Canada Goose Holdings Inc

Good morning. My name is Kenzie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose third 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. To ask a question during the session, you will need to press star 1 on your telephone. 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 2020 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 in the risk factors section of our most recent annual report filed with the SEC and Canadian securities regulators. These documents are also available on the investor relations section of our website. 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 our investor relations website. With that, I will turn the call over to Danny.

Thank you, Patrick, and good morning, everyone. There are two things that I want to accomplish with this call today. Number one, I'd like to share our third quarter results continue to reinforce our brand health and long-term growth trajectory. And secondly, I'd like to address the coronavirus health crisis and its material impact on our fourth quarter performance. So let me start with the good news. Our brand is strong and our third quarter performance results are a testament to that. I'm really encouraged about the health of our brand and as energized as ever about our long-term potential. To me, what matters most is that Canada Goose is driving traffic and sales at full price. We are delivering best-in-class product and experience, and we are building deeper relationships with our consumers. We are not only succeeding at all of this, but excelling. This was recently reflected in the list index, where Canada Goose was included as one of the top 20 hottest brands in the world in the last quarter of 2019. To compile this list, they analyzed the shopping behavior of more than 9 million shoppers across 12,000 designers and stores online. Considering search data and online sales as well as social media and engagement statistics, it is a great external validation of what we already know to be true. That brand strength led to strong performance. Our third quarter revenue increased by 13.2% to $452.1 million and adjusted EPS per diluted share grew by 12.5% to $1.08. This was achieved with wholesale revenue decreasing by 8.4% due to a planned and communicated timing shift. As you'll recall, last quarter we had a shift in the order book to the left, and we forecasted a mid-teen decrease in Q3. Nonetheless, we outperformed our expectation because of strong demand for reorders, further demonstrating the strength of our brand. We also grew our direct-to-consumer business by 28.3%, even though our stores in Hong Kong, which prior to the protests were amongst our best in the world, were severely impacted by disruptions. In what has been called a challenged retail environment in winter shopping season, the commercial energy in our stores was incredible. We continue to have frequent lineups across our store network, including our older locations such as Yorkdale and Soho and our new experiential store at Sherway. That ability to drive profit and full-price sales also applies to wholesales. Our carefully curated best-in-class partners regularly call us out as a bright spot. Timing shifts aside, the fact that we have grown wholesale revenue by 11.2% year-to-date while editing down our points of distribution is a testament to how strong our brand is and to the quality of the partners that we have chosen. While most other outerwear brands were discounting frequently throughout the season to drive business, we were not. We had a great Black Friday, one of our biggest sales days of the year, without any promotions in our entire DTC channel, and we saw the same strength for Cyber Monday and for Boxing Day. That tells me that we continue to offer consumers something unique, which they truly value and are willing to invest in. We are not prepared to participate in a race to the bottom with which other brands are. Many of you have done your own channel checks, and you know what I'm talking about. This continued brand momentum all started with great products. We've been methodically adding depth and diversity to our offering for years. The results this season tell us that we are on the right path. Three of the top five new styles across both genders were lightweight down, which is an incredibly versatile product for a wide range of conditions and for climates. We also saw the Lodge hoodie, a core lightweight jacket that we've had in our collection for years, become one of our top sellers in DTC. There is no doubt that our strategy to move beyond just the parka is working. In knitwear, we also continue to see encouraging results. It is growing well above the business as a whole, with significant volume increases complemented by an additional uplift from pricing. For the first time, the category approached double digits in percentage of sales in a number of retail stores, not surprisingly, I have seen it in Hong Kong and Milan, given the climates, as well as Mall of America. As we all know, retail is undergoing transformation and success requires new thinking and bold moves. As I mentioned in our last call, we opened The Journey, an innovative new retail concept that we launched in Toronto in December, which is a great example of that breakthrough innovation. We've seen an incredibly strong reception from consumers already. During a three-week period in the heart of the holiday shopping in December, over 8,000 guests completed The Journey. Designed to take 15 minutes, it is a guided and intimate tour to explore the brand through digital content, interactive displays, and the next generation of our award-winning cold room. As they finish their journey, guests have the ability to browse and purchase the full assortment of Canada goose online with local same-day home delivery, and they do. As an experimental omnichannel concept, there are a lot of valuable early learnings from the journey that we're reflecting on, It has proven that an inventory-free store environment can be commercially viable for us. With this format, it enables our brand ambassadors to focus exclusively on guest experience, education, and service, and customers get access to the full depth of our online inventory at the snap of their fingers with same-day delivery. We consider this experiment to be a big success in this concept of something that we are very excited to explore further. I also want to provide an update on our supply chain. which we discussed last quarter. Now that we have sufficiently built out our own manufacturing infrastructure, we are in the process of rationalizing our third-party manufacturing capacity by approximately two-thirds. We expect that this will bring in-house production as a percentage of total output from the low 50s at present to approximately 70% in the next year. As we have said before, in the short term, we plan to continue to ramp up our own facilities, building inventory ahead of near-term growth for next year, to maximize efficiency and continuity. Moving into fiscal 2021, our plan is to have inventory levels be much more in line with sales as total output comes down in a planned way, and we expect to see inventory normalized relative to growth by the third quarter. Now, let me address the dynamics around the coronavirus outbreak, which has hit our biggest current growth market. First and foremost, our hearts go out to everyone who has been affected. and we stand together with everyone in China and the rest of the world in addressing this health crisis. To that end, we have made a 1 million RMB contribution to the Wuhan Charity Federation, and we hope that our humble contribution can be of help to swiftly win this battle. The health and safety of our team in Greater China is our top priority, and we are closely watching the situation and adjusting our operations as needed in cooperation with the local authorities. I'm proud of how our team has responded to this situation. They have demonstrated incredible calm and professionalism. On their behalf and on behalf of all of our 5,300 employees around the world, I want to express our gratitude to all of the healthcare workers who are working tirelessly on the front lines. Greater China is incredibly resilient, and we hope for a swift resolution to the situation. As it is to everyone in the luxury industry, this is obviously a major near-term headwind. Understandably, people are staying home and avoiding shopping for their own health and safety in China and abroad. So we're seeing impact in our stores and on Tmall in China. And also in stores located in major international shopping destinations in Europe and North America due to extensive flight cancellations and travel restrictions. While we expect this to have a material near-term impact, this is a temporary disruption. Nothing about the situation impacts our fundamentals. and our future growth potential remains intact. We know it will pass with time, and we believe we have the financial and brand strength to ride it out with confidence. From a supply chain perspective, we expect that any impact that may occur in the long term will be offset by the buffer inventory that we have built over the last year. Unlike many other manufacturers, our current finished goods inventory gives us high confidence in our ability to fully satisfy demand for next year. We've built an incredible business in greater China in a short time, and we are ready to continue our rapid expansion there as soon as this is over. In closing, I deeply believe in our long-term potential and our strategy to get there. We continue to work diligently on our product extension plans. Our brand is strong, and we have a solid position in all of our key markets. We are in command of the things that we can control, and we have the strength to navigate the things that we can't. And with that, I'll turn it over to Jonathan to go over the details of our financial results and revise our plan.