Canada Goose Holdings Inc

Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose second quarter 2020 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, please press star then one on your telephone keypad. If you would like to withdraw your question, please press the pound key. Thank you. I would now like to turn the call over to Patrick Burke, Senior Director, Investor Relations. You may begin your conference.

Thank you, and good morning, everyone. With me are Danny Reese, President and CEO, and Jonathan Sinclair, EVP and CFO. After prepared remarks from Danny and Jonathan, we will take your questions. This call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement, including discussion of our Fiscal 20 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 issued this morning, as well as 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. 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 at CanadaGoose.com. With that, I will turn the call over to Danny.

Thanks, Patrick, and good morning, everyone. I am really pleased to tell you that the power of our brand and our business model pulled through despite a challenging external environment, and we delivered another strong set of results to finish the first half. And here are the highlights. In the second quarter relative to last year, revenue grew by 27.7%, and adjusted EPS per diluted share increased 23.9%. Even with the unrest in Hong Kong, revenue in Asia nearly doubled to $48.9 million. Revenue in the U.S. increased by 38.5% on a constant currency basis. Revenue in Canada grew by 29.9%. Against tough comparisons in our most developed market, this is a strong result. From a brand perspective, it is great to see consumers at home embracing our lightweight down jackets and knitwear. From a channel perspective, wholesale led the way with its largest quarter, with revenue increasing by 22.9%. This was complemented by direct-to-consumer growth of 47.2%. Like in the first quarter, we continued to fulfill partner requests for earlier shipments on the back of increased operational flexibility. With that as a starting point, there are a couple of specific topics that I would like to address. Let me start with Hong Kong. As I'm sure you're aware, the situation has intensified since our last call. With the impact on tourism and retail traffic, the performance of our store at IFC has impacted it significantly. The same goes for our recently opened location at Ocean Centre, which is the fifth of our nine openings this year. With this addition, we are established in the two most important luxury retail districts in the city, complementing the mix of guests we already reached through IFC. Although we wish that the situation was different today, we are developing markets and building stores for decades, not just for the next quarter. Fortunately, during our second quarter, strong top-line performances in other markets offset the impact on Hong Kong. We are watching the situation closely and evaluating actions to streamline our cost base on the ground, including negotiating accommodations from landlords. Moving on, wholesale timing is another important topic for understanding our business. The channel operates largely as a planned economy. Our fall, winter, and spring order books are set down to the color, style, and or well in advance, and this gives us great visibility through the year. The timing of when we shift these orders can and does shift from month to month in any given year. It comes down to a balance of when our partners want delivery and when we can manufacture their orders most efficiently. This year, we've been well-positioned to fulfill customer needs earlier. The shape of every year has always been different, and so movements of orders between quarters or months is not a reliable indicator of annual performance. I am really pleased that we've shipped so much of our fall-winter order book earlier, which naturally means less shipments in the next quarter. It does not mean the underlying demand in the channel is changing. We continue to expect wholesale revenue to grow in the high single digits in fiscal 2020. This shift has already impacted our numbers for Europe and the rest of the world, where revenue decreased by 3.4% in constant currency. For the same reason, this is not something that I am at all concerned about. As it is our most wholesale-centric region, and it grew by 79.7% in the first quarter. So fewer orders shipped this quarter is a logical follow-on effect. As you have seen before, growth rates in any given geography can vary from quarter to quarter exactly for this reason. Lastly, I want to provide an update on inventory, which we discussed last quarter. We have continued to build an inventory buffer ahead of growth to maximize production efficiency and long-term commercial flexibility. Going back to our IPO, a key growth strategy has been increasing in-house production to control our own destiny, provide greater flexibility, and to increase margin. Initially, this meant expanding in-house capacity alongside expanding existing contractor production. In building four factories over the last two and a half years, over half of our downfield production is now in-house, and we're at a stage where we can actively reduce our CMTs in the coming year. I continue to feel very good about the size and the current composition of our inventory position. We continue to operate commercially with a disciplined and selective allocation model, both at wholesale and in our own DTC channels, and always at full price. Going into next year, once the rationalization and transition are complete, we intend to improve inventory efficiency relative to sales and expect that our inventory levels relative to revenue will trend lower over time. I'm also excited to share with you a few things that we are doing with innovation and experimentation in retail this season. I believe that our customers own our brand, and the value of our brand is defined by the sum of their experiences. Innovation and experimentation is an important part of that puzzle for us. With consumers looking To use outerwear to express our own personality more and more, our recent relaunch of Branta is a great example. A focused collection of six never-to-be-repeated styles, it is an elevated interpretation of Canada Goose's heritage designed to inspire loyal brand fans and reach new audiences with pinnacle product. Through versatile 4-in-1 and 3-in-1 and reversible styles that feature an artistic print, and luxury fabrics such as Loro Piano wool. Branta has been a high-impact centerpiece on our floors, and the commercial response so far has been incredible. We have also introduced pilot programs to encourage self-expression, including the ability to add personal details on their jackets and to customize for consumers to customize their jacket with new hood brim options, offering new reflective, comfort, and insulated brim choices, Consumers can tailor their jacket to where and how they use it and their own personal style preferences. The customer response from these programs has been extremely positive, and we are learning a lot to inform future direction of both product and retail engagement. Similar to our innovation with cold rooms and customization and personalization pilot programs, we continue to experiment and evolve with retail formats. In a fast-changing digital-first world, you cannot succeed by repeating the same store concept again and again. One box does not fit all. There are so many interesting opportunities out there to micro-target to specific locations, customers, influences, and experiences. This year, we've activated a number of new direct-to-consumer formats to test and learn what works where, what customers want, and how we can deliver exceptional experiences in new ways. As we have done in the past, we are also utilizing pop-ups to activate markets and test locations for permanent openings. Later this week, we'll be opening at Tyson's Galleria in Washington, D.C. area, and we're excited to be bringing our amazing Canada News experience to life there. Going back to my initial remarks, having global brand strength, multiple avenues of growth, and the discipline and focus to execute well are so important in times like these. Winter has just kicked into high gear, and I am really encouraged by how we are performing despite the continued external headwinds and ongoing uncertainties. Despite that, we continue to see long lineups in our stores across geographies, which shows the power of great products and exceptional experiences. And with that, I'll turn it over to Jonathan to go into the specifics of our financial results.