Canada Goose Holdings Inc. (GOOS) Q4 2018 Earnings Report, Transcript and Summary

Good morning. My name is Casey and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Q4 and Full Year Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, 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.

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 fiscal year 2018 performance and then review the priorities we are focused on in fiscal 2019 and longer term. Following this, John will provide details on our financial results and outlook. 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 including plans for our business and our fiscal 2019 outlook. 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 SEC and the Canadian Securities Regulatory Authorities and is also available on the Investor Relations section of our website at canadagoose.com and in the earnings press release that we furnished today under the heading Cautionary Note Regarding Forward-Looking Statements. 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 measures referenced on this call are reconciled to the most directly comparable IFRS financial measures in a table at the end of our earnings press release issued this morning, which is also available in the Investor Relations section of our website at canadagoose.com. With that, I will turn the call over to Dani.

Thanks, Patrick and good morning everyone. Fiscal 2018 was a great year for Canada Goose and I am really excited to share with you our results today. We have continued to drive amazing results across every area of the business. Team is full of passionate people who are overcommitted to achieving our board purpose and once again they accomplished a staggering amount this year which has set us up for a very strong fiscal 2019. Here are just some of the highlights from this past year. We are bringing more Canada Goose to more of the world. We grew annual revenue by 39.7% in the United States and 52.6% in rest of world. Canada, our most developed market and our home market, also had a very healthy 47.5% growth rate. Our DTC channel reached $255 million in sales and 43.1% of our total revenue. We have built this from scratch in just under 4 years, while also growing wholesale faster than planned. This is unprecedented in our space. We are going deeper and driving growth with the world’s best retailers by collaborating in areas like merchandising, creative content, customer events and experiences we are building a better brand awareness and affinity while driving traffic and full-priced sell-through. Alongside the continued growth of our longstanding parkas styles, we have broadened our fall winter and spring collections and we successfully introduced knitwear, our first ever non-outerwear category. And lastly, we continued to invest aggressively in our capacity. We successfully on-boarded over 700 new manufacturing employees in Canada in 1 year and as a result in-house manufacturing has risen to 35% from 30% as a percentage of units produced, while also growing total unit output significantly. These strategic achievements also drove outstanding financial performance across all of our key metrics. Total revenue increased by 46.4% to $591.2 million. Adjusted EBITDA margin expanded 517 basis points to 25.2%. Adjusted EPS per diluted share grew by 95.3% to $0.84 per share. These results say a lot about global demand for our products and about our ability to execute on that. Going back to the 3-year plan we presented last year, we delivered and exceeded all of the margin expansion and EPS growth we guided to in a single year. Going forward, we continue to believe that we are just scratching the surface of our potential across all of our growth strategies from market development on a global scale to product expansion and operational excellence. This is reflected in our revised long-term outlook which has higher revenue and EPS growth rates off of a significantly larger base to start with. Much of the success we have had this year goes back to the decisions and investments that we made many years ago before we were a public company. I have always said that a great idea without great execution is just someone else’s success story. Without the right infrastructure and people in place, great execution just doesn’t happen. Our focus isn’t just on what our needs are today, tomorrow, next month or next season, but as importantly, 5 and 10 years from now. As we continue to execute on our growth strategies we are resolutely focused on driving sustainable results the right way. We will always continue to make long-term decisions.I am really excited about what’s to come for fiscal 2019. It’s going to be another year of growth and exciting, strategic investments for Canada Goose and we are well on our way. So with that, here are some details about our few key initiatives we are undertaking this year. The first is about our expansion into China which we publicly announced at the end of May. We have experienced strong demand from Chinese consumers abroad for years and we are eager to meet that in-market opportunity directly. We have always done things differently at Canada Goose and it’s probably helpful to start with what we aren’t doing in China. It should not come as a surprise that for us, driving success is not about throwing everything we can at a hot market just ahead of big year one revenue number. it is about capitalizing on immediate demand, while also making investments to put the right pieces in place to build a sustainable business and lasting brand affinity in arguably what is the world’s most important and growing luxury market today. Balancing the attention of being a global brand with our ability to execute locally is crucial. From day 1 of our planning process, it was a guiding principle that we would not be managing the Chinese market from Canada. Based in Shanghai, our regional head office will be a self-standing cross-functional business unit with local expertise and capabilities in marketing and commercial operations, while support staff and IT, finance and human resources. We are building out this team as we speak and we expect to add 14 to 16 employees by the end of this year. Moving to our DTC strategy, in e-commerce, we will be transitioning from our Chinese cross-border pilot and re-launching on T-Mall’s luxury pavilion of curated premium brands which we expect to occur in the third quarter. T-Mall has the right capabilities to deliver on our vision for digital experience with a deep commitment to brand protection. We are very excited to have a dedicated prevalence on the platform where our fans can easily find authentic Canada Goose products. For our 2 stores we will be partnering with ImagineX, part of the Lane Crawford Joyce Group, who have a great track record in helping to build a wide range of leading global brands in Greater China. Important to note that in our case this is not a joint venture franchise distributor or licensing agreement. For a fee tied to sales volumes and store contribution we are benefiting from very expensive local operating expertise. We will have overall control of leases, stock and overhead, while ImagineX will be responsible for managing day-to-day store operations. Our first 2 stores will be in Hong Kong and Beijing, Hong Kong at 3,000 square feet will be located at IFC Mall, which is part of an iconic sea landmark and world class retail destination in the heart of the city. Store in Beijing will be a larger 2 store location at just over 5,300 square feet at our prestigious Taikoo Li Sanlitun North Mall. Lending the archive with local inspiration, these stores will be in keeping with the great experiences we have created in our other stores, a place for our fans to discover our latest collections and dive deeper into our 60 plus year heritage with the help of high-touch personal service. We expect both stores to be in operation with the onset of the peak winter selling season. How and why we are working with our various partners is also important? With a high level of awareness and demand already established and increasing, we can and should be controlling our own destiny in China. Also recognized the importance of speed to market, local expertise and consumer preferences, which is why we are working with experienced world class operating partners to compliment our efforts in the DTC channel. By working with a network of partners that we have chosen, we have hit the ground running. Lastly, we are also continuing to expand our wholesale footprint in Greater China, which we have operated on a smaller scale for the last 6 years. Retail partners like Lane Crawford and Galleria Lafayette, we will be working closely together to build even greater awareness and educate consumers who already know about our product, but not about our full story, while driving traffic and also creating exceptional experiences. We are really, really excited about China, but I want to make it clear that it is one opportunity among many. Now, all of our geographies, including our most developed markets we believe that we have significant runway to strengthen brand affinity and expand customer access. As an example of this which we probably saw this morning is that three other new retail stores that we are opening in North America in Short Hills, New Jersey, Montreal and Vancouver. In the past 2 years, we have seen an amazing impact our retail stores have on local market activation. Building on the successes innovating for the future, we are excited to continue bringing our authentic brand experience unfiltered to our fans in world class retail destinations. IT is another area in our business where we will be making significant investments this year. To be clear, what we have in place today is supporting us well. What we are investing in now is about getting ahead of longer term infrastructure and business process needs. These include incremental upgrades to our ERP system to enhance financial reporting workflows into more easily address public company reporting requirements as well as our transition from a shared environment to an in-house solution for order management, which increases our ability customize to specific for our e-commerce business. We are also making significant improvements to our commercial planning tools, digital customer experience, especially cybersecurity. In order to appropriately support these efforts and our longer term roadmap we will be doubling the size of our IT team. Moving to manufacturing, one of the most frequent questions I get asked is do we have the ability to scale as we grow? The answer is the same as it has been for many years which is yes, building capacity is a core competency here at Canada Goose. I am happy to announce that we will soon open our third factory in Winnipeg, which will be our largest single production facility in Canada leveraging the lean and flexible manufacturing principles that we have developed in recent years, it will be built out in two phases over the next 3 years and we expect and we will be able to produce all of our down-filled jacket styles. We have scaled up our local workforce and we have opened a second [indiscernible] in the city to support the growth of this facility. Looking back when we first started in Winnipeg in 2010, it’s amazing to be in a position where we will have 3 thriving facilities in what was very recently considered a dying industry. We are all really proud of what we are doing in this community and the broader Canadian apparel manufacturing industry. Many people, the jobs we are creating are way back into the workforce or their first employment experience as a new Canadian. We are offering a great place to work investing significantly in people’s skills and providing them with meaningful long-term career opportunities. Finally, I would like to speak briefly about our team. With John Black’s upcoming retirement, Jonathan Sinclair will be with us as Chief Financial Officer when we report our next quarter. I am so grateful for John’s great service and that he will be staying with us as a strategic advisor until year end to support the transition. I am also looking forward to having Jonathan on board. Jonathan and I have gotten to know each other really well and he will be a great strategic business partner who will add a lot of value to this business. With that, I will now turn over to John Black to review our financial results in more detail, give you an overview of our fiscal 2018.

Thank you, Dani. Good morning, everyone and thank you for joining us. Dani mentioned we ended the year on a high note with another year of exceptional growth. Before I go through the numbers in detail, I would like to remind you that our results are stated in Canadian dollars. For fiscal 2018 as compared to fiscal 2017, total revenue increased by 46.4%, $591.2 million, with strong execution across our business. On a constant currency basis, total revenue was up 47.7%. Total consumer or DTC revenue grew to $255 million from $115.2 million representing 43.1% of sales. This was driven by growth from existing stores in e-commerce sites and incremental revenue from new units. Full fiscal year of operations for Yorkdale and Soho also contributed positively. Wholesale revenue increased by 16.5% to $336.2 million with strong order growth from existing accounts and higher reorder volumes late in the year. Consolidated gross margin expanded 628 basis points, 58.8% from 52.5%. This was due to a higher proportion of DTC revenue partially offset by higher inventory provisions. In our wholesale channel, we saw gross margin expansion of 359 basis points, 46.9% from 43.3%. This was driven by product mix with a greater proportion of higher margin jackets. Lower materials costs also contributed positively. These benefits flowed down directly to wholesale operating margin driving an increase to 35.9% from 32.7%. In our DTC channel, gross margin declined 105 basis points, 74.4% from 75.5%. This was more than offset by SG&A leverage with DTC operating margin rising to 52.8% from 51.7%. And in mid-70s level, we continue to be pleased with our DTC gross margin. The variability year-over-year was primarily due to product mix in off-peak periods. We naturally had a greater proportion of lighter weight jackets and products relative to our parkas, where we have the highest volumes and efficiencies. I would also stress that these sales represent significant incremental gross profit dollars. Total SG&A was $200.1 million compared to $165 million. The $35.1 million increase was primarily due to higher retail and corporate expenses. There was a partial offset from lower share-based compensation and initial public offering costs last year. Adjusted EBITDA increased by 84.1%, $149.2 million. This represents 517 basis points of margin expansion to 25.2% from 20.1%. With regards to tax expense, our effective tax rate was 23.3% compared to 25.3%. This was due to lower share-based compensation expense and differences in taxable income across jurisdictions. On an IFRS basis, we reported net income of $96.1 million or $0.86 per diluted share compared to $21.6 million or $0.21 per diluted share. On an adjusted basis, net income per diluted share increased 95.3%, $0.84 a share from $0.43 a share. Now, turning to our balance sheet, working capital was $167.4 million compared to $99 million. This was primarily driven by a $85.6 million increase in cash. Total debt net of cash was $51.4 million compared to $150.6 million. As you can see from these numbers, the shorter cash conversion cycle in our DTC channel has reduced net leverage levels. Moving on to our guidance for fiscal 2019, we currently expect revenue growth of at least 20%, adjusted EBITDA margin expansion of at least 50 basis points and growth in adjusted net income per diluted share of at least 25%. Notably, this assumes wholesale growth in mid single-digits and the opening of 5 new stores. As it relates to margin, we expect positive, but more gradual expansion due to SG&A growth in larger store base operating in off-peak periods. This also assumes a similar effective tax rate that we had in fiscal 2018 and 111.8 million diluted shares outstanding. I would also like to take a minute to discuss seasonality. As we have said since our IPO, our strategy is to control more of our distribution through the expansion of DTC channel. This drives revenue growth and higher margins, but it also skews sales and earnings towards the back half of the year. Relative to when we were predominantly a wholesale business, our financial results do not have the same quarterly concentration. As DTC continues to grow, we expect an increasing level of seasonality in our first fiscal quarter. Volumes in both channels are at their lowest point in this period and we have an expanding SG&A cost base. With continued store expansion in fiscal 2019, we also expect to see a higher proportion of sales and earnings in the third quarter. When evaluating our results in the coming quarters, it’s important to remember that we look at our business on an annual basis and we strongly encourage our shareholders to do the same. Looking back at this year in areas such as wholesale deliveries and quarterly profitability, it’s clear that there are significant short-term shifts. We don’t manage our business to smooth these out and that approach is not going to change. The decisions we make are always centered on what is best for our brand and our customers over the long-term. Before wrapping up, I would like to take a moment to address my upcoming retirement. Jonathan Sinclair will be with you as CFO on the next quarterly call. I look forward to working closely with Jonathan as a Strategic Advisor until the end of the year to ensure a smooth transition. It’s been a great experience to have worked with Dani and the team and to have played a significant role in the incredible success of Canada Goose. I have very much enjoyed getting to know you as shareholders since the IPO and I want you to know that I remain deeply committed to Canada Goose. Now, I will turn the call back to Dani.

Thanks, John. As I said before, we are very pleased with our financial results for fiscal 2018 and I will continue to believe that we have an amazing set of opportunities in front of us as we go forward. I am really proud that we have committed to run our business as we always have, because executing on both long-term vision with disciplined investment while delivering great results and shareholder value. I look forward to catching up with you all again on our next earnings call. And with that, I will turn it over to the operator to begin the Q&A session.

Thank you. [Operator Instructions] Thank you. Your first question here comes from Michael Binetti from Credit Suisse. Please go ahead. Your line is open. Michael Binetti from Credit Suisse, please go ahead. Your line is open.

Hi, guys. Can you hear me?

Hi, Michael. We can hear you now, yes.

Okay, sorry. So let me just add my congrats on the nice job hitting all the targets in year one there guys it’s great year. Maybe help us think a little bit ahead on your thinking on the 3-year timeframe and the new targets, previously you talked about mid to high teens revenues that would deliver about 75 basis points of leverage per year on the EBITDA margin. Now, you have got 20% growth plus it will deliver about 50 basis points than 15 after this. So I am willing to guess there was some philosophical change on how much to invest for growth, but would you mind walking us through the change in some of the differences over the next 3 years that you guys are looking out versus how you are thinking about the plan originally?

Yes. I think that last year we were able to accelerate our DTC conversion and a higher percentage of our sales than we expected ended up being DTC. And so we drove – we captured all of the adjusted EBITDA margin expansion and then some in 2 years – in 1 year than we expect in the 3 years. I think it’s important to remember that our business because of that today is very different than it was when we started fiscal ‘18. We have significantly exceeded our expectations and again we are starting with much larger numbers. So because of that in we expanded our adjusted EBITDA at the 570 basis points that beat our expectations by over a very wide margin. This year, we are planning responsibly. We feel that there is a lot of opportunity to continue to expand our EBITDA for 3 years and this year as well and we are going to take a responsible approach to how we plan to do that.

And I know you guys don’t typically go into much of the componentry of the margins, but it does seem like there is fairly aggressive SG&A investment planned in here, we can clearly hear in your voice how excited you are about China. Congrats on that. Maybe you could talk just a little bit about how you see the SG&A plan in the composition of SG&A going forward and maybe more specifically is there something unique about building out a new geography that’s a big change in the leverage of the investment model as you look out for the next 3 years?

Yes. I mean, our SG&A continues to increase obviously as we add store infrastructure and off – we add stores and that store costs of off-season costs, extra costs, but also the investment in the office in China is a massive – yes, massive part of that. So, we are going to be put a lot of investment into China. We think that investing for long-term is the right thing to do. In the short-term and mid-term, our margins in China we are planning for them to be slightly lower than our margins, our DTC margins in the rest of the world as a result of partner fees and the expenses related to that. So that goes into our thinking when we plan our numbers.

Okay, thanks a lot for the help.

Your next question comes from Ike Boruchow from Wells Fargo. Please go ahead. Your line is open.

Hey, good morning everyone. Let me add my congrats, Dani and the team, fantastic first year out of the gate as a public company. I guess I was going to piggyback on Michael’s question on China as opposed to profitability, just at a higher level, Dani, maybe could you just tell us why now in terms of why the company is making the decision to go more aggressively into China today versus last year, years past? And then maybe just again at a high level maybe frame the sales opportunity and how we should think of that region as part of the total company over time?

Yes, thanks Ike. So, why now? I think you guys and our investors and the whole community is asking me for last year when we are going to get into China and we have been working for the last year and then some on the right strategy for how to enter China and we have settled on the right strategy. We are very confident in what we are doing, why we are doing it and how we are doing it? And so that’s why now it’s the right time, there is a lot of demand in China for our products and we know that from a lot of different sources from studies that we do from in-store traffic that we have in our retail stores from web traffic and we have the capacity to deliver the units that we need for that marketplace. And so all of those factors combined, some of the reasons why this is the right time to do it and we could not be more excited and it’s really important also to stress that we are doing it in the right way that we are putting a regional headquarters on the ground. We are building a business unit in China. This will be run from China and that involves investment and a lot of investment in – also investment in marketing, China’s consumer today is very sophisticated, they are interested in real authentic products and real brands just like the rest of the world and we have to make sure we tell our story in the right way. The opportunity to speak to that, I mean, we believe the opportunity is massive. There is – obviously a lot of people in China at a growing economy. I believe it’s the world’s largest luxury market at the moment and it’s growing very quickly. So I think that the opportunity is very, very large.

Got it. And then maybe just one follow-up for your Dani or John, I know you have your direct-to-consumer segment and there is e-commerce in stores, I mean, you don’t like to give a lot of information on the stores specifically, because there is so few, but could you maybe just give us what the comparable direct-to-consumer growth rate has been last year and maybe what your thinking of the comparable DTC growth rate this year, just stores online everything altogether that might be helpful when we build our models?

Growth at China with regards to…

Just in general, just your total company?

Yes. I mean, based on our guidance, our FY DTC revenue growth rate is just under 40%.

Got it. Thanks, Dani. Thanks everyone.

Your next question comes from Brian Tunick with Royal Bank of Canada. Please go ahead. Your line is open.

Hi, yes, good morning. I will add my congrats to the team as well. I guess two questions. Hi, Dani. Two questions. Go Fed, by the way. So I guess first on the wholesale side, right, you guys are guiding I think for mid single-digit growth, you traditionally have very strong visibility, I think at year end into your wholesale growth. So, just curious and you can maybe talk about any changes to how your customers are buying ahead of the year anything like that on the wholesale side would be helpful? And then maybe John, a little bit on the shifts here for the coming year, particularly it sounds like Q1 that there is a decent amount of SG&A deleverage that you are expecting or at least will want the Street to think about. So maybe can you help us think about SG&A dollar growth or any other metrics really regarding Q1 that could help us frame the guidance? Thank you very much.

Yes, thanks, Brian. I will hit the wholesale question first. I mean, we did plan our wholesale last year in mid to high single-digits and we were able to outperform that. The reasons are there is a lots of demand, consumer demand and therefore retailer demand. And fortunately, our manufacturing capacity was to be able to keep up and more than keep up and we had goods to deliver to the marketplace and that’s why we are able to exceed our numbers. So, we are very happy to see that happen. And over to John for – take the next one?

Hey, Brian. I will give you some context for the profitability in Q1. First of all, I will speak a little bit about Q4 because it affects the phasing. Last year, Q4 represented about 13% of total revenue. This year it jumped to 21%, of course that’s a function of our DTC success and the fact that we are selling product in cold weather. If you come back to Q1, it’s still going to be a comparatively small proportion of sales, because it’s warm weather month. What that will mean is we will have our fixed cost SG&A costs continuing to go through, so you will expect Q1 to generate a materially larger loss in both adjusted EBITDA and adjusted net income as compared to the previous – so similar situation, we are building our fixed costs and it’s all factored into our guidance, but Q1 will provide a materially larger loss in EBITDA.

Thanks very much and good luck.

Thanks, Brian.

Your next question comes from Oliver Chen with Cowen & Company. Please go ahead. Your line is open.

Hi, congrats Dani and John and great results and progress. Our question was about the ER fee and order management and planning tools, how will that intersect with your inventory planning and thoughts on how inventory will pace relative to sales and inventory speed. It sounds like those are going to be very helpful products just to further align supply and demand? Thank you.

Yes. Really yes, they are going to be very helpful and they are very important investments that we are making ahead of the curve, but as I said earlier, our systems that we have today are working very well for us and want to continue to invest to be best in class and specifically on the OMS, it’s – it will allow us to do things like personalization and gift cards, buy online, pickup in store, buy in store, ship to home, seamless access to inventory, inventory availability for enhanced payment options, cross-border expansion and easier to integrate with other systems and things like that. So, it’s really going to be something that once it comes online for us, it’s really going to be able to help us accelerate our business.

Do you have thoughts on just making sure to manage risk as sometimes these changes can cause disruption if they are not planned carefully, so would love your thoughts on guardrails?

Yes, no question. I mean, yes, there is all kinds of stories out there about implementations that don’t work. We have been through many of them here at Canada Goose and we have learned some lessons along the way going back 20 years ago. And so we make sure that we are very careful when we make implementations. Our planning is thorough, very well thought out and I am very confident in the ability of our team to implement new systems, we will integrate them with the old ones at the same time until the new ones are ready to perfected and come online.

Okay. And Dani, just a follow-up on product, what we are seeing in the luxury market is this integration of Street and inclusivity and some big trends also around logo. What are your thoughts on your depth versus breadth your SKUs and also the democratization of luxury at large as you think multi-year innovation and how you will log your brand to continue to be interesting in relevant to new generations?

Yes, that’s the biggest thing for any company and any brand and any person to get right. I believe that today we are at the sweet spot and the intersection of performance and luxury and culture and we need to continue to stay ahead of that and we are doing that by – we have – through our collaboration strategies with different brands, we are doing that through putting into the marketplace different sorts of style with different details, different feature at different price points. It’s great to have our own retail stores that we can experiment with different things to see how they work. And we are using all these tools at our disposal to make sure that we remain relevant for decades ago.

Thank you. Best regards.

Thanks.

Your next question comes from Robert Ohmes with Bank of America/Merrill Lynch. Please go ahead. Your line is open.

Hey, Dani. My congrats as well. Great work.

Thank you.

My question is and I know you talked already about adding capacity, but maybe remind us with down prices going up and more competitors obviously trying to mimic you, looking beyond just the next quarter or two, how should we think about capacity, but also others coming in and bidding up your input costs and why we don’t need to worry about that? Thanks.

Well, yes, you don’t need to worry about it. Sure, all of our input costs are built into our guidance and to our costs. So, we have covered that off in that regard. I think I don’t believe there is not a brand like us. We have been around for over 60 years manufacturing investing in the hottest product, which is you use – is the coldest places on earth by people who live and work there and that authenticity is something that you can’t manufacture or makeup overnight. Our reputation is something I believe a brand is nothing, but their reputation, reputation is not something you could just create from overnight, you have to earn it. And as long as we continue to manufacture best-in-class products, which we haven’t always done and is our intention to continue to do, I believe that we are very well positioned and we are resolutely focused on continuing to do that.

In your access to down, there is no risk, I know you guys lockup your supply, but if somebody unexpectedly came in and really keep – is there any risk of short-term shortages of down is an example?

There is not, we are in a very good place with regards to our down-supply and I am not worried about it.

I will remind you that down is a byproduct of the food industry, so it’s readily available.

Got it. Alright. Thanks very much guys.

Thank you.

Your next question comes from Omar Saad with Evercore. Please go ahead. Your line is open.

Thanks for taking my question. Great results. I will add my congratulations. Dani, could you talk a little bit about, I am not sure if you addressed this, but the weather was obviously very favorable in the quarter in North America, I think Europe too was really cold. Do you think it had a big influence on the really strong sales results and maybe is that what your are planning for a year from now? And then I have a follow-up in the supply question.

Alright. No, I don’t think weather is a major factor. We have been growing now for many years in a row and we have grown through so-called perceived warmer winters, colder winters. And regardless of whatever the weather has been in any given year, we have always been able to achieve our targets and exceed them. And I think that if anything the weather these days is so unpredictable – the unpredictability of the weather is actually favorable for us, but again, I mean, the weather itself has never prevented us from achieving our objectives.

Thanks for that color. And then if I could just ask a follow-up on the supply question here, how do you think of it, is it just seasonal business and you are building really good high-quality manufacturing capacity owned externally in Canada. How do you think about managing that supply in seasonal business or you have the factories working during the downtime during the year when it’s not a seasonably cold? Thanks.

Yes. We manufacture in all of our facilities once a year. We are always – our planning teams are essential for that process and we are building inventory once a year, all of our factories and contract facilities as well.

Got it. Thanks. Great job. Good luck.

Thank you. Good talking to you.

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

Yes, hi, thank you. Dani, just a broader question looking back, I think looking at the full year 2018 revenue versus the original range you had contemplated, you showed more than $100 million of upside versus the original plan? And I just want to ask when you look back maybe if you could help attribute some of the areas that surprised you positively if it’s – more experience in DTC or if it’s some of the newer product categories or just broadly anymore color there?

Sure. I think the biggest one is the rate at which our DTC channel grew and the percentage of our business that it represents today and we are building our models last year and planning our year – last year. We did not expect that we would be able to grow our direct to consumer channel as fast as we did. And that’s obviously – it’s a great thing and we have a lot more runway in that department and this year we are planning responsibly and making sure we are not going to over-promise anything that we aren’t certain we can deliver on, but that said, we absolutely expect a lot of – we know we have a long runway and we expect continued growth in our direct-to-consumer as a percentage of our overall sales.

Got it. And just as a follow-up there on the DTC side given the over-delivery now having more experience than I think your guidance implies that it will be roughly 50:50 split in 2019 for wholesale versus DTC revenue. Do you have any updated thoughts on ultimately how high the penetration or what the right penetration is longer term for the DTC business?

Yes, you are correct, it implies roughly 50:50 split. And I think that there – we don’t have a definitive number. We say that this is where it muse be, there are companies, I don’t want to emphasize the wholesale, it remains important to us regardless of the number and it continues to grow as well. I think that I look at the companies out there to have 70% or 80% of their sales in direct to consumer and I see no reason why over time we can’t come close to those numbers as well.

Certainly helpful. Thanks, Dani.

Your next question comes from Camilo Lyon from Canaccord Genuity. Please go ahead. Your line is open.

Hey, Dani. My congrats as well and a fantastic close to the year. I wanted to focus on two topics. Your e-commerce business in China, so firstly, on e-comm, if you can just remind us on what that e-comm mix ended up for the year? That would be really helpful. And then more broadly, I think in the past you talked about opening up, I think in this past year, you opened up 7 new e-commerce countries, I think you talked about doing 6 more in ‘19 and 2 in ‘20. Have those out-year targets changed from the perspective of not more countries that you want to add to your e-commerce platform? And then I have a follow-up on China.

With regards, so question there on e-commerce mix, we don’t really break that out by country or by growing and we don’t breakout e-commerce versus store either, but the whole direct-to-consumer panel as you have seen continues to grow in both e-commerce and stores contributed to that growth. In terms of more countries this year, we are adding the biggest new country of China and we are adding that to our e-commerce mix this year and that is extremely exciting to us. We are not adding any new countries this year aside from China. Over long-term, we intend to have Canada Goose available to anybody around the world everywhere they live this year. We made strategic decisions to invest in other IT pieces of infrastructure and to leave some of the other countries online website to have future years.

Got it. And then I guess with China, can you just give us some maybe broad stokes on the structure of the partnership with ImagineX in terms of – it sounds like these are DTC sales minus a percentage of sales fee that is paid to them, maybe some articulation of what that percent is kind of broad ranges and also maybe the duration of this contract and for how long does that stay in place at that level?

Yes. For competitive reasons and for privacy reasons, we are obviously not going to disclose exact terms of the agreement, but the way the agreements are structured is exactly as you speculate which is a percentage of revenue and we built that into our P&L, that’s built into our guidance and that allows us to work with world class partners, ImagineX is a world class partner and they know how to operate stores in China and we feel that partnering with them absolutely de-risks our execution in China and we are really excited to be partnering with them.

Got it. Thanks a lot and good luck.

Thank you.

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

Alright. Well, thanks a lot guys. I appreciate the work during this call and for being a part of it. We look forward to speaking to you again when we report our Q1 results in August and all the best until then. See you down the road.

And ladies and gentlemen, this concludes today’s conference call. You may now disconnect.