Canada Goose Holdings Inc. (GOOS) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Third Quarter Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Patrick Burk, Senior Director, Investor Relations. You may begin your conference.

Thank you. Good morning and thank you for joining us today. With me are Dani Reiss, President and CEO; and John Black, CFO. For today's call, Dani will begin with highlights of our third quarter performance and then update you on the progress against our key priorities. Following this, John will provide details on our financial results. After our prepared remarks, we will take your questions. Before we begin, I would like to inform you that this call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement made on this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and applied in making forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions appears under the heading Cautionary Note Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 20-F, which is filed with the Securities and Exchange Commission and the Canadian securities regulatory authorities and it is also available on our website at www.canadagoose.com under Risk Factors in our final prospectus filed on June 28, 2017 and in the earnings press release that we furnished today under the heading Cautionary Note Regarding Forward-Looking Statements. 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. During the conference call, in order to provide greater transparency regarding Canada Goose's operating performance, we refer to certain non-IFRS financial measures that involve adjustments to IFRS results. Any non-IFRS financial measures presented should not be considered to be an alternative to financial measures required by IFRS and are unlikely to be comparable to non-IFRS financial measures provided by other companies. Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS financial measure in a table at the end of our earnings press release issued this morning, which is also available at the Investor Relations section of our website at www.canadagoose.com. With that, I will turn the call over to Dani.

Thank you, Patrick, and good morning everyone. Fiscal 2018 has been an exceptional year so far and I am excited to sharing the results of our strong third quarter with you. This is our biggest and most important quarter and we have delivered on off runs, in fact we have delivered results that have exceeded expectations for each of the last four quarters and that is something we are all extremely proud of. I am especially proud of the way our team has executed, particularly in light of the tremendous pace of growth and changes in the business. We embarked on a number of significant new initiatives in fiscal 2018, including expanding our retail stores and e-commerce size, growing our wholesale business globally and adding new product categories all with compelling results. This has led to an increase in revenue of 27%, gross margin expansion to 63.6% and 32.2% growth in adjusted net income per diluted share on a year-over-year basis in our most material quarter. I see that as a powerful validation of our brand and our ability to deliver on our strategy. We accomplished what we said we would and then some. So let me give you some context and share a few highlights from the business starting with products. First and foremost, people love our products because they work. Customers across region and climates have responded well to the innovation and quality of the product in our fall/winter line whether it’s a classic down-filled parka as a protection from the bomb cyclone or a packable lightweight jacket that offers greater flexibility, while keeping out the damp chill. We saw strong sales in both core and new styles across our men’s and women’s businesses. For example, our classic expedition parka is style we have offered for decades yet sales continue to increase year-over-year. At the same time, we continue to see growing demand for our lightweight down product another testament to our increasing relevance in more temperate climates and our ability to successfully expand our product ramp. As I’ve mentioned before, more and more people today see outerwear as a prominent part of their wardrobe. They don’t just buy one fall or winter coat anymore. They’re looking for a variety different colors, silhouettes and fits and are introducing over 30 new styles and are fall/winter line, we are successfully meeting that demand as we broaden and diversify our product offering. Another example of this is our Fusion Fit, which has been a clear winner of this year. We introduced Fusion Fit in 2014 to address the diversity of body frames around the world. And while it has been growing steadily since it’s launched in fiscal 2018, we saw significant unit growth for this fit. Accessories have also been a focus this year and we introduced pieces more suitable for the urban explorer, including leather and lightweight options, which resulted in positive production from consumers. Overall, our continued focus on diversifying our product line and giving consumers the choice and variety they’re looking for is working really, really well. Some other interesting highlights from the season come from parts of the business that today are relatively small, but they’re meaningful to the brand overall and are potential future growth opportunities. Our youth, kids and baby business doubled this season, which to me shows that people trust us to provide the same protection that they enjoy for the children in their lives. Additionally, as a long-time partner of Polar Bears International, I’m proud of how our PBI collection, which represents 14 styles, continues to perform growing by approximately 60% this year. For each PBI jacket sold, we donate $50 back to the organization to support their dedication to conserve Polar Bears and their habitat. As we continue to enhance and expand our product offering, our promise to consumers has always been that we will make best-in-class products and I believe that, that is the most critical part of our success. As an authentic brand that makes function first products, people continue to trust Canada Goose to deliver. Moving on to geographic growth, expanding internationally is an important part of our growth strategy and our team is doing a fantastic job in executing. We grew revenue significantly in all of our geographic segments this quarter. In addition to robust growth in our home market, Canada Goose is also a highly sought-after brand in Asia, Europe and the United States. In fact, over the past year, we’ve had customers from 87 different countries and our 6-company operate in retail store. When you look at our penetration level in Canada, which continues to grow at a very healthy rate, it is clear that we continue to have a compelling opportunity to drive growth while expanding access to our product around the world. Looking at our opportunity in China in particular, we continue to see enormous demand in that market. Over the past year, we have been learning more about the marketplace and finalizing our strategy. In many ways, it's a market we already serve well through existing wholesale channels. Also in our stores and online, we’ve experienced exceptional demand from Chinese tourists, students and/or residents, which has helped inform our understanding of the end market opportunity and how to best meet those needs. Today, our strategy is set and we are already executing on our go-to-market strategy in China working diligently to hit the right wholesale e-commerce and store pieces in place. Recently, we launched a small cross-border online pilot and we are excited to see how that performs, and of course we’ll make any other material announcements about our Chinese strategy when the time is right. In terms of distribution, wholesale continued and will continue to play essential role in market development giving us a complementary level of diversity and our ability to have a strong visible presence in cities where we don’t plan to open our own stores. In this channel, it’s about quality over quantity and we are focused on deepening our relationship with the retail partners who best showcase our brand and can deliver an exceptional experience at full price. This quarter, through improvement in both sales planning and production capacity, we consistently delivered inventory earlier in the season, which was in response to retailer request. This better positioned our retail partners particularly during the holiday season. We also deepened our collaboration with our partners, world-class retailers such as Barneys, Nordstroms, and Saks Fifth Avenue in the United States and the Rinascente and Harvey Nichols in Europe to create beautiful campaign and events to tell our story in earlier stage markets where consumers, may nor part but not the full story. As you know, we celebrated our 60th anniversary last fall and we leveraged than milestone to deliver immersive experiences that reinforce a unique position in the industry through creative content, popup shops and outdoor cinema events, we showcased our 60 year heritage, our recent outdoor expirations and our relationship with the film and entertaining industry, which helped increased brand awareness and affinity as well as drive profit. In our D2C channel, we are now operating six retail stores and e-commerce in 11 markets. Looking at our financial result, it's clearly that this channel has performed well, which is driven by a strong contribution from both new and existing sites in the stores. In less than four years, we have successfully grown from zero to $197 million of revenue, which represents 38% of sales on a trailing 12 months basis. Our e-commerce business is strong and dynamic as we need the customer where they live. We continue to grow significantly in all of our major markets only reluctantly reiterating and improving our online experience, balancing brand storytelling with product information and functionality that drives conversion. By adding new payment method, navigation and more dynamics photography, our focus is on ensuring we continue to deliver a premium experience for consumers everywhere. The seven new European sites we launched have performed very well and we saw strong result across a wide range of developed and earlier stage markets. We continue to learn a lot about customer preferences in each of these countries and we see great traction with our lightweight down products and more temperate finance likely UK. It is also clear that many of our fans still value physical personalized shopping experiences. Despite the doom and gloom that we’ve heard about from the industry bricks are not dead. To succeed, you have to have a strong brand and value proposition and have to be able to deliver and Canada Goose does. Across the board in very different markets desire for our brand has been exceptional. It is still early days. But every store, including Yorkdale in Toronto and Soho in New York has exceeded our expected performance expectation. Canada Goose has always been an authentic experiential brand and our stores are the destinations that enable people to discover what that means firsthand. In addition to financial performance, what excites me about DTC is how it is bring us closer to our customers. The direct engagement data we get from this channel is incredible valuable including what products are selling when and who is buying. Our stores give us the opportunity to provide high-touch service to ensure customers find their appropriate product. In return, we also get to learn about how people discover new products, how they respond versus the heritage and what they want to see from us next. When you look at the pace of growth across our business so far, it is important to recognize the critical contributions from our operations team. I’m often asked if we have the manufacturing capacity to support our plan growth. I want you to know that we do, for the next year and for well beyond that. Building manufacturing capacity is a core competency at Canada Goose and we have been doing so for many years. We invest aggressively and continuously and it is deeply embedded in our strategic planning process. This year across our manufacturing facilities, we expanded our sewer training program, secured additional space and introduce a number of lean and flexible manufacturing principals to increase efficiency or maintaining our high quality standards. Finally, I’d like to recognize our team and to how much I appreciate their continued energy and passion to deliver against our growth strategies. So far, this has been another amazing fiscal year and it’s because of all of you. I’d also like to specifically thank our CFO John black, who’s informed me of his intention to retire at the end of the year. In the past 4.5 years, John has played a critical role in the growth of our business, and the company has achieved many exciting milestones under the leadership including successfully transitioning to becoming a public company. On a personal level, John has been a trusted partner to me and friend and I know he’ll be greatly missed here at Canada Goose. He isn’t going anywhere just yet though. John will continue as CFO until the appointment of his successor, Jonathan Sinclair, who’s expected to start some time mid-year and he will remain in a senior role until the end of the year to support Jonathan and ensure a very smooth transition. Jonathan is currently the Chief Financial Officer and Executive Vice President or Business Operations at Jimmy Choo. He’s an accomplished business leader and seasoned financial executive with a wealth of experience with luxury brands and direct-to-consumer operations. We have gotten to know each other quite well, and I look forward to having him on my side going forward as a strategic business partners. And with, I will now turn over to John Black to review our financial results with you in more detail.

Thank you, Dani. Good morning everyone and thank you for joining us. As Dani mentioned, we delivered a strong performance in the third quarter with a 27.2% increase in revenue and a 32.2% growth in adjusted net income per diluted share. Before I go through the numbers in detail, I would like to remind you that our results are stated in Canadian dollars. For the quarter, revenue increased by 27.2% to 265.8 million, up from the prior year by 28.3% on a constant currency basis. This was driven by growth across all channels, geographies and categories. Direct-to-consumer or D2C revenue move from 72 million to 131.6 million including the strong performance from our four new stores which opened during the quarter as well as continued strength from our existing e-commerce sites and stores. As a percentage of total revenue, D2C was 49.5% compared to 34.4% last year. Wholesale revenue decreased by 2.1% to 134.2 million. As we mentioned last quarter, we pulled forward approximately $18 million in revenue from our order book that we’re originally planned for the third quarter to the first half of the fiscal year, driven by request from our retail partners to receive shipments ahead of the peak selling season. Consolidated gross margin expanded approximately 610 basis points to 63.6% from 57.5%. This was primarily driven by an increased proportion of higher margin direct-to-consumer revenue. Our wholesale channel saw gross margin expansion of approximately 320 basis points from 47.8% to 51%, driven by a lower material cost and a greater proportion of revenue attributed to higher margin in winter products. Within our direct-to-consumer channel, gross margin expanded approximately 30 basis points from 76.1% to 76.4%. The impact of lower materials costs was less significant in this channel relative to wholesale as a result of the higher selling prices. SG&A was $76.8 million or 28.9% of revenue compared to $62 million or 29.7% of revenue in the third quarter of fiscal 2017. The $14.8 million increase in SG&A was driven primarily by operating costs to support the growth of our direct-to-consumer channel. Combined these activities led to an adjusted EBITDA of $94.7 million compared to $66.1 million which represents year-over-year growth of 43.2%. With regards to tax expense, the effective tax rate in the quarter was 27.2% compared to 26.6% in the third quarter of last year. The increase in tax rate was primarily driven by the non-taxable unrealized foreign exchange gains and the timing of taxable income in jurisdictions with different statutory tax rates. I would like to touch on the tax reform recently enacted in United States. It is important to note that we operate in a number of jurisdictions and the majority of our taxable income is not in the United States. In isolation, the reduction in the U.S. corporate tax rate is beneficial, but there are number of other considerations. We now expect our combined annual effective tax rate to approximate a low to mid 20s range in fiscal 2018. As you know, there are lots of moving parts driving effective tax rate and they can change significantly and unexpectedly. On an IFRS basis for the quarter, we reported net income of $62.9 million or $0.56 per diluted share based on 111.6 million weighted average diluted shares compared to last year’s reported net income of $39.1 million or $0.38 per diluted share on 1.8 million weighted average diluted shares. On an adjusted basis, we reported net income per diluted share of $0.58 for the quarter compared to $0.44 per share in the same quarter of fiscal 2017. Purchases of property, plant and equipment were $19.9 million compared to $15.2 million in the third quarter of fiscal 2017. Spend was primarily driven by the expansion of our corporate head office, investments in manufacturing and preparations for new store openings. Now turning to the balance sheet, working capital was 155 million, an increase of 10.6 million versus the third quarter of fiscal 2017. Total debt, net of cash was 80.6 million compared to 162.7 million in the third quarter of fiscal 2017, pro forma our initial public offering. As you can see in these numbers relative to last year, the growing contribution of a direct-to-consumer channel, which has a shorter cash conversion cycle is made the seasonality of our working capital and leverage levels less pronounce. Before ramping up, I’d like to take a moment to address the announcement this morning and Dani’s comments regarding my retirement at the end of the year. It has been a great honor to be part of Canada Goose and I’m so proud with the many accomplishments of our team, many accomplishments our team is achieve. I can't think of a better company a group of people to work with. I also want you to know that I remain deeply committed to both my role, my current role and in the transition support thereafter following the appointment of Jonathan Sinclair. Jonathan’s track record is a business leader and financial execute speaks for itself. He’s a great addition to our team and I look forward to working with and closely to ensure a smooth transition. Now I would like to turn the call back to Dani for some closing remarks.

Thanks, John. Clearly, we are all very pleased with our financial results for this quarter and year-to-date and we trusted that you are too. Before we became a public company, the advice that many people gave me was that our first year was an important year to build credibility with our shareholders and other stakeholders. We know that every year is important. As we approach the first anniversary of being a public company, I am really proud that we have continue to run our business as we always have, executing a bold vision for the long term with discipline, which has enabled us to deliver great results. I’m excited about the season ahead and I look forward to sharing our full year results with you on our next earnings call. And with that, I will turn over to the operator to begin the Q&A session.

[Operator Instructions] Your first question comes from Mark Petrie with CIBC. Your line is open.

Hoping you can just give some more color about the performance in DTC and specifically of the new stores, but also the existing stores and how performance track after such strong openings last year?

We’re really happy with how DTC has worked, has performed. We, all of our channels, all the stores and our online sites have exceeded expectations, and we continue to be excited about how they perform and about the future prospects.

And I guess maybe, what are your most important learnings from the DTC strategy so far? And how does that affect your plans going forward in terms of types of stores, types of markets and maybe the pace of store openings that we can expect?

Well, we’ve learned a lot. I think that we learned that people still value experiences in store. We’ve learned that bricks are not dead. And at the same time, our ecommerce is very strong. So we’ve been very happy with both of those. I think that you could expect in terms of how that changes our plans, I don’t feel that our plans are materially changed at this point. I think you can expect us to continue to methodically, carefully and with the right discipline continue to open stores and access to our products in different markets at a similar pace that we’ve been going so far.

Mark, the other thing I add is that with respect to your question that whether there learnings, the biggest learning is that it validates our assumption I mean the stores exceeded our expectations and we’re also very pleased with e-commerce. So we feel good about where we’re sitting.

Your next question comes from Ike Boruchow with Wells Fargo. Your line is open.

I guess my question would be, when we look at the quarter it's obviously really great growth, but I am just curious. It seems like many partners kind of ran low on product and your own e-com site was running out of stock on some key items towards the end of December. So I guess Dani I think you touched on this, but how constrained was the business just simply from a supply chain and capacity standpoint this holiday? And maybe based on the wholesaler demand you have, is there a way to think about maybe potential sales that were left on the table or demand you couldn’t feel to simply due to capacity? Just kind of curious, how you kind of would discuss that?

I think that we think about this differently that many companies. That's how I feel about it. I mean we are not afraid to be sold out. We are not afraid of -- we don’t think that it’s important that we have all of our styles in stock all the time and have never out of stock program. We plan our business carefully to bring the year both for our own D2C channels and our wholesale channels, and this is exactly we unfolded -- it unfolds the way we expected to unfold. So being sold out is to me and I think to our company being sold out is a good thing and it shows that there are lots of demand for our product. And we are not afraid to be sold out as you can see, our results speak for themselves and we are able to grow and at the same time as maintaining the desirability of our products.

And then despite that I mean the margins obviously were fantastic in the quarter and looks like your margins are going to coming really strong for this fiscal year. Are we still confident with, I think you targeted, this fiscal year you told us your annual target was 75 basis points of annual EBITDA margin expansion. Is there any comment on that? Do you still feel confident with that trajectory moving into next fiscal year?

We’re really happy with our performance. We only address guidance on annual basis and on quarterly basis, so we'll forward to talking about that in next year result.

Your next question comes from Lindsay Drucker Mann with Goldman Sachs. Your line is open.

I was curious if you could comment on how your conversations with your customers are going as it relates to the fall 2018 season? Maybe just any thoughts on what their carryover inventory looks like and how your fall order book is shaping up?

The way we started that we’re really happy with folks. We’re obviously as I mentioned earlier, our business is very carefully planned. We have very strong relationships with our wholesale partners and our conversations are going great, and we’re very happy with our coming for next fall and as we were last year, and we’re equally happy this year with that, and we’re feeling really good about next season.

And maybe you could touch on, as you think about the areas outside of your core assortment, where you’re investing into grow whether it sort of the light weight products or some assess outside of the other parka or Fusion Fit. What are some of the categories where you expect to see a big shift in terms of increasing your overall mix? Like what would be the focus in terms of incremental category that you’re growing for the fall season coming up?

We continue to focus on diversifying our core and on lighter weight categories, accessories, knitwear are all things that are important to us. There are strategic, I think it’s important to continue to hammer home our strategy, which is not to -- we’re not looking at these categories, especially new categories like knitwear, as categories that are going to drive material growth. We’re not relaying on them the growth of this business. We believe that the growth that we expect to see is going to come from the broad product assortment that we currently have, the 200 plus styles and geographic opportunities around the world. And we’re going to continue to focus on making sure we deliver the right expression of knitwear and other like categories to marketplace. And those categories, I think we can look at to be more material sometimes down the road.

Our next question comes from Brian Tunick, Royal Bank of Canada. Your line is open.

I guess maybe turning to spring, can maybe Dani, you talk about sort of number of new styles. Some of the metrics maybe you to share about holiday, maybe talk about some of the things you’re excited about this current season now? I think last year, you launched the lightweight product in a limited amount of wholesale partners, maybe just talk about the expansion of wholesale for the spring products? And then maybe, John, on the wholesale gross margin, can you maybe talk about what raw materials have that impact favorably on the gross margin there? And should we expect that to continue for the next year? Thanks very much.

Thanks, Brian. Our -- so spring knitwear for spring, this is our first spring season with knitwear. It’s in stores now and we’re excited about it. Our initial customer reactions we’re excited about it, and we think it’s going to do well. I think we’ll share some more color with you on the next earnings call about how that all went. But we are feeling really good about that. And I think that's your first question. To your second question with regards to wholesale gross margin, I mean, yes, there were lower materials. We had lower material costs And also our product mix play a role in that as well with more higher margin styles and more volume from those.

And regarding your question on materials, Brian, there were some different suppliers we brought in and they’ve been working well. So slightly lower cost, there was a currency impact that impacted the cost of materials in Canadian dollar terms. So that was part of the process. On an overall basis though, generally speaking, the materials and the overall cost of sales, we’re not seeing any significant movement up or down in the cost production per unit.

And then Dani how about spring outerwear? Anything you want to add to that conversation?

I think that last, well, yes, I think last year I think our assortment continues to get better every year and I expect to see that that will come true our results, and we’ll find out. The stuff is just hitting the floor now, but last year was, we added lots of new styles and really the rates where I described that the perfect expression of Canada Goose in the spring, and I think that this year I know that this year we've built on that and it's just in stores now. So, we're excited to see how that continues to perform.

Your next question comes from Oliver Chen with Cowen. Your line is open.

Regarding the new styles and as you seek to broaden and diversify the line. What are your thoughts about inventory management and supply chain and striking that right balance? And also, how should we think about your inventory versus sales trend and modeling that in the next few quarters? That would be really helpful? And then also we’d love your thoughts on awareness and the opportunity to build awareness in United States and update on the strategies you are focused on? And how you are thinking about the different kinds of markets because some markets I am sure you have lots of awareness, and how do you think more broadly about those markets where you have bigger opportunities?

The answer of your last part, I think -- I am not quite sure how many questions there were there. But I think that to address the last one first I think that our sales growth speaks to the growth of awareness across multiple markets, many markets in the world. Inventory is something that always a very important task that we manage really well. And I think it’s something that we always have managed really well. I think that one of the strongest part of our business model is that we have a lot of classic -- core classic styles that are always that they never go out of style. And so even to the extent that we may have carryover, whatever that is that we have a very, very minimal amount of discontinued inventory and that’s been true for many, many years. And we continue to work for that and monitor that.

Dani, do you think breadth versus depth is a topic in terms of how the portfolio develops? And how you should manage that between key items versus new items? And also the customer journey as the customer looks to you as more of a lifestyle brand, what's on your mind?

Yes, I think what important for us is that we bring the right products to the market and that means that every product we make is the best-in-class product. Our customers trust us, and they know that when they see a Canada Goose product, it's going to be a best-in-class product, and we never while let them down by producing something that didn’t meet those standards.

Your next question comes from Camilo Lyon with Canaccord Genuity. Your line is open.

I just wanted to delve deeper into the geographic comment that you have in your prepared remarks specifically in Asia and the demand you seen from that region in the consumer? Could you just talk about the China strategy you've alluded to doing some work and some strategic analysis of your entry into the market? Is that, should we expect store presence in fiscal ’19 in China? And how you’re thinking about entering that market from growth at e-com and DTC perspective?

Sure. I mean our China strategy is underway. We’ve got finalized it underway. We don’t have anything materials to announce at the moment we expect, that we expect for sure, that there will be, that it’ll impact the business in fiscal ’19. Somehow and we’re, it’s, until we have anything concrete to share, we can’t share anything concrete, but we’re really excited about the strategy. And we know that we have a lot of demand in China. And first and I think it’s a super exciting opportunity and we’re taking it very seriously.

Okay. Shifting gears a bit. Can you talk about the demand you’ve seen post holiday and your desire and your capability to meet that demand? And if you’ve been getting any reorders that you’ve been able to fulfill?

Yes. We’ve had some reorders for sure and as we usually do. And as you’ll note that we, you recall that we shifted $18 million last quarter into the quarter before it. And this quarter were only, were $3 million behind last year. So effectively, we generated $50 million this quarter of reorders, which I think we’re very happy about. And the reorder business is strong and continued.

And just to be clear that continued into January as demand from our perspective has not whatsoever?

I think we’ll talk about January next quarter, when we talk about January. But historically, you can look back last year and historically we continue to have, our stores continue to sell product in fourth quarter.

Your next question comes from Jonathan Komp with Baird. Your line is open.

I wanted to follow up a little bit on the inventory question, but more ask about your current capacity. Just wondering as you look forward to the year ahead given the pretty big increase in the unit demand, if you all be able to fulfill what you see going forward? And if you could just kind of tie in a current update in terms of your overall utilization for your company-owned capacity?

Yes, we’re very confident and we’re going to be able to deliver against all of our demand for next year and future years. Building manufacturing capacity is a core competency of ours. We have -- we have been long-term financial plans and we also have long-term manufacturing plans that go along with that. And I think you’ve seen us open facilities and build capacity as we need to. We’ve hired 700 people in the last year. Most of the manufacturing side of the business and we’re going to continue to do that. We do that through, we get around the challenges of finding skilled labor by opening our own training schools and teaching people, how to be able to manufacturing this product. And so, this is something that our operations team experts at, best-in-class, and we’re absolutely confident in our ability to meet demand.

And Jonathan just to your point about the in-house manufacturing, it’s really unchanged from our previous conversations approximately 70-30.

And then just one other broader question, I know Dani, you mentioned as you’ve had your stores open for a while now, you’ve seen customers from almost 90 countries. I think you only sell direct to globally in about 37 countries. So, how do you view that opportunity and kind of the balance between wanting to address more of that market versus not kind of getting ahead of yourself based on experience you’ve seen in your stores?

I think it just fixed at a long runway that we have and I know what's important. We want to make sure that we built distributors in that careful, thoughtful and disciplined way. And we see that a testament just, how much opportunity there is and then there is opportunity from different ways. And geographic is one of them and we will continue to be disciplined about. We don’t want to -- we’re not going to stopping discipline because we’re excited.

Your next question comes from John Morris with BMO Capital Markets. Your line is open.

Thanks, my congratulations as well, couple of quick ones here. I just wanted to make sure I’m pretty sure you guys already are, but as of the last call, you hadn’t actually even been selling the knitwear through wholesale yet. I assume you’re doing that now, correct?

We did actually sell knitwear through wholesale in a very limited way in fall, it wasn’t everywhere but it was through a few select partners and that continues for spring.

Two other quick ones back to back here, you've already got a question on China, but maybe Dani if you can share with this a little bit more color about the cross border pilot. What that is precisely how well it’s working so far and I guess what your next step would be beyond that? How does that kind of unfold? And then the other one really is also thinking globally here to the extent that you can talk about it plan for new country website as you look ahead next year?

Sure. I think so with regards to the China pilot I mean it is small initial pilot project, which is valuable for us. So, there are more about the market and the more recent learn and we can spend a lot of time learning lots of things to better. There are lots of examples of Western brands that have built meaningful business in China and we feel that we can be one of those as well, and it’s important to remember in a developing market like this, it's a long-term initiative, and we're focused on getting the execution, right. And so, the pilot is something which is we’re going to help inform that, and we look forward to how that goes. With regards to new sites and new sites around the world, I think that it’s our objective to ultimately cover the world and have our products available anywhere in the globe where our consumers may live and look forward to sharing more with you on that as we develop our plan for next year.

[Operator Instructions] Your next question comes from Simeon Siegel with Nomura Instinet. Your line is open.

Dani, do you expect the earlier shipment timing this year to impact the way you’ll ship the business next year. So just would you expect the seasonality of wholesale revenues to change all going forward? And then sorry if I missed it, but did you give any update on how the new e-com launches in-store openings compared to the initial launches? I am just wondering if you’re seeing a quicker sales ramp now than before as the brand awareness and appreciation grows?

So, I forgot your first question when I was listening to your second question. Can you ask the first one again?

Does the seasonality of wholesale change at all? The way you’ll book the revenues, the way you’ll ship them?

Yes. I know, understood. I’ll go back to a reminder that we look at our business on an annual basis and on quarterly basis. And so, overall this year, we were able to ship earlier and that was great. And perhaps we’ll be able to do that next year as well. Other way, it’s not going to, it may impact quarter-to-quarter next year. It’s not going to impact a full 12-month cycle. I think that’s the most important thing to take away from that.

And then, are you seeing any change in the launches? Are they’re going faster as you have stronger brand awareness?

We are very happy with the way our new stores have performed and we’re also very happy with our way our existing two stores have performed.

Your next question comes from James Allison with Barclays. Your line is open.

Dani, can you talk a little bit about the initiatives that you’re rolling at across your manufacturing sites to increased efficiencies? Like, or can you give a sense of how meaningful might be to growing your margin?

I’m not going to get into the specifics of how we’re doing that, that’s proprietary information. But, and state secretes if you will. But we continue to focus very heavily on our manufacturing efficiency and on building our in-house capacity. And it is certainly a core competency and something which I’m very confident.

And from a mix perspective, has the response to your newer products, knitwear and the spring resulted in reduction in the percent importance of your core parka for the winter and fall season?

Not -- no, I would say has not. We don’t want to at this point, we’re not looking to our new product, new category that we get into our strategic. And the way we look -- we look to them down to the material down the road, but not material out of the gate. I’ll give you an example. I’ll point you to our lightweight down, which we launched in 2012. Today, it makes up a much more significant component of our business and it’s growing very quickly. But that was 6 years ago that we launched it. And I think that you should, I would encourage you to think about knitwear the same way. And we feel that’s a right way to approach new products and not to count on them for, to make or break our year.

Your next question comes from Robbie Ohmes with Bank of America Merrill Lynch. Your line is open.

Just a quick follow-up question, I think you guys are still relatively underpenetrated on the West Coast, right, versus the East Coast in the U.S. Can you remind us kind of the multi-year strategy to bring that West Coast penetration up?

I think a lot has to do with product and the development of lighter weight products, developing them, wind wear and rainwear as well. We are definitely rolling in our part of the world and we expect to continue to be able to grow for the year, four years ago.

Your next question comes from Omar Saad with Evercore ISI. Your line is open.

Can you talk a little bit Dani as we kind of figure out kind of the growth and underlying demand from consumers for the brand? Maybe talk a little bit about some of the inventory shortages in your own stores and in the wholesale channel and online? If you can't give us an exact number, but talk qualitatively about the sales and what the kind of revenue growth trend would be, if you guys warrant things of discipline on inventory and were willing to chase sales little bit more aggressively?

I think that it’s very important for us to understand about our business is that we are not a commodity product we don’t want. We do not want to when we want to modify our brand and products that we make. And I think that others have done so by ensuring, they are never out of stock and doing so they also ensure that comes at times that about our products any more. I think that we don’t view this year as any inventory shortage or whatsoever. We in factor we feel that our performance has been spectacular and we’re very happy with our design working out next year at this point.

That’s really helpful, Dani. So maybe do you guys have a target kind of out of stock ratio that you look for? And does that stay pretty even year after year?

No, we don’t have target like that. We don’t imagine in that way.

Is it fair to say the out of stocks were similar year-over-year with percentage out of stock?

We don’t measure in that kind of way.

Your final question comes from Megan Annette with TD Securities. Your line is open.

I just want to follow up on the learnings from the expansion of the D2C channel. So clearly the result of validating your strategy there, but are there any regions that you are thinking about altering your style offerings in or the planned offerings as you go into 2019 and 2020? So just wanted to get an idea of how those learnings will really affect next in the product going forward?

Well, I don't like sharing our secret. I think that we have different regions in -- from which we can draw product both for wholesale and for retail. And so, we’re able to respond whoever the different demand is from any given region in a relatively flexible and robust kind of way. And I think that sums up how we respond to that. So, yes, we will learn from different regions where products are more supporting and allocate inventory to those warehouses that service those customers to reflect that.

There are no further questions at this time. I will now turn the call over to Dani Reiss for closing remarks.

Yes, so thanks guys, thank you very much for joining us today and for being with us on call and we really look forward to speaking with you in a few months when we report our year end results. Thanks again. We’ll talk soon.

This concludes today's conference call. You may now disconnect.