Good morning. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose First Quarter 2021 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 Bourke, Vice President, Investor Relations. You may begin your conference.

Thank you, and good morning everyone. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. After prepared remarks from Dani and Jonathan, we will take your questions. This call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement 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 these forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions is available in our earnings press release issued this morning, as well as in the Risk Factors section of our most recent annual report filed with the SEC and Canadian Securities regulators. These documents are also available on the Investor Relations section of our website. These forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of the statements. Our commentary today will include certain non-IFRS financial measures which are reconciled in the table at the end of our earnings press release issued this morning and available on the Investor Relations section of our website. Please note that there was a missing line item in the reconciliation table for adjusted net income provided in our release this morning. A full reconciliation is provided in our MD&A and this missing item will be updated shortly on our website. With that, I will turn the call over to Dani.

Thank you, Patrick, and good morning everyone. I hope that you're all doing well and staying safe. As you know, COVID-19 has changed the world in ways that we never could have imagined. We've seen countries locked down and economies put on pause, and only recently have they started to reopen. For Canada Goose, like everyone, we were forced to close but restrictions have eased and, as of today, all of our factories and all but one of our stores have resumed operations. I have long believed that adversity demands change, drives innovation and reveals winners. For Canada Goose, that has never been more true than it is today, as we begin to see signs of recovery around the world, heading into our most important seasons. We have met short-term adversity with deliberate and decisive action and at the same time we have rapidly accelerated long-term strategic projects. Last quarter, I spoke about our focus with some of the unknowns. We quickly responded by leaning into what we know to be true. And now, with another quarter behind us, our approach has been galvanized. While we face uncertainty we've focused on discipline and flexibility and where we see opportunities we've accelerated our strategic plans. In terms of uncertainty, we've set our sights on three main areas. One, managing cash flow, two, approaching wholesale with purpose, and three, maintaining flexibility with production. Going into Q1 we set an ambitious target to reduce planned cash expenses and investments by $90 million. With a tight timeline and a concentrated effort across every part of our business we succeeded in doing so. In the quarter, the cash impact of temporarily losing our revenue sources was more than fully offset by this savings initiative. Swift action has also been taken with distribution. As you all…

Thanks, Dani. Good morning, everyone. Thank you for joining us. Likewise, I hope you are all safe and sound. In one of the most challenging periods in our history, the first quarter was a strong confirmation of our agility and our strategy. We went back to basics. In an environment where cash is king, our only challenge was how to maximize our financial flexibility, and amidst of all of the unknowns were what were our highest conviction opportunities for growth. We have answered these questions and taken swift action. Despite the loss of nearly two-thirds of our revenue, cash used by operations decreased by $110.4 million relative to the comparative quarter last year. We successfully achieved our target to reduced planned cash expenses and investments by $90 million in a short three-month window. Total SG&A expenses decreased by 15.5%, sales were supported by inventory already staged, and payable terms were extended. Thanks to the initiative and resilience shown by our teams, we still expect to be meaningfully cash flow positive on an annual basis. Moreover, we have additional coverage from $329.4 million of cash on hand and undrawn borrowing capacity. There is also substantial latent liquidity through our evergreen inventory position. This will be complemented by the limited restarted production which is designed to add commercial depth in top performers, and new listing to drive brand heat before winter. By the end of the fiscal '21, we intend to normalize inventory levels, with the drawdown generating significant cash. We've also thought about where it's best to reallocate and accelerate our growth investments in today's environment. E-commerce, omni-channel and Mainland China are all long-standing pillars of our strategy. We have been building foundations around these for years. And the time to double down is right now. Adoption of digital shopping is…

[Operator Instructions]. Your first question comes from Ike Boruchow with Wells Fargo. Your line is open.

Hi, there. Good morning, everyone. Thanks for the question. I guess just on the DTC channel maybe Jonathan just talk about how many stores -- you talked about four in China, but just to clear up, how many stores are you planning to open this year? And then maybe at a higher level, has the pandemic or anything you've noticed in your retail operations in the past several months changed your longer term thinking around what your winter order book can look like? Thanks.

Well, good morning. The -- from a fiscal '21 point of view, we are expecting to open seven stores this year, four of them in China, three elsewhere, a couple in -- here in North America and one in Europe. The -- from a longer term point of view, we still see physical stores as an important part of our armory but also this is something that we're going to keep under constant review as the situation continues to evolve. What is clear is that the online well, is becoming increasingly important and that's core to our DTC strategy and indeed, where it started.

Hey, Ice, thanks for your question. I think that there's a couple of points I want to make that I think are important. One is to remember that our store footprint today is still a very modest and small store footprint unlike many other brands. And so we still feel that there's opportunity to open stores in top shelf locations around the world, and we use those opportunity to plan to. I also want to point out, and once again, I'm very excited about is the fact that we're focusing our store openings in China, I think that as we all know, global tourism is going to be affected this year and a lot of global tourists come from China, and I think this year a lot of those tourists are going to take their vacations in country. I think everybody from every country is likely to take their vacations closer to home, and I think that the fact that we're going to be able to open four new stores in fantastic locations in China to service Chinese tourists in China, I think it is going to -- I think it will give us a ton of momentum going into year -- going into our [indiscernible]. I'm very excited about what that can do for us.

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

Just wanted to follow up that discussion about lower wholesale sales for the year in terms of your outlook. Could you maybe just reconstruct a little bit more what you're expecting within that assumption just thinking through the shifts that you mentioned versus lower demand in total? And then can you touch on what you expect for your distribution or door account given some of the closure and any intentional actions that you might take? Thanks.

Yeah. Thanks for the question and -- yeah, I still -- the wholesale, as we -- earlier in the year, we slowed down our wholesale shipments and now we're slowly and was stuck on the business in general. And now, we're taking a very careful approach to reopen it back, and so we have some very strong wholesale partners that we're very excited to work with. They're very excited to work with us and they see us as a company as a brand that's going to help drive their business and drive their recovery. And we're going to take it step-by-step and day-by-day. Now, we are -- we're prepared for anything that comes our way. Now, we're prepared to lead in with the chance that the customers have to do their job, perform really well. We have enough inventory to chase orders as we did and we also have the ability to dealing with our own D2C. So we got a number of levers open to us and we're actively managing the channel and that's the most important thing.

Inevitably I think that it makes some of them much more in-season relative to what we've seen in recent years. Now, historically, as you know, we've been drifting more and more to the left. And this year is going to be a shift back towards the right because of the environment we're in. While we're not providing the financial outlook, but presumably the decrease is in the first half, will be smaller in the second half.

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

Thank you for taking my question. Good morning. I wanted to ask a follow-up on your manufacturing and supply chain, especially the commentary around you're going to be running at a third capacity this year. In pre-COVID, you guys were kind of transitioning to do more vertical manufacturing, in-house manufacturing and building up inventories to make sure that transition went smoothly. Maybe you can help us update that narrative where you are on production, the pullback you're obviously executing this year? And then where that leads you in terms of newness? Do you have enough newness in the pipeline with only a third production this year? And that basically assume that the carryover kind of evergreen product from last year will be prevalent in stores online this year? Thanks, guys.

Yeah. Hey, thanks for your question. And yeah, we're manufacturing. So what we are manufacturing right now? As we restarted our production, we are remanufacturing a lot of the newness that we have planned for this year and there's a lot of exciting stuff coming up. We also have stage inventory that were manufactured last year for this year, which is what -- which really has put us in a really fantastic inventory position and we're very happy with the position that we're in because we both have what we need and we have -- got what need and we have the ability to be flexible and make more if we need to or to pull back if we need -- that if we need to. At the same time, our factories continue to manufacture PPE for the Canadian government and we feel that's a very important mission as well. So overall for us manufacturing, we feel that our flexibility and inventory positions us in a really, really good place.

Your next question comes from Adrienne Yih with Barclays. Your line is open.

comp:

So I think as we think about Q1, obviously that was a relatively small variant in the -- for e-commerce demand and always has been, but I think it's more accentuated now. And by now we're now mobile. And so as our seasonal governance grows, I think that's going to be very important for us, that's also where we're going to see the initiatives coming online, whether we're talking about cross border or omni-channel. And that's going to make it a more important source of revenue as we go forward.

If I can just add on a little bit to what Jonathan said. Obviously, with all those points, I think that also, for us, we were able to maintain and retain our levels of e-commerce performance. At the same time, we are also able to ramp -- we stayed full-price and that's really important. I think that in times like this some brands attempted to dilute the value of their brand and I think the most -- the most important thing for a brand right now is to just stay strong and to stick to their brand, and we're a full-price brand. And many brands were promotional. I mean promotional brands became more promotional and we did not. And I think that to be able to do that in this environment and maintain our e-com performance I think is a -- I actually think that's an excellent outcome and I'm very happy with it.

Your next question comes from Sam Poser with Susquehanna. Your line is open.

Good morning. Thanks for taking my question. Can you -- so I'm going to put three together. Do you have -- can you give us -- what -- can you give us some idea of how big your e-commerce business was last year? And I know you don't generally do it, but we're in very unusual times to just to help us out. Number two, to what degree do you foresee wholesale business? I know you don't want to guide, but what degree do you see the wholesale business down in the second quarter? And can you give us sort of more defined -- more definition of what you mean by purposeful wholesale growth?

So the -- taking the wholesale piece first, I think, that's pretty important to us as a business. But I think what we are expecting to see that is, is a transition to something of a more in-season model. This is not something that we've seen in recent years where it's been run on more traditional lines and I think that piece is particularly important when it comes to the way in which we run that business. When it comes to what purposeful wholesale is about, we've always talked about wholesale as being brand accretive and the importance of that is that we are, therefore, either reaching into locations which is critical for the brands being for distribution purposes or because it reaches locations where a physical presence is needed and where we are today to open our own stores.

Okay. Your next question comes from Kate Fitzsimons with RBC Capital Markets. Your line is open.

Yes. Hi, guys. Thanks for taking my question. I guess, certainly understanding you don't have a crystal ball, but I guess when you think about the productivity rebuild in your stores, looking out in the next, call it, year-and-a-half, how are you viewing that just given the importance of global tourism to your store base? And, I guess, just an extension of that would be when we look at channel margins, historically retail margins, kind of, settling in at the mid-50s on an EBIT level, wholesale in the mid-30s, how comfortable do you feel with that profile over time just given what is likely to be a floater with lower productivity rebuild? Thank you.

Yeah. I mean, it's important to think that many of our stores only just reopened. Clearly, we have something of a more of a track record in Mainland China. But outside of that they've literally just reopened and therefore, you're trying to read a track in a very quiet time, in any normal year, let alone in a year like this. And as I said in my prepared remarks, we've all seen slow starts with significantly lower traffic in and around our locations and they all -- and that traffic is a fraction of normal levels. But then at the same time, I would say we saw that in China as well earlier in the year and that's continued to build steadily since, and it's continuing to grow. So I'm -- from that point of view, I feel that the trajectory of the sales is very much as expected. From a margin point of view, once we are through this, I see no reason why it doesn't return to where it was because, honestly, the model remains the same and we continue to experience even in these times good sales density, just not at the levels that they were at prior. And, therefore, the underlying model that produces high contribution margins at the channel level will return in our expectation.

Your next question comes from Michael Binetti with Credit Suisse. Your line is open.

Hey, guys. Thanks for the help here. So just a couple of modeling questions and I had a bigger question for Dani. On the gross margins in D2C, I know you reported 82.7, but they were, I think it was closer to 66, 67 if you exclude the duty recovery you mentioned from last year. So for a smaller quarter, I guess, that usually it doesn't matter. But it seems a little bit lower than what we normally see out of the D2C, anything there that carries forward to the DTC gross margins in 2Q and 3Q that we should be aware of? And then same on wholesale for distributorship was 1,000 basis points drag. I'm wondering if there'll be any impacts from that in 2Q and 3Q that you can foresee, just how you see in the next going forward? And then, I guess, Dani, on the footwear launch, obviously, it's a few years away here, but can you give us the size of the market, do you see -- the TAM you see globally, what you're looking at and maybe what the unmet need or slice of the market is that you think introduce the service so attractive its unmet today?

So thanks, Mike. Well, couple of very important questions. And these are relatively straightforward answers in the sense that the underlying pricing model that exists in this business is no different this year than it has been in any other year. You have two factors affecting the margins in Q1. There's a little bit around product mix. You recall last year it sort of leans in a little bit more to newer categories, and that's no different. And therefore, that makes it a slightly lighter margin. But the fundamental is we're dealing with the law of very small numbers. And it takes next to nothing to move the margin several percentages in terms of accounting adjustments, so nothing to be concerned about that. And the same answer for wholesale in a different way in the sense that when you're only shipping to, predominantly to these distributors, the margins are bound to be lower and that's what you're seeing, and then it bounces back later on. So the -- but the underlying economics and the underlying pricing model in the business is no different this year than it was last year and, therefore, the margin should -- it should normalize.

And I'll take your footwear question. And I'm very excited about footwear. And we're going forward, we're very much doing it our own way. And as always, we always aim to make best-in-class products and this is no different. There are many relevant footwear brands in the world today with eight, nine figure businesses, so obviously category is very large and we take the opportunity seriously, we're excited about it. I want to focus -- well, what I'm focused on is building the foundation for an enduring franchise in this the long-term all the way. And so we're all looking to start to generate large numbers or material numbers in the short-term, but rather to long-term. Anyway, long-term I see it to be very material when we commercially launch level so, therefore, level when we commercially launch level our limited, our focus selection and intention is to building a pull model and create a market for lasting success in this category.

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

Thank you. Your comments about non-parka products resonating is interesting. What do you see happening there over time in terms of the consumer response now and how you're planning on? And are there implications for how your overall average unit retails and/or margins may trend as you look at that really nice market opportunity? I would also love your thoughts on the cross-border expansion of e-commerce and how that interplays with the model as well as timing and impact and inventory planning? It sounds like another big opportunity.

Thanks, Oliver. Yeah, those are two big opportunities. And spring products are -- and offseason products are performing very well. We have a lot of newness and we've big opportunity in the category. I think that we're seeing -- like as a percentage of our overall sales, I think that it will all -- the -- I think that it has the opportunity to grow the percentage of our overall sales and much like the category that they're down over time have, we started small and they've grown to become material percentages, I think this -- these categories the products -- these are right products I think we have the same opportunity and we're very excited about it. I think that in with regards to cross-border also have very good opportunity and, you know, one, where we're going to open up our wholly-owned e-com platform, they're going to be opened up to many other countries in the world this year and the opportunity to drive that is -- and to realize revenue through the channel is exciting.

Your next question comes from Alexandra Walvis with Goldman Sachs. Your line is open.

Good morning. Thanks so much for your color and thanks for taking the question. Two questions from me. The first, you mentioned some newness coming into the collection for the fall, I wonder if you could comment on anything more specific there, anything you're particularly excited about or, perhaps, how you see the volume of newness in that holiday period as it compares to prior years? The second question is a high-level question on how you're thinking about the strategic choices in the U.S. and Canadian businesses, as tourist spending is likely to be subdued probably for some time and how that's changing how you're thinking about the business.

I'll take the newness question. Alexandra, thank you for asking it. We've -- as every year we planned a lot of newness into our collection and a lot of exciting new styles and collaborations, guest designers and reinterpretations of old fabrics as well as new styles that are going to be coming in and new colors that are going to be coming in. Now, and that -- those are -- that typically drives a lot of strong consumer behavior if new consumers and also with existing customers that want to acquire the latest and greatest from us. So we're fortunate that because of our manufacturing flexibility, we're able to get into that and manufacture the products that we have designed for this year and that we intend to merchandise in our stores and we're very excited about it.

Then when it comes to our business in North America, one of the important things to consider is that we are still relatively early in our DTC journey in North America, and we've deliberately built business not just around international demand, but also around domestic demand. And we are, therefore, obviously leveraging the domestic consumer much more these times, and that's the focus of the work that we're doing whether it's around omni-channel, the end of style, or whether it's around outreach programs for consumers as we develop the businesses in the individual stores. Now, we still have a very strong addressable market in North America and that's something that we expect to continue to drive the economics of the business.

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

Thanks. Good morning. So you guys talked about investments. You just mentioned the increased investments in omni-channel and the style. I'm wondering if there are other initiatives you're taking on to specifically invest in market share gains, maybe more so than what your competitors are doing with on the advertising front since you're clearly maintaining full price. How do you plan to take advantage of your capital position to really go after market share gains? And then as a follow up to that, I think, Jonathan, you talked about SG&A cut that you had in the first quarter, some of which were thrown in. If you could just quantify how you think about the permanent reduction as the year progresses, that'd be great. Thanks.

Hi, Camilo. Thank you for your question. I'm afraid I'm not going to give you the other area two straight -- two direct answer to this. I don't want to give away our trade secrets but we absolutely have plans to leverage our e-commerce platform and other assets that we have to drive revenue this year and I think we're going to be able to do that, but to be able to tell you exactly what those are would be unfair advantage for competition. So I can't quite go there today, but I'll let Jonathan to answer the rest of your question.

So I just build on one thing Dani said which is the ROI is a clear focus for us in what we're doing in terms of how we're reposting on marketing -- our marketing investment. I think that's pretty important to all of this.

Your next question? Oh, sorry.

Sorry. Just hold on a second. And we will answer the last part of Camilo's question which was regards to SG&A.

Yeah. So the SG&A trend that being down year-over-year is something that I think we'd expect to continue. Obviously, there are some one-time components. But we think it will be meaningfully down perhaps not as much as it has been in this quarter, but certainly lead on it and as we go forward. This is something where we enjoy a high level of flexibility and, therefore, where we're able to choose what we spend quite carefully.

Your next question comes from Mark Petrie with CIBC. Your line is open.

Yeah. Good morning. Just given the increasing focus on the opportunities in Mainland China, I just wanted to ask about your level of satisfaction with the operating partnerships there both store and online. Also, how you think about your own infrastructure and operations and potential opportunities with that and also how you've adjusted your marketing approach given the shift in travel and shopping patterns? Thanks.

Thanks for your question, Mark. Of course at that time we're great, in other words. I mean we feel that we will find the right way from the start, you know, we look China -- in China with -- we was on the ground and Hong Kong and in Mainland China as well, and we brought great teams in both places, we have great partners in both places and our results in China have proven that to be true. So we're continuing activity in a sense that everybody in China -- like I mentioned earlier, the fact that many -- most of our new store openings are in China, which is quite further ahead in its recovery than anywhere else in the world, and world's largest luxury market and I think leave us in great stead. And last -- well, actually I feel I lost last part of your question, our marketing dollars. Yeah, I mean -- well, I think that my general point of -- and again, asking why have trade secrets from a general point of view in times like this? You know, when a lot of people are hesitant and pullback on marketing, I think it's an opportunity to build brand awareness and to lean into marketing. I think that how we do that will play itself out over the year. But we definitely are open and have all sorts of ideas and plans in terms of spending wisely and building our brand all around the world.

If I just add that what, just turning back to China, the quality of the real estate that we are acquiring, both in terms of the units themselves, the adjacencies, the locations are really quite exceptional. And for us to be achieving this relatively soon after our entry into that market, it's really testament to the brand strength there.

Your next question comes from Robbie Ohmes with BofA. Your line is open.

Morning, guys. Thanks for taking my question. I was just curious if we could get your thoughts on -- I love this shift to domestic strategy, but I would love to just get your thoughts on -- don't hold me to it, but just -- well, do you think the size of the luxury market in general is changing for the intermediate term? And I'm just curious how you're thinking about what the luxury market could look like in the back half of this year and in 2021? And then related to the domestic focus, can you give us some color on Canada versus the U.S. and if there's [indiscernible] concession in what you've been seeing there?

This is different compared to the luxury market. I think that our products have -- we make survival products, we make products that work on a function-first product and are lifetime investments. And at times like this -- historically we performed well because people have felt like buy -- and have felt like they are buying that and they're investing in it in a product that will last them for a long time and will work. Especially, as much really I think, in this time where people are looking to go outside more I think our products are perfectly suited for that, so -- and as it relates to us, I don't think there's any -- I don't think the market is shrinking, if anything, I think it's growing. I think that...

Yeah, I mean -- and I think as we look forward as to like how this is going to evolve, you know, obviously, none of us really know. But I think the disruption this year it is probably likely to be more marked than as we look forward, but equally that's why we're having a focus on serving our consumer in their own market problems and then when they travel. I think when it comes to North America, we've seen good pickup in both north and south border and in terms of Canada and the U.S. But as I come back to the point, but that's with domestic consumption, not with international consumption in each case.

Your last question comes from Jay Sole with UBS. Your line is open.

Great. Thank you so much. I just wanted to ask you about what you meant by production flexibility. The press release it said that the company currently plans to produce roughly one-third of the fiscal 2020 output. Is their ability to produce more if necessary or less, if necessary?

Jay, thanks for your question, and the answer to this is yes, we absolutely have the ability to make more or less, we have the flexibility to change styles if we see one style is doing better than other style. So we really do have a lot of flexibility here. And that's why we built our manufacturing the way we did, and that's one of the competitive advantages that we enjoy and so -- and we will use that to our advantage this year.

Is there any way to, sort of, describe like the magnitude of the potential upside or if you want to flex it down this year if you see certain trends?

I really thought it would have specifically defines the order of magnitude. Other than to say thought we're -- I'm comfortable to -- we'll be able to manage whatever we need.

Okay. Thanks.

This is an extremely flexible manufacturing model where frankly, turning the weight up and down underneath it in times like this is a very straightforward process for us.

Now, I would like to turn the call back over to Dani Reiss for closing remarks.

Very well. Thanks so much. Thank you-all as always for taking the time to be with us here today. We very much appreciate your interest and support of our company and Canada Goose says that stay safe, first and foremost, do well and we look forward to speaking to you again soon. Have a great day.

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