Welcome to the Canada Goose Second Quarter Fiscal 2022 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Patrick Bourke, Vice President of Investor Relations. Please go ahead.

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. [Operator Instructions] This call, including the Q&A portion includes forward-looking statements. Each forward-looking statement including, without limitation, discussion of our financial outlook, 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 as well as in the Risk Factors section of our most -- 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 these 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. Thanks for joining us today. On today’s call, I will provide an overview of our strong second quarter performance, our accelerating momentum, and the deliberate commercial strategy that drove those results. Across all channels, we see strong demand, positive leading indicators, and we feel very good about the business heading into peak season. And today, we are less than a week away from yet another very exciting milestone for Canada Goose: the launch of our first ever footwear collection. I look forward to taking you through the collection in greater detail shortly. To begin, I will share an overview of our business performance in the quarter. The second quarter has exceeded our expectations. Total revenue, excluding PPE sales from last year, grew by 40% and our DTC business continues to deliver strong results with revenue growing by 80% over the last year. This was fueled by a strong retail recovery in the quarter as well as continued growth across our digital business globally. Wholesale also had a strong quarter, up 25%, showcasing the high demand for our brand from our partners. Looking at the business globally, we are trending up and performing well in every region with Mainland China DTC being our particular standout growing 86% versus last year. Looking ahead, we are very optimistic as we head into our peak season. As such, we are pleased to be in a position to raise our financial outlook for the remainder of the year. Jonathan will share more details about our financials shortly. We are entering our strongest selling season with the launch of an exciting, altogether new category, footwear. Canada Goose footwear is one of the most significant milestones in our more than 6-decade history. As we’ve discussed, we are bringing a completely…

Thanks, Dani. Good morning, everyone, and thank you for joining us. The second quarter exceeded our expectations, and our performance has continued to accelerate. We’re pleased to be in a position to raise our outlook. Reflecting on where we are today, there are 3 key themes that stand out. Firstly, across our business, we see strong leading indicators of demand. Secondly, the unique flexibility of our supply chain is an incredible advantage. Thirdly, we have the right foundations in place for an outstanding fiscal 2022. Starting with the top line. Total revenue increased by 40% to $233 million, excluding temporary PPE sales in the comparative quarter. The demand strength we’re seeing is much more balanced than it was at this time last year. e-Commerce and Mainland China continue to be major contributors and the rest of the business is now moving in the same direction. Our Wholesale partners are requesting products earlier than last year, and our retail stores are more active in all of our geographies abroad. At a channel level, Wholesale revenue increased by 25% to $148 million. This reflects a reversal of unusually late order shipments last year due to the pandemic. In a normal operating environment, fulfilling our commitments to our partners early drives a better shopping experience for the consumer as well as higher sell-through. DTC revenue increased by 80% to $83 million. Growth from existing stores drove the majority of the increase with traffic and productivity well above last year. Retail closures were not a significant factor in the current or the comparative period. Our strong retail performance was complemented by 34% e-Commerce growth. All geographic regions delivered total revenue growth greater than 30% excluding the impact of temporary PPE sales. This is particularly encouraging given that the status of retail traffic recovery are…

[Operator Instructions] Your first question comes from the line of Ike Boruchow from Wells Fargo.

I guess, Dani and Jonathan, I just -- I’d love some higher level just perspective on the 1H-2H dynamic this year. I know there’s a lot of volatility over a multiyear. If we look back 24 months, the first half, I think the revenues were down 20% on a 2-year basis. The implied back half is up something much more meaningful than, I think, up 40% to 50%. Can you just kind of walk us through what’s giving you that confidence? It just looks like a big hockey stick, so anything you can kind of tell us to get us more comfortable with where your confidence comes from that the business will be able to accelerate so meaningfully in the back half.

Yes, absolutely. Thank you, Ike. So, this is a major strategic change for us and it’s actually a really good thing. The pandemic, it has rapidly accelerated our DTC journey. Alongside that, we have decided to resize our Wholesale business. So, we do not view Wholesale being in line with 2 years ago as a winning -- and winning strategically. We don’t feel that, that’s a reasonable comparison.

So, if you think about how that manifests itself, it naturally shifts our revenue base to the third and fourth quarters of the fiscal, which is a peak month for sell-through. Q2, as a characteristic, is driven by wholesale sell-in, and as Dani said, we pulled that back. We strategically limit what we sell in that channel. So, as you see in our upgraded guidance for fiscal ‘22, we do expect revenue to be well above fiscal ‘20. It’s much more -- this comes with much higher-quality distribution and in absence of international traffic, which represents, as I said in my prepared remarks, further upside beyond the current year.

And your next question comes from the line of Jonathan Komp from Baird.

If I could follow up on the guidance and thinking across the channels, could you maybe just share more across DTC and Wholesale, if one is driving more of the upside than the other, how to think through that. And then the trend you’re seeing in DTC, how is that shaping your outlook and your thoughts on the store productivity, recovery, and what the sustainable e-Commerce growth rates could be.

Thanks, Jonathan. So, I think let’s start with the question about the upside. So obviously, within the context of the guidance, we’ve upgraded our expectations on Wholesale. But essentially, that’s about a product that’s either already shipped or will largely ship within Q3. Therefore, the range itself is really driven by DTC performance. Now, when it comes to DTC, we are clearly seeing recovery in the store productivity. We’re not back to pre-pandemic levels, but we’re well on our way, and that’s really important. Certainly, compared to last year, it’s night and day. That said, we’re also consolidating on the e-Commerce advances that we made last year and seeing further advance. So, we’re very pleased with the shape and the way in which this is evolving.

And your next question comes from the line of Michael Binetti from Credit Suisse.

Two questions. First, Dani, I’d love to hear how the transition to fur-free is going. I know that’s a major transition for the product. And then maybe a jump ball, but in Wholesale, obviously you guys covered it. Nice growth there. You mentioned the Wholesale accounts requesting delivery early, but you also said the leading indicators look good. How do you read the early deliveries as a potential shift into 2Q that might have -- that might come out of 3Q on the Wholesale side versus just strong underlying demand? And you mentioned being able to replenish if the need is there on the wholesale side. Did you bake any of that into the mid-single-digit growth guidance, Jonathan, or any indicators that you’re getting pulled on yet for incremental inventory?

Thanks for your question. And with regard to fur, I said before, we’re very confident that we can make the transition and continue to be the high-growth company that we are. As expected, our non-fur parka styles are performing well in the marketplace and we are tracking to our plan. So, this continues to build on the success that we’ve had for years with non-fur Wholesale accounts where that give us a lot of confidence. And we are significantly increasing our outlook this year, and I think that, that’s a great proof point of that brand.

Yes. And I think when it comes to Wholesale, obviously, we’ve upgraded the guidance somewhat. The demand is very encouraging that we’re seeing, but we have also baked into the Wholesale that we will inevitably have some reorders, and therefore, that’s accommodated in the numbers and the guidance that we’re giving.

Your next question is from Oliver Chen from Cowen.

The footwear launch is very exciting. If you could speak to Wholesale versus direct-to-consumer launch plans, and also as you evolve the assortment and also to help us inform our models, how do you think about the ramp-up and the opportunity, financial as well strategically in terms of the assortment?

Thanks, Oliver. Yes, footwear for me is one of the most exciting things that we’re doing this year. I’ve been dreaming about this for a long time, and we’ve been planning this launch for at least 3 years. And it was very important for us to do it right until we put in marketplace best-in-class product. By design forward, it will not be, from a financial point of view, a significant contributor this year. It’s definitely an incredible moment for our brand, and it’s sort of something that we expect to be a meaningful base of revenue over the long term. But being a performance lifestyle brand, I think we’re in a unique position to help to create a new category here and put into the marketplace something, which is truly performance. We know performance and luxury at the same time. I think consumers today are looking for things that they can wear and use in multiple ways and multiple purposes, and I think this is who we provided at the highest possible quality levels, and I’m super excited about it.

And if we think about it from a perspective of the financial characteristics, like all products that we introduce in small volumes, footwear has, therefore, lower gross margins at the outset. It’s nothing new. We’ve been expanding into new categories for a long time, and it’s something that we expected. We fully fund it by the tailwinds that we realized in our core and over time. And this is certainly something where we expect the profitability of the category to increase meaningfully as we scale. And when we think about how we’re rolling that out, at least initially, we are leaning heavily into DTC, not surprisingly. It’s where we can curate the offer the most strongly. We are in a very small number of influencer accounts at Wholesale as well. But ultimately, that contribution will mature, but always DTC because it’s so important that we tell the story as well to the consumer.

Your next question is from the line of Adrienne Yih from Barclays.

Great. And great to hear that October is off to a nice start here. My question is what are you seeing in the tourist location, the tourist stores by geography? Obviously, China is coming along very strongly. But early reads in both North America and European tourist locations?

Yes. Thanks for your question. I mean tourism -- obviously, international tourism is down at this point, we know that. And it sounds there, it will come back fully next year or the year after, but we view that as a significant upside to our business. International tourism did contribute a lot of revenue to our overall business in the past, and we expect that to come back at some point in the future, and certainly that’s going to be a very positive thing for us.

I was just going to add that we’re seeing good growth around the world and we’ve seen that in the numbers we just disclosed, and that’s a continuing trend.

Your next question is from Omar Saad from Evercore ISI.

Would love it if you guys could dive into China a bit more. It sounds like the business trends are very good. It’s been a controversial market in the luxury segment with different kind of external factors impacting demand over there. And remind us where you are on your storage journey, your e-Commerce journey, both owned e-Commerce and Tmall. And how we should think about that business as a contributor to the overall, especially as we go through the winter and head towards the Olympics.

Yes. China is very important, a very strong market for us. It’s been growing and accelerating. I think that we’ve seen that our products resonate very well there. I think that from a positioning point of view, we’re still a very small -- relatively small footprint in China compared to many other brands. We have 18 stores today, and we’re online in Tmall and now JD as well and WeChat e-comm. And so -- but with our footprint, it’s still relatively nascent relative to other luxury brands in China. And so we see a tremendous amount of runway there. We see great affinity for our products amongst consumers, growing brand awareness, but still a long way to go. So we feel that we’re really well positioned in the marketplace.

And if we look at it through the lens of existing stores, new stores online, we’re seeing great growth across all of them. The new stores are performing exactly as we want them to and we’re seeing good healthy growth in the existing store base as well. So we’re very pleased with the progress in that market. Gives us a lot of confidence.

The next question is from the line of Jay Sole from UBS.

Great. Just wondering if it would be possible to give us a little bit of a breakdown of what drove Direct-To-Consumer growth in the quarter. Specifically, how much growth was driven by new stores? And then if you look at your existing stores that are in the comp base, can you give us an idea of how sales per square foot looks in those existing stores versus pre-pandemic levels? And then lastly, just also on footwear margins. Dani, if you can just give us a little bit of an idea what you expect the footwear margins to look like, I’m talking about gross margins. Over time, will they be similar to the eyewear margins, will they be below, above? And how long it will take to ramp to get there? Any color would be super helpful.

Okay. So I mean, I think we’ve -- in DTC in the second quarter, we’ve experienced, as I said in my remarks, a real rebound in the stores. It’s been night and day compared to last year where we went through a period of closure and then reopening was a lot slower. We’re seeing therefore very good growth in the stores that were in the existing base. We’ve been opening stores gradually through the quarter and therefore, their contribution is much smaller. But nevertheless, it’s also very encouraging in terms of the numbers they’re doing versus our expectations. When it comes to shelf density, obviously, we are not yet at pre-pandemic levels and that’s something I said before. But we are also seeing a healthy recovery. And I think the -- I’ve said all along, we see that as key to how our margins overall improve in the business, and we’re very encouraged by the trend there. I think when it comes to footwear gross margins, as I said, we’ve got some inefficiency when you start up in any category. Footwear is no different. And then as you scale, you get the benefits of it over time. And that’s not very different from what we’ve experienced in other categories. Do I expect that to get close to our core apparel margins? Yes, I do. Do I expect it to be above? No, I don’t. That’s the sort of direction of travel. But that comes over time, and right now, we’re just super excited with the launch and the initial consumer reaction to it.

I agree. I’d like to add to that, we have experience at launching new categories. We have a playbook that we follow. And I can point to our lightweight down, which started over 7 or 8 years ago. When we launched that category, margins were lower than the normal at the time. Today, lightweight down represents over 20% of our business and our margins are very healthy and in line with the rest of the business. The same thing holds true for knitwear, which we launched, you’ll recall, approximately 4 years ago and it’s now over $45 million in revenue in 4 years. And the margin is tracking well as well. So we have a proven playbook on this and are launching new categories and getting into them in the right way, in a responsible way and in an authentic way that is right for our brand. And we are applying the exact same playbook to our footwear launch and it gives me a lot of confidence that we are experts at doing this at this point.

And your next question is from Sam Poser from Williams Trading.

I just have two. One, can you give us some idea of the magnitude of the price increases you took in for the fall season or for this year? And secondly, would I be -- I assume, based on the way the Wholesale business is flowing, that you’re expecting Q3 to be down more than Q4 given the early shipments and your advance product business will probably happen in the fourth quarter, that wouldn’t be down as much. Am I thinking about that right?

So I’m going to take those in reverse order, just to say, yes, we’re pretty aligned with what you’re thinking on the Wholesale business. I think the answer on pricing goes to our gross margin algorithm, and that’s something that you hear me describe frequently. That’s no different this year than any other year that you have headwinds and tailwinds. Typically, we create tailwinds with pricing and with scale and efficiency and then we deal with the headwinds of investing in new product development as well as input -- cost inflation. Typically, we’ve taken pricing in mid-single digits. This year is no different than that. And then inevitably, there, you tune it as you go. but fundamentally, this is another year of the same experiences.

We have your next question from the line of Robbie Ohmes from Bank of America.

Just 2 quick follow-ups. I just -- maybe for, well, either for Dani or Jonathan, just your inventory position is, I think, as close to as high as it’s ever been and it sounds like demand is strengthening. I’m just trying to understand why Wholesale would be down given the demand. It would seem like you would have a significant opportunity for much stronger Wholesale. And then just sort of a second question, a follow-up on APAC. Maybe, Jonathan, can you remind us the Hong Kong store impacts and sort of how that’s playing out in your thinking on APAC sales for the back half of this year?

Yes. I mean so let’s take those in the order you asked, so inventory first. I mean, inventory, to be honest, it’s at a higher level at September at the end of Q2 than it is at the end of Q3 or Q4 because it’s cyclical. And so typically, you’re building inventory and you’re shipping the inventory and selling it through, and therefore, inevitably, you’re at a high point. This is no different. We’re very pleased with the amount of that stage in inventory. We’ve gotten the distribution of that inventory to support the business and make sure that we deliver for all of the revenue ranges that we’re talking about. From a wholesale point of view, remember that this is a regulated channel by us. We don’t and never have supplied the channel with everything they ask for. We prefer this to be a channel where it is brand accretive because either it puts us in locations with a physical presence where we would otherwise not be or because it puts us with opinion leaders or both. And so that’s why we’re in wholesale. And we regulate the amount of product there because we want to make sure it sells out rather than there is a heavy level of inventory in the channel. Where we get reorders, we think about them sensitively and intelligently. And if it makes sense, we fulfill them; and if not, we don’t because we would always privilege our own channels over wholesale. When it comes to APAC, and particularly your question on Hong Kong, Hong Kong is a very quiet market at the moment. The business last year was a fraction of what it had been prior. It’s starting to grow back, but it’s coming from a very low base and it’s -- and they’re very small numbers at this point.

Yes, I’d like to just add on a little bit about that. Not that part, but come back to the inventory part. We -- our model of manufacturing in Canada and being vertically integrated has been, at this time, very much we feel validated in the sense that we have the right amount of inventory, is available. We are not going to experience any inventory shortages, both raw material inventory to manufacture more goods for this year and for next year and also the finished goods inventory that we have on hand is going to -- leaves us in a position where we’re well positioned and able to deliver on all our commitments. And I think that’s really -- we’re really, really happy to be in that position and it’s been part of our strategy for a long time, and here we see it playing out the way it’s supposed to.

Your next question is from the line of Meaghen Annett.

Can you just maybe talk a bit more about the initial response to some of the more recent product introductions, new colors, collaborations and so on? And how are those resonating with customers in North America in particular? And if you could just talk a bit about the performance in Canada, including trends you’re seeing there maybe relative to pre-pandemic levels in Q3 to date.

Yes. Our new -- we’ve been very, very pleased with the way the market has responded to them. Our -- I mean, I can speak to the many different categories like knitwear, and as I spoke earlier, about how fast that’s grown and how we’re selling through that really, really well. And we have core styles and new styles coming every season. Our collaborations are doing really well. Most recently, Angel Chen collaboration dropped and has performed very well. Our pastel collection, which was a collection that hit the market a few weeks ago, has also performed extremely well, selling out -- or selling through in many cases. Our Crofton and Cypress collection, which is an expansion on our lightweight down collection using more sustainable fabric, also have been big hits. And I’ll talk about footwear as well. I mean just to look at the presale that we did to our Basecamp community to sell through 10% in 1 week, it gives me a tremendous amount of confidence in the demand for that product category, too.

Yes. I think when it comes to the sales performance that we’re seeing, when it comes to North America, we’re very encouraged. We’ve seen really strong performance in the U.S., and actually also now in Canada, it’s coming back nicely. And remember that this is pretty much in both of these markets, this is domestic demand expressed as either Canada or within Canada or U.S. within U.S. It’s being the dominant demand and that is a huge testament to brand health. We are really comfortably above last year, and we’re very encouraged by that.

Your next question is from the line of Camilo Lyon from BTIG.

We just wanted to ask a question on the U.S. store opening opportunity for you. I’m curious about that California store opening. I know it’s early days, but where do you see the main infill opportunities from a store opening perspective in the U.S.? And as you go further west, do those stores come online at a different margin rate than your East Coast or more -- colder, snowier markets where there’s a greater sell-through of heavier parkas and higher-margin parkas?

Thank you for your question. Well, what I can tell you about our North American stores is that we do have a very healthy pipeline of potential store openings and locations in North America. Obviously, we’ll disclose those as we firm them up, but I’m very encouraged when I look at the opportunities that we have before us and the kinds of traffic and the kind of sales volume opportunities that we have and also the opportunity to increase brand awareness in places like the West Coast and opening in South Coast Plaza was an important milestone for us. And I know we have existing fans out there, we’re going to make new ones, too. And we have new products and different products for different climates as well. So we know that we don’t need to be in a cold weather market to sell cold weather clothing. We also have the right clothing for multiple kinds of markets. And the response to South Coast Plaza so far has been really strong and we start seeing it as a signal of a very strong demand in that marketplace.

And I think when it comes to thinking about West Coast stores versus East Coast, I mean the West Coast is -- was the best one. It’s not a unique climate. We have other stores around the world in climates like that and we enjoyed good levels of sales density in normal times and therefore good margins. And we don’t see any reason why -- we don’t see any reason why we shouldn’t see that in the U.S. Indeed, if you think about it in Canada, we’ve got a store in Vancouver, we’re super happy with how that performs, too, and that’s clearly in a similar market.

And your next question is from the line of Brooke Roach.

In your prepared remarks, you talked to an inflection point for both margin and profit in the second half. I was wondering if you could share a few thoughts on your current view of the path to recovery to a 20%-plus profit margin relative to this year’s 16.5% to 17.7% outlook. And maybe in relation to that, can you provide a little bit more color on what you’re seeing in terms of unit and raw material costs, which have been a topic, a talking point for across the rest of the sector this quarter.

Sure. I think that we’ve got form above the 20% margin level. And we -- I mentioned when we talked last quarter that, that was a path that we’re very confident about going back there. Not to 20%, but beyond 20%. And I think that’s very important. This is a business with a really powerful retail model complemented with a strong online level. And that’s already going to be 70% of the business. When that’s firing on all cylinders, this is a business that’s going to be very profitable, and we see ourselves moving comfortably into the 20% over time. And so this is a positive step in that direction. And then when we think about gross margin and the unit and raw material cost inflation, to be honest, as I said before, the overall gross margin, we’re not seeing anything egregious. And we are very focused on managing our channel gross margins to the historical levels, mid-70s for DTC and mid- to high 40s for Wholesale. That’s where we expect to be, that’s where we are and that’s the way in which we manage it. We’re not seeing anything egregious. If we were, we’d call it out.

We have your next question from the line of Mark Petrie from CIBC.

I just want to ask about the product mix. Can you give us some more detail about the non-parka mix in Q2? I know it falls from Q1 just seasonally. But any commentary just with regards to the direction of that would be appreciated. And do you think that this could become a bigger part of your Wholesale business in the foreseeable future? Or do you think that, that channel will remain very heavily skewed towards parkas?

So I think if we think about the mix, clearly, as you move through the quarter, you start to move into the colder weather and therefore parkas start to pick up. But our summer season doesn’t stop -- or spring season, more accurately, does not stop off the end of June. It’s something that continues through July and August and you had a sense from a sort of how that mix stacked up in -- when we talked about our performance in Q1, and that continued for a good part of Q2. And we see the parkas kicking in. And -- but that said, you’ve still got to remember that we continue to sell the full mix of our categories all year long. In fact, the busiest month of the year for our lightweight down offering is actually December. So it’s easy to assume that some of these things only sell in some months, and that’s not the case. And for the same reason, therefore, as we think about Wholesale, that is an area where we also see the penetration of our non-parka products as well. We don’t see that as only a parka channel.

Yes. And I’ll just add to that to remember that we have more products than we have ever had before. We have more products that are selling really well than ever before. And that makes the mix itself become more of a dynamic thing. And I see that as a very good thing and a very healthy thing for the business. And I think it’s important to factor that when you think about it, too.

Thank you. And there are no further questions. I would now like to turn the call back to Dani Reiss, President and Chief Executive Officer, for final remarks. Please go ahead.

Thank you all for joining us today. Before we go, I would like to take a moment to update you on the progress we continue to make against our Sustainable Impact Strategy as part of our HUMANATURE platform. We are driven by our purpose to keep the earth cold and the people on it warm. And today, I’m pleased to let you know that we have crossed another important milestone on our road map months ahead of schedule. As of today, we have achieved certification under the Responsible Down Standard. This was a monumental endeavor carried out over the years and throughout the pandemic. With this step, we join other Responsible Down-certified global manufacturers who’ve made the responsible choice to embrace sustainability and animal welfare. Thank you so much to the team at Canada Goose who worked tirelessly to make this happen. And thank you all for joining us today. I look forward to talking to you again next time.

And this concludes today’s conference. Thank you all for participating. You may now disconnect.