Q1 2025 Canada Goose Holdings Inc Earnings Call
First quarter fiscal 2025 earnings call all lines have been please on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad if.
If you would like to withdraw your question again breast the star one.
I would now like to turn the conference over to Ana Raman Vice President of Investor Relations. Please go ahead.
Ana Raman: Thank you operator, and good morning, everyone with me are Danny Reese, our chairman and CEO, Neil Bouton, Chief Financial Officer, Cary Baker, President of brand and commercial and best climber President of finance strategy and <unk>.
Ana Raman: Ministration.
Speaker Change: To start off brand new this quarter, we are introducing presentation slides to accompany our prepared remarks.
Speaker Change: Please follow along on this webcast.
Speaker Change: We will make forward looking statements on our call today that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected.
Speaker Change: We undertake no obligation to update these statements except as required by law.
Speaker Change: You can read about these assumptions risks and uncertainties in our press release this morning, as well as in our filings with U S and Canadian regulators.
Speaker Change: These documents are also available on the Investor Relations section of our website.
Speaker Change: We report in Canadian dollars. So all amounts discussed today are in Canadian dollars unless otherwise indicated.
Speaker Change: Please note that financial results described on today's call will compare first quarter results ended June 30th 2024 with the same period ended July 2nd 2023, unless otherwise noted.
Speaker Change: Lastly, our commentary today will also include certain non <unk> financial measures, which are reconciled at the end of our earnings press release.
Speaker Change: For today's call Dani Neill Currie and Beth will deliver prepared remarks, following which we will open the call to take questions.
Speaker Change: With that I'll turn the call over to Danny.
Speaker Change: Thanks, Anna and good morning, everyone.
Speaker Change: First quarter results marked a solid start to the year.
Speaker Change: We achieved sales growth and operational efficiencies that reflect progress with.
Speaker Change: Key operating imperatives for fiscal 2025.
Speaker Change: Q1 revenue was $88 $1 million up 4% year over year also reflecting the relatively smaller size of this quarter.
Speaker Change: Performance in mainland China was a highlight this quarter as we continue to capitalize on key shopping moments in this market on the back of our strong brand and advancement of our DTC initiatives.
We believe these results combined with ongoing execution of our planned initiatives.
Speaker Change: On track towards achieving our annual expectations as we navigate the continued dynamic global operating environment.
Speaker Change: Our fourth quarter call, we shared our operating imperatives with U verse setting the foundation for the next phase of our brand and product evolution to <unk>.
Speaker Change: Complex. This in May we announced our first ever creative director Hydro Ockerman launches inaugural design, which represented our best ever marketing campaign performance and obviously there is so much more to come.
Speaker Change: Second implementing best in class retail execution to maximize the positive profit we generate.
Speaker Change: Drive a more consistent excellent customer experience and greater sales productivity and profitability over the year.
Speaker Change: And third simplify the way, we operate to become more efficient and more effective.
Speaker Change: You'll hear further details of the progress that we've made across all of our imperatives later on in this call from Kerry on for Brian.
Speaker Change: The imperatives I described represent our north star and the activities behind each are expected to position our company to better meet the needs of the business has evolved significantly selling into new channels in different geographies and new products over the last five to 10 years.
Speaker Change: As a reminder, the execution of our imperatives is underpinned by several strengths which include.
Speaker Change: Our resilient business model that features strong gross margins and an ability to expand EBIT as we scale.
Our deep heritage of function and craftsmanship and a globally recognized Brian.
Speaker Change: The advantages of owned manufacturing capabilities, both in Canada and in Europe.
Speaker Change: And a highly dedicated and talented team is passionate about the delivery of our vision and results in our purpose to help the planet hold and then people on it for them.
Speaker Change: Given these competitive advantages are relatively smaller revenue base and a large market opportunity. We saw plenty of runway ahead of us.
Speaker Change: Before I pass the call over to Neil to review, our first quarter financial performance I'd like to share that we released our fiscal 2020 for sustainability report earlier this week.
Speaker Change: As we execute on our key operating imperative in fiscal 2025 and build our business for the long term, we are mindful of our impact on the planet and the people in our communities.
Neil: Across our organization.
Neil: I'm very proud of our achievements over the past year, which included some notable highlights.
Neil: First we absolutely reduce your carbon footprint.
Neil: Turning towards our net zero target.
Neil: Fiscal 'twenty four we began improving the efficiency of our manufacturing facilities and global headquarters and investments in renewable energy credits and carbon offsets.
Neil: As a result, we reduced scope, one and two emissions by 6% over the previous fiscal year with scope, one and two emissions down 38% compared to our base year of fiscal 2019, even as our owned operations have grown.
Neil: Second we continued to prioritize the sourcing of responsible materials steadily progressing our preferred fiber and materials go and reaching 80% of our materials coming from sources.
We also further our commitment to eliminating forever chemicals from our products with 100% of products, mainly Canada in fiscal 2024 BP fast free.
Neil: Our commitment and progress in this area was recognized by fast company earlier this year, leaving us as one of the most innovative companies and fashion.
Neil: And we strengthened our relationships in the communities, we live in and serve providing a record amount of fabric material donations across Canada's north through a reserve center programs in fiscal 2024.
Neil: We're pleased with our achievements across our sustainability strategy and the progress with our initiatives underway relating to this year's key operating reparative.
Neil: We believe we are well positioned to make steady progress towards our goals for fiscal 2025.
Neil: And with that I'll now pass the call over to Neil.
Neil: Thanks Danny.
Neil: Our financial performance for the first quarter of fiscal 2025 reflected the early progress we are making across our key operating imperatives as we focus on the things within our control.
Neil: While we are closely monitoring the macroeconomic dynamics in our markets and the impact they're having on consumer behavior are energy and actions are squarely aimed within the organization at our operating imperatives onto the results.
Neil: Revenue in our first quarter increased 4% year over year or 3% on a constant currency basis, primarily due to growth in our direct to consumer channel advancement of our exit inventory strategy and incremental revenue contribution from the European manufacturing facility. We acquired in Q3 of fiscal 'twenty, four partially offset by an <unk>.
Neil: Expected decline in wholesale revenue.
Neil: I'll walk through the key revenue drivers by channel starting with <unk> T.
Neil: DTC sales grew 13% or 12% on a constant currency basis over the same period last year.
Speaker Change: Overall store revenue increased across all regions, partially offset by lower E Commerce revenue in North America and EMEA.
DTC comparable sales were down four 4% year over year, largely reflecting a shift in our product sales mix, which more heavily leaned toward our spring Summer collection. In addition to softer conversion trends, primarily in North America, which I'll address shortly.
Speaker Change: While we know our year over year comp growth results can be improved we are very pleased with some positive developments that took place during the quarter in this channel.
Speaker Change: First we sold significantly more seasonal product across all regions compared to the prior year with our apparel wind wear and footwear strongly resonating with new and existing customers, resulting in non heavyweight down units up over 20% versus a year ago.
Speaker Change: While the change in unit mix lowered average unit revenue compared to Q1 of last year. The favorable response to our full product range demonstrates progress towards our strategy to evolve our product offering and become an all season brand we.
Speaker Change: We are focused on initiatives aimed at furthering our growth in these categories and expect our higher heavyweight down sales to ramp up as we approach our peak season supported by our new initiatives in product and marketing.
Speaker Change: Second we exited Q1 and an upward trend in certain markets, most notably the U K, Germany and Canada.
Speaker Change: More critically we saw strength in mainland, China, and Japan throughout the quarter, a continuation from our strong Q4 performance in those markets.
Speaker Change: Overall, DTC comp revenue and comp units sold experienced sequential improvement in each month of the quarter in tandem with progressing execution of our key operating imperatives.
Speaker Change: So far we've seen mixed results in July and we continue to monitor the consumer behavior around the world, while driving forward with our peak plans.
Cari: You will hear much more from carry about what we're doing on the operational and to address the gaps.
Speaker Change: In Q1 wholesale revenue decreased $11 $1 million year over year as expected down 41% year over year or 42% on a constant currency basis impacted by the relatively small sales volume for wholesale in Q1.
This decline reflected our planned lower order book as we tightened supply to wholesale partners and a soft business environment and the continued optimization of wholesale relationships as we elevate the quality of our partners in this sales channel.
Speaker Change: Overall, we're confident in delivery of our order book to wholesale partners for the full year and continue to expect wholesale revenue to decrease 20% year over year on a full year basis.
Speaker Change: We delivered some incremental product in Q1, albeit small above and beyond the planned order book with select partners.
Speaker Change: Revenue in our other segment increased to $9 million in Q1 of fiscal 25 from $1 9 million in Q1 of fiscal 'twenty four which included third party sales from the European manufacturing facility. We acquired in Q3 of last year friends and family sales to exit slow moving and discontinued inventory, which did not occur in Q1 of fiscal 'twenty.
Speaker Change: For an employee sales for which we implemented a new program in Q3 of fiscal 'twenty four.
Speaker Change: Moving to a brief regional overview of performance regional revenue will be discussed in terms of constant currency.
Speaker Change: Asia Pacific was our fastest growing region in the quarter with revenue up 25% over the same period last year, even as we lapped strong comps of 43% year over year growth in Q1 fiscal 'twenty four domestic shopping in mainland China and mainland Chinese tourists shopping at our stores in Japan, where once again.
Speaker Change: The primary drivers of <unk> growth in the quarter, where consumers demonstrated strong demand for our in season product.
Speaker Change: Solid store and online DTC performance in mainland, China, and Japan resulted in double digit comp growth in these two markets in our first quarter this year.
Speaker Change: That said in total.
<unk> comp sales were slightly down in the region as lower sales in greater China, excluding mainland China more than offset the strength in mainland China and Japan.
Speaker Change: Within greater China, Hong Kong, Macau, and Taiwan faced significant pressure as shoppers chose to spend their dollars either domestically within mainland China or in Japan.
North America revenue was down 3% over the same period last year with U S sales growing by 2% and Canada down 7% year over year in.
Speaker Change: In the first quarter, both regions experienced lower E. Commerce revenue. In addition to lower wholesale revenue as was planned partially offset by higher sales from new stores and other revenue contributions.
Speaker Change: In Canada, our bench and Vancouver stores benefited from stronger tourism traffic in those cities contributing to positive year over year DTC comparable growth in the market.
Speaker Change: D to C growth in the U S was driven by the impact of stores opened later in fiscal 'twenty four and therefore not in the comp base, we faced slower traffic trends in the quarter. We believe as a result of continued pressure on consumer spending in the market and heatwaves experienced across the country in June and a strategic decision to intensify our performance.
Marketing spend closer to peak period.
Speaker Change: We also faced softer conversion.
Speaker Change: Likely due to not having enough seasonal inventory on hand to meet consumer demand in our stores and online, which we rectified late in the quarter.
Speaker Change: This led to a decrease in comp sales in the region over the full quarter.
Speaker Change: Both brand awareness and having the right amount of inventory at the right place at the right time are key areas of focus for us. So that we are ready to meet the demand as we drive it.
Speaker Change: EMEA revenue decreased 11% due to a decline in wholesale revenue, partially offset by higher DTC revenue.
Speaker Change: The first quarter got off to a slower start execution in our D to C initiatives combined with increased tourist traffic generated by some popular live events in the region contributed to improvement in comparable year over year revenue growth in the region from May to June.
Speaker Change: We are especially encouraged by revenue improvements we've seen in our London Regent Street store as a result of our execution, which Carey will describe in a moment.
Carey: Moving down our income statement, let's turn to gross profit.
Carey: Our first quarter gross profit decreased by 5% year over year in turn gross margin declined 540 basis points to 59, 7%.
Speaker Change: As always in our smallest quarter small dollar impacts can have an outsized effect on the quarterly results.
Speaker Change: In Q1 channel mix and product mix had an outsized impact on our gross margin given our smaller first quarter, but we expect that it will have a minimal impact on the full year and we continue to expect that gross margin over the full year will be similar to fiscal 'twenty four.
Speaker Change: The year over year decrease in gross margin in Q1 was mainly due to the following factors.
Speaker Change: First.
Speaker Change: Our new European manufacturing facility in particular contributed to 330 of the 540 basis point decline given its relatively fixed cost base seeing deleverage and a relatively small quarter. The factory remains an integral part of our category expansion strategy, allowing us to leverage best in class manufacturing capabilities.
Speaker Change: As we expand our luxury offerings.
Speaker Change: The remainder of the decline was related to product and channel mix, which was slightly offset by the positive benefits from pricing in our DTC channel, we had a higher proportion of lower margin non heavyweight down product revenue within the mix compared with the prior year, which carries a lower gross margin than our heavyweight down product.
Speaker Change: While the DTC product mix had a larger than anticipated impact on our gross margin. This quarter. We believe the increase in demand for our in season collection was a very positive development, which can drive the gross profit dollar growth over the long term.
Channelize, we sold significantly more units year over year through our lower margin other channels.
Speaker Change: Moving further down the P&L our adjusted.
<unk> EBIT was a loss of $96 million for the quarter, which increased from a loss of $91 1 million in Q1 of last year due to lower gross profit and higher costs associated with operating 14 more stores year over year, partially offset by lower corporate SG&A spend.
Speaker Change: The decrease in corporate SG&A spend was primarily due to savings that resulted from the two workforce reductions implemented in fiscal 'twenty, four and led to a significant improvement in our SG&A as a percentage of revenue on a year over year basis.
Speaker Change: In Q1, FY 'twenty four.
Speaker Change: We also had significant spend associated with our transformation program, which was included in our reported results and excluded from adjusted EBIT.
Speaker Change: Lastly on the income statement Q1, adjusted net loss attributable to shareholders was $76 1 million or a loss of <unk> 79 per basic share compared to a loss of 73 million or <unk> 70 per basic share in Q1 fiscal 'twenty four.
Speaker Change: Turning to our balance sheet at.
Speaker Change: At June 30 inventory was $484 million down 7% year over year, driven by a notable decrease in finished goods and raw materials and marking our third consecutive quarter of decreasing our year over year inventory balance that.
Speaker Change: Beth will provide more color on the topic in a few minutes.
Beth: SG&A efficiency and improved inventory levels are key metrics associated with our third operating imperative of operating with simplicity and we are pleased to see progress on both of those metrics in Q1.
Beth: We ended the year with $766 million of net debt on our balance sheet compared to $712 million at the end of the first quarter fiscal 'twenty four primarily due to approximately $140 million of cash investments in our share buyback program throughout fiscal 'twenty four.
Beth: We ended the period with approximately $335 million in unused borrowing capacity on our revolving credit facility, having drawn $54 million in preparation for peak season.
Beth: Our net debt leverage at the end of Q1 was two eight times adjusted EBITDA, which is in line with our net debt leverage at this time last year.
We expect to end the year with leverage in line with historical levels.
Beth: Turning to our fiscal 2025 financial outlook, our first quarter results came in line with our expectations and we're pleased with the progress made across our key operating imperatives.
Consumers are responding favorably to our apparel wind wear and footwear product lines and we expect to capitalize on our heavy weighed down offerings as we enter peak season.
Beth: As for our annual outlook, we are maintaining our fiscal year 2025 guidance provided with fourth quarter and fiscal year results on may 16th which reflects our positive first quarter performance and incorporates an appropriate level of caution as we continue to operate in a dynamic global consumer environment.
Beth: And much of the year lies ahead.
Carrie: That wraps up the financial summary for our first quarter I will now hand, it to carry <unk> to discuss our three operating imperatives for the year and the progress we've made thus far.
Carrie: Thanks, Neil I'm happy to provide an update on our Q1 progress for two of our three key operating imperatives for fiscal 'twenty five.
Carrie: First brand and product evolution and second best in class luxury retail execution that will follow with an update on our third imperative operating with simplicity.
Carrie: In fiscal 'twenty five we are strengthening the foundations of our brand product and channel experiences to set ourselves up for long term sustainable growth at scale, while also unlocking near term value.
Carrie: Our goal is to elevate the total experience for consumers, sparking new interest and excitement in the brand and enticing prospective customers at every step of the shopping journey.
Carrie: Starting with our brand and product update in May we announced tighter ackerman at their first creative director and launched his inaugural design with Canada Goose. The <unk>. This was named in support of our longtime partner polar bears international to raise awareness of the impact of global climate change.
Carrie: The response, we've seen to hydrogen announcement, the launch of the PVA Hoodie and the accompanying campaign featuring Jane Fonda has been incredible.
Speaker Change: Our main objective for the PDI campaign with to drive brand heat and interest through our owned and earned channels as Danny previewed our marketing efforts drove more than double the media impressions than our previous best ever campaign, and we were equally as pleased with the commercial results, which delivered strong sell through rates.
In June we launched our spring summer collection, introducing lightweight styles suited for the warmer and wetter season, including T shirts, polo's in new wind wear styles.
The collection featured 27, new styles, including the launch of our very first reined in Vancouver rain boot further expanding our category of functional and stylish footwear.
Speaker Change: The response to this candidate its product, which appeals to a buy now wear now consumer mentality has been very strong.
Speaker Change: From a consumer lens, we're also happy with the effectiveness of our digital marketing efforts and attracting interest from new audiences and expanding our followership as well as exciting are existing fan base.
Speaker Change: In Q1, our spring summer 'twenty, four and PVA hoodie campaigns together resulted in significant year over year growth in new E mail subscribers and improvement in our global search results and success in attracting higher quality followers on our social media channels.
Speaker Change: We're making progress advancing other digital initiatives as well we're.
Speaker Change: We're on track to deliver a faster E. Commerce shopping experience ahead of peak season, and we introduced new photography for online channel this quarter, which has produced positive results.
Speaker Change: We're also in the process of updating our online catalog to better reflect our elevated brand.
Speaker Change: Without Frito Tan, our new Chief digital and information officer coming on board and look forward to accelerating our digital efforts with increasing impact.
The progress we made in Q1 marks the beginning of our evolving brand efforts, both our fall winter collection launching in August and Hydrous first capsule collection, which will launch before holiday will be key brand moments that will reflect a bolder approach to marketing to build further brand momentum.
Speaker Change: As we said on our Q4 call a big part of our brand evolution extends to our wholesale channel.
Speaker Change: As a result of the work we've already set in motion, we're seeing our wholesale partners, who have known us for years as a leader in warrant shifting their perception of our brands relevance all year round as they discover the expanding breadth of our offering.
Speaker Change: And they are extremely positive about hydro joining the brand and leading our design and creative vision.
Speaker Change: In Q1. This work has already resulted in select partners choosing to relocate candidates on their floors for upcoming fall winter season from the outerwear Department to the luxury department, which is the right path forward.
Speaker Change: Turning to our second operating imperative implementing best in class retail execution.
Can become a best in class retailer last year, we undertook a thorough talked about him review of every component of our retail business as part of our transformation program from the way, we move product through our supply chain to the way we sell in stores. So that the consumer experience is consistent across our retail network.
Speaker Change: This year, we're in execution mode focused on getting the fundamentals in place. So that we're set up to seize the exciting growth opportunities. We see ahead as we scale our stores, our product categories and our customer base.
Speaker Change: To accomplish this we're focused on three primary screens of work one boosting our sales training.
Speaker Change: Two strengthening our store operations and three improving product availability.
Speaker Change: First is leveling up sales training for our store employees, whom we call brand ambassadors.
Speaker Change: This is about reinforcing critical elements of our Canadian once experience, which means delivering warm and every interaction and expertise behind every recommendation.
Speaker Change: We're not a brand that just makes our sounds pretty things are products are crafted with precision and purpose with performance at their core. So it's imperative that our brand ambassadors understand and can showcase the details of every product and category to ensure our customers confidently leave with the ideal candidate with product in hand.
Speaker Change: In Q1, we delivered in depth product training to our brand ambassadors that equips them with the technical knowledge and brand stories to make deeper connections with our customers and consistently deliver a stellar in store experience.
We are in the process of rolling out the remaining training modules to set our store teams up for success ahead of our peak selling season.
Speaker Change: In June we also introduced a new bonus compensation program in North America, and EMEA that rewards our store teams as individuals and as a team. We believe this approach more aptly combines our team based culture with individual level accountability and it serves as a tool to attract the very best retail talent.
Speaker Change: Combined with our coaching and training initiatives. This new program is already producing results with labor productivity increasing in June over the previous few months in the first quarter.
Speaker Change: Second we are strengthening our store operations in Q1, we reset labor hours across all regions to ensure we offer optimal staffing levels during our busiest periods to best serve our customers.
Speaker Change: We're also optimizing our in store product presentations to better showcase seasonal product stories in combination with evergreen icons and showcase the breadth of our full lifestyle offering through layering in combining categories on the floor.
Highlighting the progress we've made in our brand and our product evolution.
Speaker Change: And third we're improving product availability by focusing on bringing more precision to our merchandising planning and inventory allocation capabilities.
In Q1, we narrowed our SKU count to focus efforts and showcase our most sought after silhouettes and styles and newness from our 2020 for collection.
Speaker Change: Also allows us to integrate and bring more focus to new designs that higher will launch later this year and beyond.
Speaker Change: And to enhance inventory allocation, we redeployed product sizes and styles into different regions based on local demand, which led to better sell through this quarter and we're testing more direct shipping routes from factory to store to increase speed to market and get products to our customers faster.
Speaker Change: These DTC execution efforts are producing real results in mainland China. Our stores are prepared to capture strong consumer demand for our seasonal products in Q1 complemented by engaged sales teams, which contributed to the solid performance we saw there.
Speaker Change: Another Great example is the progress we made in our London Regent Street store.
Speaker Change: This flagship store is a top 10 revenue store and a beacon for the brand in Europe as well as for tourists around the world.
Speaker Change: In Q1, we re merchandize the store with an assortment that represents our heritage also being seasonally relevant we changed how we presented our men's and women's Assortments and we better matched brand ambassador staffing according to traffic levels.
Speaker Change: Additionally, the team at this store with one of the first to complete our new intensive training program.
Speaker Change: These efforts plus capitalizing on increased traffic trends contributed to a lift in store comp sales, which accelerated to double digit growth as measured 45 days prior to implementation to 45 days post implementation.
Speaker Change: Our job now is to implement the learnings from these initiatives and then scale them across the network.
Speaker Change: Circling back to our Q1 results, which has typically been about 5% of our total annual revenue. While we are not satisfied with the negative DTC comp growth in our first quarter I am encouraged by the progress. We have made in these early days of execution. The actions, we're undertaking and the results they've driven already gives us confidence in our ability to drive.
Speaker Change: Proved comp performance as we head into the larger quarters ahead.
Speaker Change: Now I will pass it onto that who will discuss our third operating imperative for fiscal 'twenty five.
Pat: Thanks, Carrie and good morning all.
Pat: In May we talked about two primary ways, we're simplifying and focusing the way we operate.
Speaker Change: First by achieving internal operating excellence and second through focused capital deployment.
Speaker Change: Happy to share updates today on good progress in both of these areas.
Speaker Change: First achieving operating excellence.
Speaker Change: As I've said before quite simply operating excellence as fewer people working more effectively on fewer priorities and driving the results.
Speaker Change: On our fourth quarter earnings call, we spoke about the head count reductions and organizational changes we made at the end of March.
I'm pleased to report that now four months out the organization has embraced these changes I want to highlight a few examples and data points.
Speaker Change: We continue to evolve teams, where we have the opportunity to be more efficient and effective for example in June we further streamlined our product development and sourcing teams globally. This enables us to work more effectively with our European manufacturing partners as we prepare to deliver new products across our global portfolio. It also allows us to redeploy.
Speaker Change: More resources to support our creative director.
Speaker Change: We continue to evolve our culture and practices to be more efficient data driven behaviors. For example, we've completely revamped our operating and commercial review cycles to produce more actionable outcomes that focus on driving near term top and bottom line results.
We've also introduced an updated traveled tool and policy that helps our employees act like owners and take greater accountability for costs incurred.
Speaker Change: And lastly, we continue to exercise very tight controls of our head count only hiring for the most critical roles. This has resulted in our corporate head count remaining relatively flat as of June 30th compared to where we were at the end of the fiscal year.
These actions we've taken so far have had a positive impact on our cost base with SG&A as a percent of revenue improving in Q1 over the same period last year that's.
Speaker Change: This not only reflects the workforce reduction implemented in fiscal 'twenty four but also importantly incremental cost savings efforts as well, which contributed to the operating leverage observed for the quarter.
Speaker Change: Maybe more importantly, we've just completed our first employee NPS pulse survey since the organizational changes and are seeing our overall employee NPS maintaining despite the large amount of change that has occurred over the last several months. Most encouragingly, we're seeing NPS increases in our retail team, reflecting the positive impact of our D to C execution.
Speaker Change: And brand and product evolution operating imperatives.
Speaker Change: Second I'll talk about our plan to improve capital deployment and working capital.
Speaker Change: On the capital deployment side, we prioritize technology investments supporting our key operating imperative that we expect to generate a strong ROI.
Speaker Change: We've also slowed our store openings to focus on driving productivity in our existing store base. The combination of these two efforts is resulting in a significant reduction in capex year over year.
Speaker Change: Our plan to rightsize, our inventory levels is working as we increased inventory efficiency through our planned temporary lower production levels with both third party contract manufacturing partners as well as in our owned manufacturing facilities.
Speaker Change: While continuing to use our friends and family sales to exit slow moving and non carryover skus.
Speaker Change: In Q1, we made solid progress lowering inventory levels by 7% year on year, and increasing inventory turns by 6% for the 12 month period, ending June 32024 versus last year.
Given the seasonality of our business and the buildup of inventory in the first half of the year to meet demand during our peak season, we expect to see even more notable movement of inventory turnover in the second half of the year, coinciding with the ramp up of sales.
Speaker Change: We're early in our work here and have plenty more opportunity to continue to simplify and transform the way we work.
Speaker Change: We are operating in a more coordinated focus on cross functional manner than we were this time last year, which is helping to drive the progress we've highlighted on the call today, we continue to focus on the most impactful areas to support improvement across our key performance metrics and margin expansion in the remainder of this fiscal year and beyond.
Speaker Change: In closing we feel good about the tremendous progress we made in the quarter.
Speaker Change: Overall financial results were in line with our expectations and we continue to show our ability to engage more consumers with our year round product and our incredible craftsmanship design and authority of the luxury brands.
Speaker Change: We intend to continue to introduce compelling innovation and enhance our marketing.
Speaker Change: We are ruthlessly focused on improving our execution across the enterprise. We are both elevating our Canada Goose brand and experience and building a more efficient and effective foundation for the company to deliver consistent long term sales growth at higher levels of profitability in the future.
Speaker Change: We remain confident that we have identified and are actioning. The right plan and look forward to continuing to update you on our progress as we move through the year.
Operator, we are now ready to take questions.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and trying to queue.
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Again press star one to join the queue.
Speaker Change: Your first question comes from the line of Oliver Chen with TD Colin Your line is open.
Hi, Danny meal, Beth and carry a higher is quite talented and comes from a really strong background in fashion and execution as well healthy integrating the company how are things progressing and how will this intersect with continued progress in non heavy weight down on non heavyweight.
Speaker Change: On a related question what are some key goalpost that you are looking forward to.
Speaker Change: And how will the margin complexion.
Speaker Change: Act with the model in terms of gross margins there.
Speaker Change: Second point the S. K U reduction sounds quite prudent in terms of getting goods to the right place at the right time.
Speaker Change: Also working more efficient what do you have a head for S. SKU reduction and how should we think about that how that will impact the model. Thank you.
al: Hey, Al Overstating, how is it going thanks, so much for your question.
al: And we're very excited about the work.
al: What they were doing Hydra and he has been integrated and the way. It has been three integrating into our company has been going extremely well our debt.
al: No.
al: Launched.
al: Sure.
al: We know someone may 15th when we launched we launched with a suitable Prague, which did extremely well.
al: And.
Speaker Change: We're super excited about tighter is a designer of the highest order.
Speaker Change: You used the word fashion.
Speaker Change: None of our fashion as it gets our brand against our DNA, It's where we are and where we come from.
Speaker Change: He will be designing beautiful products that the dawn.
Our collection. This is a bold move for us and we're super excited about it our milestones to look forward to the next one.
Speaker Change: Dropping capsule collections on the fall of <unk>.
Speaker Change: This fall.
Speaker Change: Sure.
Speaker Change: Before.
Speaker Change: Before the end of Q3 and for all of the and we're Super excited about that.
Speaker Change: I think that this is really going to add a lot of energy to our brand.
Speaker Change: No.
Speaker Change: Both products he mixed specifically and also.
Speaker Change: All of our products.
Speaker Change: The Halo effect, so before and so more to come.
Speaker Change: As it relates to gross margin.
Speaker Change: Where we're planning this year to be similar to fiscal 'twenty four.
Speaker Change: Key things that we're looking at there are a price increase and so we interacted are sort of price increase across the portfolio, that's sort of blends out at a mid single digit.
Speaker Change: Were clearly managing.
Speaker Change: Production levels.
Speaker Change: Know that theres going to as we said I think in the year end earnings call that we expected that we'd put a little bit of pressure on cost, which is okay. And then as we as we always have done will mix the evolution of the products and in this year certainly away from heavy way down and answer some of those not every way down products as well as the channels and we think that all rolls up to a.
Speaker Change: <unk>.
Kerry: And in line with fiscal 'twenty four gross margin Kerry do you want to just talk a little bit about the SKU rationalization, yeah sure. So first I just want to add on other hydro Brian I think the biggest impact of course beyond product, but he is also having an impact on that U S. Our team in marketing and on the brands. So the response from our wholesale partners lots of positivity excitement about what's to come.
Speaker Change: And then hum, bringing his creative vision to life from a brand perspective, and you started to see that with the PD actually blocks that we didn't Miss Jane Fonda. So it really marks a step change in the way that we're bringing the friends life a batch of product. So SKU rationalization, yes, I think.
Speaker Change: We're making good progress I think you can expect to see that continue as we focus on our top sellers and making prudent for.
For us to focus on the newness as well as the newness that hydro will be bringing in so.
Speaker Change: In terms of category rationalization, that's just looking at category by category.
Speaker Change: Do we have the best chance at winning whereas the strongest demand from customers. So that we can really design and market into that.
Speaker Change: Thank you best regards.
Speaker Change: Yeah.
Speaker Change: Our next question comes from the line of Alex Perry with Bank of America. Your line is open.
Alex Perry: Alright, thanks for taking my questions.
Alex Perry: I Wonder can you comment on sort of the efforts to expand outside of the heavyweight down category. I guess, you talked about a lot of different product categories outside of heavy weight down which ones are you expecting the most contribution from this year and then would you still be expecting growth from the heavy weight down category. This year. Thank you.
Speaker Change: Thanks, Alex so yes.
Speaker Change: Obviously this is a journey so we've been on this journey for some time now.
Speaker Change: <unk> rapid progress on the different categories that we have introduced whether that's lightweight down you've seen in our results in Q1, So apparel and every day, which is what we call our wind wear collection.
Speaker Change: Footwear that led that was led the not having laid down so we're really happy with that seeing very strong demand from and response from our consumers, particularly in APAC this quarter.
Speaker Change: Well that basket is truly evolving.
And people are not only seeing the brand for what how we've expanded but also buying it in different seasons, which again youre seeing the results of that in Q1. So we do expect heavyweight down to crowd theres lots of focus and attention on how do we keep our icons are icons and that's what people know us best for as well as moving into other categories.
Speaker Change: We think there's lots of opportunity in footwear for one.
Speaker Change: Accessories to a smaller degree, but we think there's lots of room that network, obviously our acquisition.
Factoring last quarter. So we have we think that there's lots of opportunity and we know that people come to us for them for warmth and protection and we think those two qualities apply to many more categories than we are in today.
Really helpful. And then my follow up is how should we sort of think about the cadence of the DTC comp sales from here are you sort of expecting.
Speaker Change: The strongest growth to come in your highest volume season, or how should we sort of think about the phasing of that comp sales to get to the low single digit guide. Thanks.
Speaker Change: Yeah, I mean, you'll recall, we didn't necessarily give quarterly guidance and so I'm not going to speak specifically about.
Speaker Change: Expected metrics in any given quarter, but I think you're directionally correct for two real reasons one.
Speaker Change: We're putting a ton of effort as you heard in the prepared remarks, and as we talked about in the call a few months ago, we're putting a ton of effort around how do we become a best in class retailer and that takes some time and so while we got sort of mixed results on comps in the first quarter.
Speaker Change: We would expect it by the time that we get to our.
Speaker Change: Our peak season that we would be driving towards.
Speaker Change: Positive comps in order to get us to that low single digit estimate for the year.
Speaker Change: Probably helpful Best of luck going forward.
Alex Perry: It's Alex.
Speaker Change: Next question comes from the line of Michael Binetti with Evercore ISI. Your line is open.
Speaker Change: Hi, This is Justin you all on behalf of Michael Binetti, Thanks for taking our questions.
Speaker Change: Maybe double click on that general manufacturing facility can you speak to how much fixed cost base for <unk> gross margin and the recipe you up here.
Speaker Change: Given the guidance of flat.
Speaker Change: Yes things can play at that at that.
The rest of the year with spend bad crop like about 30 basis points. So we think about that 330 basis points of compression in the first quarter, maybe could you give us an idea of how much that helps the roster here guy.
Speaker Change: Sir you may begin.
Speaker Change: Hello.
Speaker Change: Operator, I think we're ready for the next question.
Speaker Change: Next question comes from the line of Jonathan Komp with Baird. Your line is open.
Speaker Change: Hi, Good morning, this is Alex.
Alex Conway: Conway on for John.
Alex Conway: Neil I think you've previously talked about expecting a mid single digit.
Speaker Change: Market growth this year with kind of some of the headwinds that competitors have called out and I know you said a more dynamic environment could you maybe share a little bit more about maybe what youre expecting for the full year now.
Alex Conway: Yeah.
Neil: Yeah, I mean, I think you're probably right that the external data points suggest that mid single digits as maybe on the optimistic side and sort of a lower single digit.
Alex Conway: Growth environment is maybe more.
Neil: Hum.
Neil: Appropriate.
Neil: I think as we've looked at how that impacts our business and the relative size that we are in the markets that we aren't as diverse as those markets I don't think we view that.
Neil: What might be a slight contraction.
Neil: In the in the overall estimate as having a meaningful impact on the business and so while we are clearly monitoring health in the U S consumer health of the Chinese consumer level of tourism et cetera et cetera.
Neil: We feel pretty good about our ability to execute the plans even with that pressure.
Speaker Change: Yes. Thank you that's very helpful. And then I guess, just one one more on China could you dig into a little bit what youre seeing in the difference between some of the territories in mainland, China, and Japan, and really why do you think that dynamic ongoing right now.
Neil: Sure.
Neil: Yes.
Neil: I'll start and Gary can certainly add some color so.
Gary: So I think in terms of operating performance in the quarter mainland China was a standout as was Japan and I just want to caution that standout in a small quarter can mean $1 billion in.
Neil: $2.
Gary: More and so it's really not a meaningful dollar contribution but the trend is it has been now for six months pretty strong in mainland China, and we're really happy when you get outside of mainland and into places like Hong Kong Macau, Taiwan.
Gary: The seems like the consumer pressure, there and the traffic and the willingness to spend is much more.
Gary: Their pressure and that's probably a trend that's been it's been kind of going on for three to six months.
Gary: We're happy.
Gary: We're happy with our locations in each of those places we're happy with what the Macau.
Gary: Business will ultimately bring but certainly seems to be a little bit of tourist pressure there.
Gary: If you.
Gary: Get to Japan.
Speaker Change: Currency situation, there seems to be that the relative weakness of the Japanese yen is.
Speaker Change: Resulting in a lot of inbound tourism some of that mainland Chinese some from other places and when do they are they are spending to take advantage of the arbitrage, we see that in our business, although still relatively light quarter. As we said number of times. This morning.
Speaker Change: And we clearly see that that's the that's the market trend and with some of the other some of our other peers.
Speaker Change: That have reported over the last few weeks.
Speaker Change: Thanks for all the color.
Speaker Change: Yeah.
Alex: Thanks, Alex.
Speaker Change: Our next question will come from the line of Michael <unk> with Barclays. Please go ahead.
Michael Binetti: Good morning, and thank you for taking our questions I just wanted to touch on your customer base as your product mix continuing to shift more towards a lightweight non hasnt weight products are you seeing more of an impact from repeat purchases from existing customers or a more outsized impact from new customers because of the new products.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Great question, so our repeat customer.
Speaker Change: Purchase rate is quite strong and encouraged to see that when we announced hydro in particular for some of the big moment for Q1, and that's we had a significant repeat purchase rate.
Of course, it was also meant to attract new customers, which it did but I think the idea that as we're changing that Max Edwards elevating the brand as we're bringing things to market in a different way, we're holding onto our customers and also growing it with new quality followers with a right kind of audience. So it's a bit of both I hate to get I don't have specific numbers.
Share with you, but we're happy with the progress in terms of both exciting fans that have been with us for many many years and <unk> seen.
Speaker Change: Seen us evolve and then attracting new customers and bringing them into the fold.
Speaker Change: Great Yeah that sounds great and then.
Speaker Change: All up regarding that.
Speaker Change: Have you seen any kind of changing your target demographic by any chance because of the introduction of the newer products and is there any kind of shifts or different than the <unk>.
Speaker Change: Thiago fees for whose purchasing what.
Speaker Change: I think I mean, that's an interesting it's hard to put a pause.
Speaker Change: 0.2 specific data points on that I mean, our approach has always been to reach a wide audience. So it's starting.
Speaker Change: The newest youngest generation have always been fans of Kennedy isn't so we've always been really relevant with that with that group and they tend to stick with us until <unk>.
Speaker Change: Later year, so, which we like great they grow with us they get excited they buy certain products and that that product is evolved so I wouldn't say, there's necessarily a change in how we're approaching that we want it the biggest thing for us is making sure that we're relevant and so staying relevant and being a part of our relevant culture has always been a strong point for Canada Goose and.
Speaker Change: So we continue to do that.
Speaker Change: Think in terms of shifting in geographic and geographies.
Speaker Change: Each market has its own unique.
Speaker Change: The generation and marketing strategies in order to attract the audiences that we know that modern luxury consumer who is interested in Canada gave us that brands like <unk>. So.
Speaker Change: Nothing dramatic has changed in terms of our approach in reaching them, but the shift has been in how we bring to market. So where we're finding those customers, making sure that our you know our channel approach to marketing is really laser focused on from a regional perspective, so that we can deliver the best results with the money that we're investing there.
Speaker Change: Act.
Speaker Change: Alright understood. Thank you so much.
Speaker Change: Our next question comes from the line of Brook Road with Goldman Sachs. Please go ahead.
Good morning, and thank you for taking our question.
Brook Road: In the prepared remarks, you outlined several actions you're taking in the store to improve retail execution, including labor hours changes in associate compensation and product availability can you speak to the opportunity you see here from these initiatives for four wall margins and your profitability of DTC during peak season, as a result, and what are the opera.
Kennedy: Kennedy's beyond fiscal 'twenty five for continued retail execution improvement. Thank you.
Kennedy: Thanks.
Speaker Change: Yes, we're doing a lot of work as you heard in my remarks.
Speaker Change: And we're seeing strong green shoots this quarter, which is great as we head into peak I mean, the biggest thing that you've heard us talk about we want to drive.
Speaker Change: Revenue, we want to drive comp sales and.
Speaker Change: And that's the best opportunity for us to improve our margins. So the team is really focused on the traffic that is coming into the stores, how do we maximize that whether it's converting them immediately on one item or four items, how do we make sure that we're delivering that Canadian <unk> experience and they believe that the product that they're thrilled I said that keeps them coming back time and time again.
Speaker Change: And in different seasons, so that really is our focus on driving that top line revenue Neil I don't know if you want to add anything else. Yes, I think we're also being realistic about.
Speaker Change: The.
Neil: The amount of time that making some of these behavioral changes within the stores and spreading that across.
Neil: 70, plus stores, we'll take the amount of time that will take and the effect that we should expect this year, we've been reasonably cautious on the effect of that with respect to the overall margin and obviously, our four walls embedded in that overall margin up.
Neil: Forecast for the year and so I think we see beyond this year.
Speaker Change: Other opportunity, but when we when we put enough.
Speaker Change: Sort of track record behind US we can we can speak more confidently about what that will deliver but for now our focus is.
Speaker Change: Getting ready over the next several weeks for peak and then executing with NP. When we know people will be in our stores expecting.
Our products and a great Canadian worth of experience.
Speaker Change: Great and then just as a quick follow up there's been a lot of discussion about pricing in the industry overall and you're continuing to take select price increases in your assortment have you seen any change in consumer response to your typical pricing actions that you've taken this year in comparison to prior years.
Speaker Change: Your confidence and the opportunity for continued price gains for the Canada Goose brand.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: We've been cautious this year I think on pricing and <unk>.
Speaker Change: Certainly we evaluate what the competitive set does what the market can bear how that impacts consumer demand.
Speaker Change: Can we speak to our consumers both in the Formula in an informal way and so we want to be aware of what that means at the same time the quality of the product and the function of the product is critical.
Speaker Change: And sort of create a value proposition that we know we have and so we will continue to be aware, but we also need to be sort of commercially responsible and no plans yet for for what the future looks like but George I will just be continuing to monitor and make sure that we're creating the best possible products with the best path.
George: Possible value proposition to the consumers want to and feel that.
George: What they get from our product is matches with the prices.
George: I can just add one thing I do we do know from talking to consumers that we do still think that our product assortment has room to grow.
George: So we do think that there is a category level and an opportunity at the higher end, where it particularly as we bring in new designs that are a competitor and.
George: We think that there's a strong opportunity and strong demand to build into there.
Speaker Change: Great. Thanks, so much I'll pass it on.
Speaker Change: Right.
Ike <unk>: Our next question will come from the line of Ike <unk> with Wells Fargo. Please go ahead.
Ike: Hey, guys. Thanks for taking my question Mr. Robert.
Ike <unk>: Alright, I was wondering if you could talk a little bit more about your full year plan for for the wholesale channel and maybe the out years as well.
Speaker Change: I think you have it going down each year.
Speaker Change: How does it look next year.
Speaker Change: At a point, where we're ready to start growing or do you see more room to cut.
Speaker Change: Alright, I'll take that.
Speaker Change: So our wholesale I think reminder, that we're executing a lot of change in a significant change in the wholesale channel and our objective. This year is really to elevate that channel so making sure that the experience that they receive in that channel is exactly the same as what they would receive online or I cannot use or in one of our stores. So we continue to optimize the network so focusing on.
Scott: Very stringently on accounts that are brand accretive also tightening up the supply of inventory just to introduce Scott <unk>.
Lucidity, we know that wholesale.
Scott: Channel overall has a lot of inventory in many many categories and so we want to work with them to make sure that we're not.
Speaker Change: Nothing that issue.
Speaker Change: But we're also trying to make sure that we visually express the brand in the right way and grow our breadth of our offering and we're seeing really strong.
Speaker Change: <unk> response to that this this quarter in particular, so moving Canada gave us from the outerwear apartment Department Kilo luxury, Florida, which is where we belong and so they're recognizing the both the elevation work that we're doing on the brand perspective, but also the breadth of the offering and so that response has been encouraging.
Speaker Change: Over the full year, you see an outsized impact as we've said in Q1, but on a full year basis, we expected to see that decrease at about 20%. It's really just a timing issue of seeing that much more in Q1, because that's I think wholesale quarter for us.
Speaker Change: Alright. Thanks.
Speaker Change #100: Our next question comes from the line of Jay sole with UBS. Please go ahead.
Great. Thank you so much Dani I'm interested in your decision to hire your first ever creative director.
Speaker Change #101: What made him the right choice what do you expect to change how do you expect the brand to evolve given the higher thank you.
Speaker Change #102: Yes, thanks for the question.
Speaker Change #103: It was the right thing at the right time out you tend to use we.
Speaker Change #104: We swapped we have swimming upstream to get to where we have <unk>.
Speaker Change #103: Right.
Speaker Change #103: This is the right inflection point for us to.
Speaker Change #105: Take care take another.
Speaker Change #105: Another significant step towards.
Speaker Change #105: The global luxury brand that we're becoming and.
Speaker Change #105: And building capabilities in.
Speaker Change #106: In Paris with some of the vessels I'm, telling the world exists and with hydro charge someone to agree.
A long time to find and to connect with them to realize it was the right person for the role and someone who is very excited about it and I think this is good this is something that.
Speaker Change #106: How does the potential and we all believe is going to take this brand to the next level and that some.
Speaker Change #106: First we wanted to.
Speaker Change #107: Alright, thank you so much.
Speaker Change #107: I will now turn the call back to Ana Raman Vice President of Investor Relations for any closing remarks.
Ana Raman: Thank you and thank you everyone for joining our call today. If you do have further questions. Please feel free to reach out to the Investor Relations team at Ken I think it was thank you.
Speaker Change #108: Ladies and gentlemen that will conclude our call for today. Thank you all for joining you may now disconnect.