Good day, and welcome to the Canada Goose First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instruction] Please note, this event is being recorded. I would now like to turn the conference over to Amy Schwalm, VP of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. With me are Dani Reiss, Chairman and CEO; Jonathan Sinclair, EVP and CFO; and Carrie Baker, President. Our call today, including the Q&A portion, contains forward-looking statements. Each forward-looking statement, including our financial outlook, is subject to risks and uncertainties that could cause actual results to differ materially from those projected. 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 press release issued this morning as well as the Risk Factors section of our most recent annual report filed with the securities regulators. 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 them. Lastly, our commentary includes certain non-IFRS financial measures which are reconciled at the end of our press release. With that, I will turn the call over to Dani.

Thanks, Amy. Good morning, everyone. This morning, we released our results for first quarter of fiscal 2023. And I'll start with some highlights from the quarter. In Q1, we reported revenue growth of 24%, hitting almost $7 million. This was ahead of our expectations, and we are very happy with the trajectory of our business as we move into the fall season. North America continued to be a standout market for our brand. As of June, our stores in Mainland China have all reopened, and we are seeing positive signals as consumers are returning to stores. In addition, our maiden Canada model continued to help insulate gross margins for us at a time when others are seeing erosion. Our first quarter, while the smallest has always been an indicator of brand strength. Combined that with our exciting product launches, store openings and the progress we've made against key strategic objectives. I believe we have what it takes to seize the tremendous opportunities that lie ahead of us. From a macro perspective, I think it is important we acknowledge the concerns of the global recession and the uncertainty and volatility of today's world. However, a Canada Goose as of today, we have not seen any signs of slowing demand. I think it's also important to highlight the strength of our performance through previous recessions. Canaries has grown substantially through every recession, save the first wave of COVID. I believe that this is a testament to our products grounded in performance and functionality as well as our brand, our luxury positioning and the brand heat our teams continue to drive around the world. I'd like to give an update on the progress that we continue to make against four key pillars of our long-term strategy: one, growing our direct-to-consumer mix overall; two,…

Thank you, Dani, and good morning, everyone. All of my comparisons will reference the first quarter ended July 3, 2022, versus the prior year quarter, which ended June 27, 2021, unless I say otherwise. Our Q1 results reflect a strong start to the year. Total revenue increased 24.2% to $69.9 million, which exceeded the top end of our guidance range of $60 million to $65 million. On a constant currency basis, total revenue grew 24%. The gap between reported and constant currency revenue growth was quite small as 43.2% of our revenue was denominated in CAD this quarter compared to a lower number, typically of some 25% in a full year. DTC revenue increased 19.6% to $34.8 million due to continued retail expansion and increase in existing store sales and the reopening of stores following COVID-related closures. In Q1 fiscal 2023, we were impacted by COVID-related restrictions in Mainland China and similar COVID-related closures in the comparative quarter, which impacted certain stores in Canada and EMEA and those stores were open this year. We reported DTC comparable sales growth of 10.7% in the quarter, the first time we have reported this metric. As I know companies define it differently, I wanted to point out our definition. We report the measure on a constant currency basis. It includes sales from e-commerce and from stores which have been operating for one full year or 12 successive fiscal months. The measure excludes store sales from both periods for the specific trading days when the stores were closed, whether those closures occurred in the current period or the comparative period. The metric was quite modest this quarter as it was impacted by factors in Mainland China that I've just described. Excluding Mainland China, DTC comparable sales growth increased to 32.7% in Q1. Revenue from…

[Operator Instructions] And our first question will come from Oliver Chen with Cowen. Please go ahead.

Great quarter. China continues to be a big opportunity. Last peak season ended with closures due to COVID and Omicron in China. Stores have just opened up again recently. How confident are you with respect to brand strength in China as you head into your peak season? And the follow-up on women's and non-heavy execution, they both sound really exciting. Would love color on the women's opportunity ahead as a percentage of mix? And any other details you could provide and the key points of differentiation on the non-heavy customer side, what is this customer like versus your traditional parkas customer?

Thanks, Oliver. I appreciate the questions and they're good questions. I think we're very confident with China for a number of reasons, and we've built a strong business there to date, and we continue to see strong demand for our Chinese consumers there who continue to love our products and the strong demand there. Recent trends are really encouraging. All of our stores are open again as of June and the trends today show positive momentum there, and we expect to see that continue. Another thing I think that's really important is our ability to renew leases and to secure new ones that are in the best shopping districts, being successful renewing leases and securing new ones in the best shopping districts with excellent adjacencies, especially in China, it's a testament to brand heat. It's really hard to get great adjacencies unless we're drawing consumers into the malls and the shopping centers. And yes, that's the reason why we're able to get this sort of real estate. And that's a very strong point and it shows sort of why we're strong in China. Our branded guidance surveys continue to be strong brand awareness and conversion in the reason in the region and strong. We do our own brand surveys and we season very strong results there as well. as well as leadership in China been very important recently, Belinda Wong. She's joined our Board, and she's a highly respected professional and a leader in Starbucks who runs their Asian business, and she's recently joined our Board of Directors, and he's been very insightful in now beginning in the Chinese landscape and helping us do that. In addition to that, we hired a new President for the region and who starts in early fall, and that also helps further stripping our local leader social. So we're really committed to China for the long term. And I think that's most important thing. I was in a very positive response to our participation in the China Import Expo, which we've committed to. They're holding that in November and Shanghai as [indiscernible] the permanent exhibition for international brand in the Chinese market. And in short, we have great strength in our creating great confidence in our Chinese market. We're in it for the long term. We're making investments for the long term. We're excited about our upcoming peak season and certainly the longer term opportunities ahead of us in China. So that -- with regards to your question about our women's business, it's not -- we see this as an opportunity for us. Right now, our sales are more or less 50-50 are slightly skewed towards where typically, the percentage of business, a company like ours can do with higher, and we feel that it's a big opportunity. And to that extent, we've really invested heavily in styles and designs that we feel will help accelerate and the adoption of our products and our new assortments amongst female consumers.

And as you think about non-heavy jackets and such. What are you seeing with that customer relative to others and the kind of the nature of that frequency?

I think that our products have long appealed both to men and the female consumers. And I think that it's a matter of us designing and creating a new category of products that resonate with women in a different kind of way when you're looking wear them in different use cases. And we've demonstrated that we have repeat customers, both of all genders, and we feel that there's opportunity in the women's category. And hopefully, we will be able to increase through these initiatives will be to increase the our sales to the percentage of our business that we transact with the female consumer, which will be a benefit to the overall top line.

Our next question will come from Ike Boruchow with Wells Fargo. Please go ahead.

I guess my one question is I wanted to go back to, I think, Dani, the comment you made, so maybe this is for you or Jonathan. Understanding that 1Q is a very small quarter and fairly relevant to the year. But I think you mentioned that it's always been a key indicator for you guys with brand strength for the remainder of the calendar year. Is there anything else you can kind of share with us anecdotally or more specifically about how much visibility you do have in the business go forward into holiday, whether it be conversations with your wholesale partners or order book? Or just anything to kind of gives you confidence that the brand strength you're seeing in a seasonally low period will and can and will kind of translate into sustained momentum through the rest of the year.

Yes. Thanks, Ike. I can say that our first quarter for us has always been an indicator of brand strength and a leading indicator of what's the common. We've always looked at it that way. And this year, as you know, we posted revenue growth of 24% to almost $70 million this quarter. And I mean, all of the metrics -- all of the momentum that we've seen has been very strong in that -- that does give us some very strong conviction that, that will continue. I think that our product is a product that people buy because of its functionality. I think that the stuff -- the products we may work. And even in hard times, recessionary time, should that become the case. People buy products like ours because they last for a lifetime, not for a season. We have a lifetime warranty on our products. They offer protection and their timeless. And we have grown through every economic cycle over the last 20 years, say, for the first year of COVID and we -- and because of these reasons, we do feel strong about our -- about the future and about the quarters to come.

And I think...

Sorry. I was just going to add, Ike, that the -- if we think about it from a hole -- through the wholesale lens, first of all. Obviously, we had an order book at the beginning of the year. Our guidance then was for 6% growth for the wholesale business this year. It remains 6%. We're not having any conversations that would cause us to vary that view. And as you've seen, we've started off strongly in terms of shipments to our -- to the wholesale community. So we feel pretty confident about that. I think the other thing, which is -- I mean, it's a sort of a real wood-looking measure, but something about momentum in the business. If you look at the comp number of 10.7%. It's okay. But if you look under the hood and we've disclosed it so that we can try and convey the underlying momentum. If you exclude Mainland China, which has its own characteristics this quarter, then we're looking at 32.7%. I feel that demonstrates something about momentum as well.

And then Jonathan, just one follow-up. When you look at the inventory in the channel across the globe in North America, there anything, not necessarily you guys, but anything that you're seeing in the channel or maybe there's building inventory or more competitive pressure in the categories you operate in? Or does it continue to look fairly clean to you guys?

Yes. I mean we're not seeing anything that gives us any cause for concern. I think a little bit about -- to think about as you look at our own inventory, we've got an increase in the store network size. We're supporting that with, obviously, with the inventory so that we can deliver on the potential of the stores. we're staging it around the world so that we can have it in the right location to take the greatest advantage of that demand when it comes along. And we've got a good number of stores coming on stream in the second half of this year. So by definition, you would correctly expect, given what I've said that we would see our finished goods inventory levels up year-over-year. And we've also now got all of our manufacturing back on stream at full pace, so we feel much better about that. And we're able to bring in the third-party manufacturer that bit sooner too. But we're feeling good and healthy in the inventory. And I think that colors our view of how we'll be able to go this year.

Our next question will come from Jonathan Komp with Robert W. Baird. Please go ahead.

Maybe just a follow-up on China, just to clarify. I think there was a comment about positive response following the reopening of the stores there since June. So could you just clarify, is that positive relative to the closure trend? Or are sales positive there? And then as you think about the balance of the world, how are you contingency planning for some of the economic downside scenarios, if you are, just given that you mentioned specifically how you're planning for China?

I'll start with that one and pass Jonathan to do some color after. I think that we've seen that there has been a gradual and meaningful recovery in China and the Chinese market. In terms of consumer shopping behavior, and we expect to see that to continue. And clearly, when stores were opened for the first time, there was a lot of pent-up demand and consumers went out and did go shopping. So we're -- we've noticed that, and we've seen notice that in our own numbers as well. And our numbers are knocked back to where they were last year, but they're trending towards that, but that's all built into our guidance. And we're feeling very positive about the future of our business in China and not only this year, but in the many years to come. It's a very strong market for us, and it's a very important market for us. And we have a very loyal customer base there, and that's why we're opening more stores there this year, and we feel very strongly about the importance of China and our overall business going forward.

And just so that -- to add a couple of points to that. We had a number of our stores that got closed during Q1. I think it was 8 in total. And obviously, traffic in the rest of them was pretty impaired. We weren't able to ship through a lot of the quarter in wholesale business either -- in an online, sorry, business either. And therefore, the numbers were pretty poultry. But as business opened up, we've seen period-over-period growth in that business, and that's really encouraging. We've actually also mapped it back to what we were seeing last time China locked down and reopened in a similar way, right at the beginning of the pandemic, we can see some similarities in that, which is reassuring. And of course, there is variability in how things have turned out there because no one really knows. And what we are seeing, therefore, is that the range is largely influenced by that. Turning to the question of sort of a more broad-based question around the world, then I think that clearly, we're dealing with a more uncertain world, and I said that in my prepared remarks. But we're in a position where -- although we have a luxury offer, we have a very strong value proposition and a very strong functional proposition, which differentiates the demand for the products and for this brand as a result. We've navigated a large number of economic cycles in our history. We've got a lot of institutional knowledge about how we fare during that. And other than the first wave of COVID, we've been able to grow successfully through them. Obviously, we pay very responsibly. We manage things very carefully. But also remember, last year, we had a bunch of headwinds that we had to deal with, which was a subject of a lot of conversation as we went through the year that we don't expect to have this year. So on the one hand, yes, there are economic headwinds that we're having to deal with. But on the other hand, some of the other headwinds have in our planning gone away.

Our next question will come from Michael Binetti with Credit Suisse. Please go ahead.

I guess just one short one and then a bigger picture question -- or maybe two short ones. Any other areas in the guidance where you felt you left a little conservatism that could help hit the high end of the range you gave us if China isn't normal. I know the high end of the range includes China having a normal winter. Any cancellations so far that you've seen on some of the broad-based caution we've heard from the retail channel heading into fall holiday? It looks like from your guidance being so stable that the net answer to that is no, but any quick double-click into their detail. And then, Jonathan, as we walk back through the model a little bit, a few years ago, the company thought fiscal '22 or the long term could be a 25% plus EBIT margin business. You've used on it a little bit from time to time on these calls, and I understand not wanting to be firm there yet longer going through COVID. But what are the unlocks that you need at this point to get there instead of us just dreaming about how realistic it is to think this business really moving towards that potential as we look beyond what you've given us for your outlook this year into fiscal '24?

Yes. So thanks for that. I think we've got -- one of the benefits of our supply chain is we've got a lot of flexibility in it. And we are able to work off an allocation model, meaning we are able to respond to demand wherever it is subject to us owning the inventory somewhere. So I won't necessarily call it conservatism, but certainly, our ability to respond to demand wherever it happens to be, is very good. And therefore, I would expect us to be able to react very positively as demand unfolds as we get into the peak season. And to your point about the double click, the double-click doesn't give you any different answer. We are seeing on the wholesale order, but we're not seeing cancellations. We are seeing people being very loyal to what they've ordered from us. I think the other point to remember is this is what we call a managed economy in the sense that, we typically don't give people everything they've asked for in the wholesale community. And therefore, by scaling back, you've got relatively speaking, a very healthy channel. That is also a source of good strong gross margin density for the wholesale client base. And therefore, we don't and wouldn't expect to see cancellations. When it comes to our margin expansion and the journey there, it comes from concerted growth in the retail network. It's very simple. And it's one of the reasons why we're out there with our metric around comp growth now because we want to demonstrate the progress. And ultimately, this is the route that gets us there. We've got a very strong network of stores. They're in the right places. We continue to add, as you heard Dani mention. And as that sales density improves through comparable growth. We will see the margin come through. The marginal margin for an incremental sale is probably closer to 50% than it is to the company operating margin. It's a natural point of leverage. And then when you see that leverage come up when you think about the income statement, you see that leverage come through in the operating cost of the stores to some extent and in operating leverage coming at the overheads as well. So we feel really confident that as retail densities improve, and that's a huge focus for us as an organization. That is the big unlock. Obviously, we keep a very firm hand on cost. We've been focused on ROI for what we do invest, but beyond that, there's not too much more hidden secrets as to how we do it.

Our next question will come from Omar Saad with Evercore ISI. Please go ahead.

I wanted to follow up a little bit on China. Maybe you could remind us a little bit of how the business developed last winter in China, if I recall, lockdowns kind of hit at the -- kind of the wrong time ahead of the Olympics. And then I was also hoping maybe you could talk a little bit more about the Japanese market, how you see that business, the opportunity there and any impetus behind the JV?

So I think if we just talk a little bit about the parkas business in China last year, we had mostly a very strong the quarter three which obviously is when they -- it's one of the two peak shopping quarters. And that one that saw us through October and November. And then we got to the beginnings of the lockdowns that restricted traffic and eventually caused store closures as well. And that program rolled from about December through June this year. So it wasn't something that sort of stopped when we ended the fiscal, it was something that continued for, call it, 6 months. And to be clear, we're still not assuming we are disruption-free there. It's something that we see as an improving trend, but it won't be a straight line.

And your comments on the Japanese market, we're very excited about business there. I'm very excited of our business there. It's Japanese market is a market that we've been in for quite some time. At the moment, we're now with this joint venture. We're in the Japanese market with a very strong partner who -- they have a very strong understanding of development developing brands and develop Western brands in Japan, and we're very confident that we're going to be able to build a very strong -- much stronger business and also a much stronger DTC business in Japan through this joint future.

Our next question will come from Meaghen Annett with TD Securities. Please go ahead.

I just have a question around CapEx and how you're thinking about that, both in the near term and the midterm. But can you give us your thoughts on how you feel your manufacturing footprint is positioned, what the current capacity is there? Do you think that you might require any expansion? And given the strength you're seeing in non-parkas categories, is there any change you expect to the mix of your manufacturing between in-house and third-party.

So CapEx, I think you've got a feel for where we rolled on capital expenditure and by and large, that's not going to change. It's a factor of the number of store openings that we undertake and investment in the supply chain and operating model [Indiscernible] factories. I don't see that changing fundamentally. We've got slightly more stores opening this year. So probably it will go up in proportion to that, but we don't see that as a huge variable in the way that we run this business. Our manufacturing footprint is very solid. It has plenty of flexibility in it. One of the benefits of owning 8 factories is that you can really allocate product to the best places so that you have, if you like, some factors might be more focused on lots more short runs. Some might be focused on some of the very big volume lines. You can play tunes around it. And we certainly don't see that as any form of limitation for our current and projected plans. I think the inevitably, as we get into more categories, we've got a rule that says that we go to the best places in the world to get our product made. That's not going to change. and therefore, there may be some shift away from the proportion of our business that's made in Canada. And as you'll recall, last year, that was 84%.

And to be clear, the vast majority of our downfield for us are all main factories here in Canada.

Our next question will come from Brooke Roach with Goldman Sachs. Please go ahead.

The U.S. has been a strong market for your brand. Can you talk to your view of the sustainability of that business and your growth outlook for the rest of the year within your DTC channel. And then bigger picture, as you contemplate the brand investments and the storm product expansion that you've made in the North American market, what do you think is the right ZIP code for the medium- to long-term revenue growth algorithm in that marketplace?

Thanks for your question. I think for the U.S., when you look at that, I mean, we're still very early days. And as you've seen, it's driving our North American growth across channels, wholesale channel is strong as well. And when you look at our store pipeline, we do have a lot of planned store openings, and I think that speaks to the sustained growth that we anticipate from that market. I think people are learning who the brand is. I think they're discovering the products that we have. They're not buying just parks. They're buying across categories. They're buying into our new categories, much faster than even I would say, a more mature market. So for us, yes, we don't see any signs of slowdown. In fact, we're just continuing to fuel the fire.

And if I can talk a little bit to your question, Matt, how to think about growth and potential in that market. I think taking what Carrie said, therefore, there's a ton of opportunity. So as you think about the stores that we do have, you should expect the business there to grow -- it will grow by price. It will grow by the fact that we will sell more products. It's in more product categories. Therefore, there will be volume growth and we think that there's plenty of opportunity. And as we bring new stores online, we expect that the sales that’s in the newer stores to come close to or being the same as the sort of sales density that we're enjoying in our existing estate and more particularly in the U.S., it's one of our strongest performing markets right now. But I would also remind you that for every step forward we make in the U.S. Actually, that's part of the global potential too because we dial up in the 30, 30, 30 world between North America, EMEA and Asia-Pacific. And therefore, for me, as we add business in North America, it increases our potential in EMEA, and it increases our potential in Asia-Pacific as well.

Our next question will come from Adrienne Yih-Tennant with Barclays. Please go ahead.

It's great to see the positive momentum. Dani, I wanted to go back to your comment on your [indiscernible] shoppers returning. And I know that's the way that many retailers feel they look at the credit card data and kind of the country of origin there. So when you look at the analysis, what's the kind of percent of sales from tourists today versus maybe more normalized pre-pandemic. And then, Jonathan, what is the percent of sales from Mainland China? I know we get Asia, but we've been kind of digging deeper for this quarter versus last year? And then kind of from the lower product costs, is that due to freight improvement, modal mix? Or is it due to economies of scale, which is a little bit more secular and more kind of long term?

Thank you for your question. As it relates to tourist sales, my assumption is you're referring to tourist sales within China and not like internal tourism, not external tourism. We have -- so to be clear, have assumed no international tourism in any of our models. So and we've not built that into our guidance. We have not before, and we still are not building into any guidance for this year. We are assuming that Mainland China trends back more towards normal and that normal means more open towards our peak selling season. And that's how we look at our sales.

Yes. I think when it comes to our Mainland China business in the quarter, it's still the majority of the Asia-Pacific business because there simply isn't very much else going on. But as I said, it's just that the Asia-Pacific business wasn't particularly big. Within that APAC segment, you've got Japan, but that's only a little bit of DTC this quarter, you've got Hong Kong is a little bit of DTC. You've got Macau, slightly better. Ultimately, there's not a huge amount of else. So that's the answer there. And then on the product cost, one of the things to think about is that we are -- as we move into back into higher volumes as we come out of COVID, so you sort of get the benefit, if I can put it this way, of overhead absorption. In other words, the factory -- the same factory and the same cost base is producing more units. And therefore, you're getting lower costs, you're coming back to better costs. So that's really what you're seeing embedded in this. And of course, we have a sourcing function. We're very focused on how we improve our cost of goods all the time. It's one of the tailwinds that we create, its one of the other efficiencies. And all of those together combined to give us low product cost -- lower product cost.

Our last question will come from Jay Sole with UBS. Please go ahead.

My question is on the footwear business. What's the plan to follow up last year's launch this year. Maybe can you talk about any kind of general revenue targets you have and sort of the marketing expense that you plan this year to continue to grow that business?

Yes. Thanks, Jay, for your question. We definitely have extensive plans to follow up on our footwear launched last year. We're expanding our style mix and some really great new styles that are going to be really popular, I believe, both in outdoor performance settings as well as in urban settings, and we're going to continue building up that business in the right way. And so I would say from a materiality point of view, we're not looking for it to be a material part of our business yet. We're building it in the same way that we all of our other categories, which is slow and steady and properly. And over time, we see this as a very large business opportunity, and it will be a material piece of our business, but just not quite yet, probably not for a few years.

This concludes our question-and-answer session which also concludes our conference for today. Thank you for attending today’s presentation. You may now disconnect.