There's no reason why we wouldn't write backs asked that same margin percentage and so we.

At this point are not producing that's about to happen this year, but we definitely I imagine.

And as the years go on.

But those numbers will come back in that kind of work.

Thank you.

Our next question comes from Samuel Poser with Williams trading you May proceed.

Thank you for taking my questions I have two one.

Can you Jonathan can you just give us the interest expense for the year and for the quarter and secondly, you had mentioned when you took over the Jeff Japanese.

When the Japanese business change that it wasn't doing quite as well as what you anticipated I Wonder if you could give us an update on Japan.

By all means.

The right way to think about our financing cost.

This year.

Is it sort of we're talking about round about the made so it gets a bit of noise in there because we have various.

Mechanisms, we have to mark to market for the Japanese.

Business and some of that flow through that so.

But if you if you like on a on an underlying basis thats the way we think about it.

Japan.

Again, I would expect a few comments.

Yes.

We're encouraged.

It's.

Actually came in slightly above where we were we thought I think.

We reduced our expectations.

So we.

We came in in the low fifties and test and the size of the business last year, We've got great plans for this year, it's going great guns.

More stores coming online so we're very excited to see.

That business develop.

It's a market and good growth.

<unk> pointed in the right direction and we're very excited about.

Achieving our goals to add together with.

Joint venture partner.

Joint venture partner.

Okay.

Thank you.

And this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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