Good morning. My name is Ashley and I'll be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Second Quarter 2021 Earnings 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. We ask that these are limited to one each to allow as many as possible to participate within the allotted time. 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. These documents are also available on the Investor Relations section of our website. The forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of 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. With that, I will turn the call over to Dani.

Thank you, Patrick and good morning everyone. Thank you for joining us on the call today. I'm really pleased to be here to provide you with an update on our performance for the second quarter, to reiterate our strategic approach and navigating the COVID-19 environment and highlight trends that we see across our business going into our peak selling season this winter. Like everyone, we continue to navigate the ongoing complexities in today's world and witness how the pandemic is reshaping the global economic landscape. As I said before, I believe that adversity, when viewed as an opportunity, thrive success. Building on that, I believe that the uncertainties that we have faced this year have sharpened our focus and made us even more disciplined and flexible. Our performance in this environment has reinforced my confidence in our business and our brand in this fiscal year and beyond. On our last earnings call, I spoke to you about our approach to navigating the global pandemic, namely, the way we see opportunity. We've accelerated our strategic plans to capture it. This approach is working and we're seeing acceleration across our business heading into our busiest season. And so, here's an update on the progress we've made on this front. First, our e-commerce business is accelerating. Second, our business in Mainland China has grown by over 30% this quarter. And third, our continued operational discipline has driven a return to profitability. I'm proud of the way our team has executed, particularly in light of such uncertainty and in such a challenging global environment. We've demonstrated the flexibility to execute against the strategic priorities we saw for our business, and our deliver and decisive action has driven strong results. Not only have we navigated the current environment, we reaffirmed our confidence in our ability…

Thanks, Dani. Good morning, everyone. Thank you for joining us. Reflecting on our progress in quarter two, there are three key things that stand out. Our two strategic priorities, Mainland China with e-commerce are leading the way in our recovery. Our high margin business model and our implemented savings initiatives are driving profitability and cash flow. And we're entering the peak season in an agile position. We are unlocking cash through inventory already staged while retaining commercial flexibility. Turning to the historical results, total revenue decreased by 33.7% to [$194.8 million]. In normal times, this is our largest wholesale quarter. Following [in a] total shut-off in quarter one, we gradually and carefully resumed shipments in quarter two, with channel revenue decreasing by 45.7% to [$118.5 million]. In the DTC channel, revenue decreased by 37.7%, [$46.2 million] in the seasonally slow period. This was driven by lower contributions from stores in North America and Europe in the early stages of reopening. As expected, traffic was significantly lower due to the pandemic. We also contended with reduced operating hours and limited occupancy levels. Within DTC e-commerce was a bright spot. We had double-digit revenue growth for the quarter with a significant acceleration in trend in September. We're encouraged by this positive momentum moving towards peak online demand in Q3. From a geographic lens, Mainland China was the first market to return to growth with DTC revenue increasing by over 30%. From a near total shutdown, only nine months ago, this is a powerful recovery. Foot traffic has normalized, the consumer is eager to spend and brand momentum is strong. In terms of profitability, the adjusted EBIT margin was 8.1% despite significant disruptions to the topline. Excluding not-for-profit PPE manufacturing, consolidated gross margin was 55.8%, 120 basis points higher than last year. We…

[Operator Instructions] Your first question comes from Oliver Chen with Cowen.

Hi, thank you. Good morning. The DTC strength in China was really impressive. How would you contrast that against the overall Asia performance, which was down around 15% and any details there? Would also love your views on – as we model inventory in the next few quarters, how do you expect inventory versus sales to trend, and the current status on freshness, it sounds very good? Thank you.

Right. So taking those in sequence, thanks, Oliver. First of all, our Asian business, of course, is broader than just Mainland China. Our Mainland China performance, as I've already described on the call, I’ve also described the headwinds we're facing in Hong Kong and the other components of our Asian business are about wholesale, where we've already said that there's a difference in timing. So between the difference in timing and Hong Kong, they are headwinds compared to the tailwind we've got in Mainland China. Now, turning to inventory, I think the key here is although we don't provide guidance, and that includes inventory, it obviously depends on how revenues evolved during the remainder of the year. But I can say what I've said in the past that we expect it to be down meaningfully by the end of fiscal 2021.

Yes, I’ll just jump in. Hey, Oliver, it’s Dani, and just on the inventory point, I echo what Jonathan said and just to a point that today is and has been and we've reiterated our plans too. This is more [indiscernible] all of our plans and our intention is that our inventory levels will be materially lower than they are now and lower than they were last year relative to our sales. And we seem to be on track to do that. Our trajectory is very strong and it's looking – you know, it’s very positive.

Your next question comes from Adrienne Yih with Barclays.

Yes, good morning. Thank you for taking my question. I guess my question is on the stores. So, the seven stores that [indiscernible] this year, all of them, it looks like you have 26 listed on your website. So, is there one more to be opened? Or all of them actually opened at this point? And then, in terms of the inventory, just a little bit more color there. Is the inventory in your channel partners also expected to be exceptionally clean? And what are you seeing from your order book from your channel partners in the – during the season? Thank you very much.

Yes, thank you for your question. With regards to the stores, we've opened most of them. There's – I believe three more stores that we plan to open in China this year. But most of stores have been open. And as pointed out, they've really driven – they’ve been very successful. Our business in China is doing really well and accelerating. And, you know, the three more that was open [indiscernible] add to that. As far as the inventory, I'll ask Jonathan to answer that question.

Yeah, I mean, as we've discussed in the prepared remarks, we've been very disciplined about feeding the channel, the wholesale channel this season, very careful in the way that it's being done, and therefore, the inventory is very clean in channel.

Okay.

And we're being very measured about that. To the extent that we start to get wholesale reorders, that's fine, [indiscernible] those. But remember, we are prioritizing [BCC] and we're not focused on chasing wholesale businesses here.

Okay, great. Thank you very much, and good luck.

Thank you.

Thank you.

Your next question comes from Kate Fitzsimons with RBC Capital Markets.

Yes. Hi, good morning. Thank you for taking my question. I guess just quickly on Hong Kong, can you speak to, you know, the duration of the drag associated with some of the store? I guess the weaker traffic levels you are seen, how much longer do you expect Hong Kong will be a drag on the Asia business, and Dani, just higher levels on your view on the store base in that market and the brand's positioning there? And then, you know, really quickly, Jonathan, on the channel gross margins, you know, very resilient this quarter. How should we think about some of the puts and takes on the channel gross margins as we look ahead, just given the benefit of the government subsidies this quarter? Thank you.

Hey, thanks for the questions. Dani. I – yes, I think that – I think with regards to Hong Kong was the question, and you know, we're cautious about it. You know, we don't – no one really knows when Hong Kong is going to reopen and not have their 14-day quarantine. You know, our internal – the way we look at it, we approach it very cautiously. I'll point out that, you know, for – although we have exposure there, we – you know, unlike most brands, we only have two stores in Hong Kong and I think that's really important because, you know, its – although it is affecting us, and you know, those stores will typically be expected to do better – to do a larger amount of business for all brands. But our stores there, our exposure is limited and that's important ad hopefully it’ll reopen sooner than later. But it's impossible to predict exactly when that's going to be. So, we've taken a conservative approach internally on that.

And just around that point off, before we talk about gross margin and you know, with the number of stores that we've got in Mainland China, and as we approach the peak in that business, I think you'll find that very much the dominant factor in the region's performance going forward. Now when it comes to gross margin, and clearly we're very pleased with the gross margin performance in the quarter. But I come back to what I've always said, which is, there is a natural place that the gross margin – we expect gross margin to be in each of these channels. In DTC, we expect it to be in and around the mid-70s, and in wholesale, mid-to-high 40s. As far as I’m concerned we're in that spot at the moment. That's the same spot we expect to see – to stay in.

Your next question comes from Ike Boruchow with Wells Fargo.

Hi, good morning, everyone. For Dani or Jonathan just two quick ones. Just we talk a lot about brand heat when it comes to the categories brand. Maybe Dani, could you give us your thoughts on where that brand heat is in today's environment, specifically in North America? And then, maybe for Jonathan, just longer term plans with the PPE business? Just kind of curious how you're thinking about that, you know, into next year and beyond?

Yes. Hi, thanks for your question. We're feeling really good about our brand. You know, I think that we've never been more relevant today than we've been than – we’ve never been relevant. You know, we are the reference parka. We are – you know, people are looking to spend more time outside and we are a brand that can deliver on that. And so, we feel really good that – you know, heading into our peak season, we expect to see the acceleration that we are seeing, typically, and happily enough, we're seeing it this year as well. You know, we know that consumers are looking to spend more time outside, not just for normal day-to-day purposes, but also item necessity and we believe that this will positively impact our business. And so, our relevance is really strong, and, you know, we believe that, you know, that drives our brand, which remains very strong.

When it comes to PPE, I think the important thing to hear – to think about is it's essentially event driven. So, earlier this year, there was a need, we stepped up, we pivoted in about two or three weeks and produced what we've been producing since the last few months. I think, to the extent there's further requirements from the country to help support frontlines, we’ll be there. But at this stage, it would be wrong to comment further.

Yes. But I think – I have one thing just about back-to-brand [indiscernible] to add some more color to it. Just to point out, you know, we're obviously, as always, full-price brand and we're seeing lines outside of many of our stores as we're used to seeing. This is an anecdote to talk a little bit about the relevance and the heat of our brand and the demand for the products that we have around the world.

Your next question comes from Erwan Rambourg with HSBC.

Yes. Hi, good morning, gentlemen. I hope you can hear me. I just had a follow-up on prepared comments from Jonathan. So, on wholesale, I think you made it clear that inventories were really clean. I'm just wondering if you could talk about the mindset of your partners. And I think in the prepared remarks, you talked about a better rate of decline and I'm just wondering if that's looking at Q3 or looking at H2? And then, secondly, on e-commerce, can you talk to any new markets or any new partners that could impact positively H2 sales for that channel? Thank you.

So yes, I’ll address those questions. Our wholesale partners are very important to us and we have some of the wholesale partners in the world and our relationships are strong. And, you know, a lot of our wholesale partners are accounted on Canada Goose’s drive their recovery and we're seeing that happen. We're seeing that – while we did see some orders shift to the right because of the earlier store closures earlier in the year. Now, we're finding that wholesale partners are wanting us to deliver goods, more of their orders sooner. And so, you know, we’re very encouraged by that, and, you know, we continue to work very closely with them, and they're really, really important part of our business, and, you know, there's just certainly, you know, certainly upside there. To -- the second part of the question was …

And I think the important point here is – a couple of points. First of all, this is – our e-commerce, as we describe it here is what we do. And on the websites, we manage and where we ship directly [indiscernible] and in Mainland China or ourselves in the rest of the world. And this quarter, we saw growth, and that was driven by progress I our major existing markets across North America, Western Europe and Mainland China. [First order] e-commerce is exciting. It's a longer-term initiative and that expands up our canvas globally. But there's smaller individual markets, but nevertheless, we’ll have them with us fully. We'll have them with us for the remainder of the year. Overall, we're in the mid-set in terms of the total number of markets we're shipping to now.

Your next question comes from Omar Saad with Evercore ISI.

Good morning. Thanks for taking my question. I wanted to ask a follow-up to the China, numbers you guys were talking about are great. But we know that China – you know, you're probably losing some Chinese business or Chinese consumers with the lack of tourism and travel, do you have a sense for how that kind of Chinese cohort is performing with you guys on a more global basis, you know, understanding that you're still – your footprint in Mainland China itself is still really low? And then, you know, actually wanted to ask a technical follow-up on the inventory. You know, I want to understand, I guess why the inventory is still growing given the fact that your production has been at limited level? Does that have to do with the transition from outsourced to in-source, just kind of want to understand the dynamic there? Thanks.

Thanks for your question. And I'll address the Chinese tourists business, and certainly, there's been a reduction in tourism around the world. A lot of those tourists come from Mainland China, and you know, that we've seen that impact our stores around the world, as have all brands. We – you know, I think our strategic approach that we took in China by adding physical retail in China has helped capture local Chinese tourist demand within China. And I think that that's working really well as evidenced by our growth and continued acceleration, even through October in China. And so, yes, I think that's working and I think that – you know, I think that in collaboration with our e-commerce growth and acceleration globally, is an offset to the reduced tourist levels this year.

And when it comes to inventory, I think what's important to remember is that, you know, Q2 is not big quarter when it comes to revenues for this business, so – much more than Q3. And so, as we – you know, remember that we restarted production at the beginning of Q2 and that was specifically to add newness and depth for winter, in other words, for the forthcoming season. So, we're now at the point where sales really pick up and that will naturally drive down inventory levels through the remainder of the year. And as you correctly point out, there's also a transition going on with some of our third-party CMT's at the same time.

Your next question comes from Camilo Lyon with BTIG.

Hi, thanks. Good morning. I wanted to learn more a little bit about the progression of your store productivity levels. You went from like a near shutdown on mainly all your stores? It sound – it looks like there's been a pickup in store level productivity, certainly, you talked about that in China. So, I guess the question is, how are you seeing progress in other regions where there's still [indiscernible] pressure on traffic? Are you driving a point on the business? Is there a better sort of conversion rate that we're – that you guys are experiencing, any color on the store productivity levels relative to last year would be incredibly helpful?

Yes, it's a good question, Camilo. Clearly, in China, we saw the pattern establish when they started to reopen [indiscernible]. And sort of that’s gradually built up and that helped us manage our expectations in terms of what we might expect to see elsewhere in the world. You know, obviously, that gets interrupted when you get local lockdowns as we're experiencing right now in Europe. But there is a pattern of gradual improvement as people get used to shopping in the new way and visiting stores in the new way. There's no doubt that traffic is challenged, but on the other hand, I would say is that people who are out to shop, mean to shop, and therefore, we do see better conversion.

Your next question comes from Sam Poser with Susquehanna.

Good morning, thank you for taking my questions. Just one question, there's a bump in – you mentioned that you would defer to you are focusing more on DTC, but to what degree will you respond if there is demand from your wholesale partners to – you know, if their demand goes up going in, to what degree would you respond in the back half of the year?

You know, we’re very flexible. We have a lot of [indiscernible] at our disposal and we're able to shift as we choose to do so. So we're able to serve as both our wholesale channels and our DTC channels. You know, I think it's important – and our direct relations with our consumers in our DTC channel is very important to us, so we're going to make sure that has all the inventory in it. But we were deliberate in making sure we were in a strong inventory position, as we always do and this is no different so that we can serve as wholesale as well as DTC.

You know, I think the key here is that we're responding rather than chasing.

Your next question comes from Jay Sole with UBS.

Hi, good morning. This is [indiscernible] on behalf of Jay Sole. Just wanted to ask if you could provide us a little bit more color on what you were saying about the brand heat in China and if you could also talk a little bit more on how the sales progression went throughout the quarter and the acceleration in DTC and how does that trend - how does that – has carried on into October so far? And also wanted to ask, on the other hand, on the cost side, if you see any headwinds into the season, particularly for e-commerce, you know, with all [indiscernible] to fright costs and distribution and shipping? And also, if – and also on the government subsidies, I mean, how long should that be a benefit to the gross margin? Thank you.

Thank you for your question. Just to, you know, readdress to brand heat question, you know, I don't believe we’ve ever been more relevant given the product is a best-in-class and needed product at this point in time for people around the world who wants social distance outside, and, you know, our acceleration that we've seen in October has been really encouraging. And continue to point to [indiscernible] around – at our stores, you know, in Toronto and Yorkdale and around the world, we – the demand – the visible demand anecdotally is extremely strong. I’ll hand it over to Jonathan to answer some of the technical questions.

Yes. From a cost point-of-view, we don't see particular headwinds. I think the point that I was making in my prepared remarks is we're very keen to invest where it makes sense and where we see the opportunity and the likelihood of payback, we'll get behind it. But we’re not looking at particular headwinds. I think when it comes to subsidies, in the immediate term we don't envision any real changes. And when they do end, I think we'll find ourselves in a rather more robust, excuse me, environment, where our business is not coming out of the shutdown.

Understood. Thank you.

You’re welcome.

Your final question comes from Alexandra Walvis with Goldman Sachs.

Good morning. Thanks so much for taking the question here. I have a question on your comments that you had some in-store omni-channel initiatives going live in North America. I wonder if you could elaborate on what features are being rolled out, the pace of the roll-out, and then, you know, how you're thinking about, you know, future plans to expand that into international business?

Yes. I mean, it's something that we learned from last year. We already piloted it last fall winter in Canada and we saw it was a real needle mover in performance, because obviously, you're opening up all of the inventory in all of the size and all of the colors for consumer at the same time. And therefore, it gives you far more selling power and far greater conversion power as a brand ambassador and that's something that we expect to see enacted now in the USA, and in due course, we will take that initiative around the world. But that's something that we're – it's going live as we speak in the U.S. and we see that as a really important driver of business.

I will now hand the call back to management for closing remarks.

Thank you. I would like to thank everybody for joining us here today on our call and I look forward to speaking to you again at the end of next quarter. Stay safe.

That concludes today's conference. Thank you for your participation. You may now disconnect.