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spk07: Conference is scheduled to begin shortly. Please continue to stand by. Thank you for your patience. Thank you. Good day and thank you for standing by. Welcome to the Canada Q4 2021 earnings conference call. At this time, all participants are in a listen-only mode. 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. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Patrick Burke, Vice President, Investor Relations. Please go ahead.
spk03: 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. These will be limited to one each to allow as many as possible to ask questions within the allotted time. This call, including the Q&A portion, includes forward-looking statement. 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 factor section of our most recent annual report, 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 on the table at the end of our earnings press release issued this morning and available, again, on the investor relations section of our website. With that, I will turn the call over to Danny.
spk01: Thanks Patrick and good morning everyone. We entered this year in uncharted territory with a simple plan in place to do everything we could to support people during this time of uncertainty and to put our business in the best possible position for a strong recovery this year and beyond. In an unprecedented and difficult year, we moved key strategic initiatives forward, and I'm very excited to share those highlights and our results with you here today. To begin, Canada Goose has shifted from recovery to growth beyond pre-pandemic levels. Not only did we finish the year with a record fourth quarter, we have positioned our business well going into next year. And now, with two strong growth quarters behind us, We feel very confident about the runway ahead and our return to continued meaningful growth. Our fourth quarter showcased the true strength of our global digital business with triple-digit growth. Our global e-commerce revenue increased by 123%, driven by high double-digit or low triple-digit growth in all major established markets, including Canada, the United States, mainland China, and the U.K., not to mention the strong performance in our earlier stage markets like Germany, France, and Ireland. This year, we accelerated our digital strategy. We accomplished in months what was planned over years. This approach was a response to a shift in consumer behavior driven by COVID, but it is underpinned by our focus on shifting forward our strategic plans in order to accelerate continued growth. This achievement has had incredible implications across our business, and I look forward to continuing to update you on our achievements across this very important channel in the future. Looking ahead, we will continue to execute against our long-term growth strategy with 10 new store openings expected for fiscal year 22. In North America, we plan to open in South Coast Plaza, a premier shopping destination in Southern California. In Europe, we expect to open three new locations, including two in Germany and another in the UK. And in Asia Pacific, we plan to expand our retail network, adding six new permanent stores. We continue to be encouraged by the performance of our existing APAC network. In the past three years alone, we've built a more than $250 million business, a tremendous feat by any measure, and a testament to the strength of our brand in that region. Lastly, in terms of consumer relevance, all of the research we are seeing shows a growing and positive shift in brand sentiment and trust. We believe this is a result of a number of factors, including the important progress we have made under our human nature platform and our commitment to keep the planet cold and the people on it warm. We continue to execute against our commitment to address environmental, social, and economic challenges, and we are extremely proud of the progress that we have made so far. Building on brand relevance and consumer demand, Canada Goose exists at the nexus of culture and fashion. For decades, we've been a coveted brand across the influential arenas of film, entertainment, and sport. And this year, we bolstered that tradition by announcing a multi-year partnership with the NBA that made Canada Goose the outerwear partner of NBA All-Star. We continue to focus on driving brand heat with consumers, This multi-year partnership is a significant milestone for us. In the coming years, we will develop exclusive design collaborations in partnership with the NBA for players and fans alike. This quarter, we continue to focus on driving meaningful change that is fundamentally important to today's consumer. Through our product innovation strategy and focus on sustainability, we are making an impact. 2020 was the year we gave consumers the first glimpse of our most sustainable parka to date, the standard Expedition Parka. This quarter, we also launched the Cypress and Crofton, two bold new spring styles featuring recycled fabrics. Not only are these offerings resonating incredibly well with consumers, they are blueprints for our sustainably driven collections moving forward and key drivers of our expanding multi-seasonal offerings. We've also made progress towards building vibrant communities and maintaining healthy and respectful workplaces. As a leader in the Canadian manufacturing industry, we offer meaningful work and valuable job skills for thousands of people, both in Canada and abroad. As vaccinations ramp up and as global supply continues to increase, for many, we've entered a new, more hopeful phase in our global fight against COVID-19. In an effort to remove barriers and ensure equitable access, we are offering all employees paid leave to receive COVID-19 vaccinations. I am proud to do our part to ensure that all Canada use employees have equitable access to vaccines. That said, for many, the battle continues and our thoughts are with all of those who have been affected by COVID and to those communities and countries who are at earlier stages in their recovery. Looking ahead, I'm very excited for the upcoming commercial launch of Canada Goose footwear. As you know, we've taken a very deliberate approach to this category, which has been many years in the making. And now, with the launch later this fall, we have an incredible opportunity in front of us this year and beyond. We plan to bring a brand-new perspective to the marketplace, and I look forward to sharing more details about our vision for that with you this fall. In summary, we have demonstrated strong current momentum and we have confidence in our growth potential long-term. I am incredibly proud of the way our team has executed under such difficult circumstances and the strides that we have made across all of our strategic initiatives, while remaining steadfast in our commitment to strengthening our communities, protecting our planet, and working towards a better future for generations to come. Our business has moved well beyond recovery, and we look forward to continuing to deliver meaningful growth this coming year and for the long term. And we plan to cross the billion-dollar threshold as a brand for the first time this year. And with that, I will turn it over to Jonathan.
spk00: Morning, everyone. Thanks for joining us. I really hope everyone is well. The fourth quarter represents a step change in our performance and an excellent finish to fiscal 21. From where we are today, just 12 months ago, we were facing a near total shutdown of our business globally. We've navigated a year like no other, and we're coming out stronger on the other side. Reflecting on our results and on our path forward, there are three key themes that stand out Firstly, we have transitioned from recovery to growth beyond pre-pandemic levels. Secondly, we are purposely investing for the long term. And thirdly, we are confident in our potential for meaningful growth in fiscal 22. So let's start with the top line. Total Q4 revenue was $208.8 million. Looking at the pre-pandemic comparative base, this is still 33.7% higher than two years ago. It is a strong reaffirmation of our strategy in a challenged environment. E-commerce led the way, driving our outperformance. Global revenue increased by 123.2% relative to last year, we had outstanding growth rates in all of our major markets. Mainland China and Canada were both in the high double digits, and the US more than doubled. In Europe, the UK and Germany both nearly tripled. As expected, demand timing was later this fall winter. This is due to the shift to buy now, wear now shopping, which we've discussed throughout the year. Supported by a wide range of operational improvements and investments, this made Q4 the high watermark for our online growth in fiscal 21. This was complemented by a resilient retail revenue performance, despite outsized headwinds due to a number of factors. Nine stores in Canada and Europe, representing 32% of our footprint, were closed for an average of eight weeks in Q4. These closures included a number of our most significant locations globally. Those closures were also weighted to our most productive time in the period, namely January and February. Our stores in mainland China continue to be a bright spot, Our decision to concentrate openings there has paid off. In the seasonally smaller quarter, wholesale revenue was $33.3 million. This was ahead of an expected decline, though the absolute dollars are clearly small. We experienced an uptick in final reorders to finish fall-winter, and the performance of our spring collection, which was heavily disrupted last year, has been encouraging. Looking at our top-line performance from a geographic lens, this is where you see a brand with truly global growth and truly global potential. In the earlier stages of recovery from the first wave, mainland China was the only growth engine. Now we are at a point where other markets are following its path. Revenue in the United States increased by 59.3%, while Europe and the rest of the world came in at 46.7%. Each of these regions has a long runway, and they are important components of our global potential. Given the elevated and prolonged retail closures in Canada, including Greater Toronto, a revenue decline of just 6.9% is also an encouraging result. Moving from Q4 to our plans going forward, we are purposefully accelerating growth investments in a number of areas. We believe that the time is right to play more offense and to drive our agenda even harder. Thanks to the financial resilience and strong cash flows of our business, the only constraint we have is our own discipline, discipline around execution, discipline around returns, and discipline around strategic value. You see this when you look at fiscal 21. In a year with unprecedented challenges, we still had a consolidated gross margin of 61.3%, an adjusted EBIT margin of 14.7%, and free operating cash flow of $222.9 million. This gives us an immense level of capacity and flexibility. So let's start with marketing. You'll recall that we sharply pulled back spend in the early stages of the pandemic. Our business was largely shut down and consumer attention was understandably elsewhere. We then accelerated brand and demand building in the back half of fiscal 21 to great effect. And you've seen the results. For fiscal 22, we are planning to carry this through and increase marketing as a percentage of revenue. We're returning to a normalized level of investment, and we believe it's the right thing to do, given our commercial momentum. Our next area of investment is continually improving our digital consumer experience. From site enhancements to virtual appointments to omnifunctionality, We have a packed agenda of initiatives we are excited to launch in the coming year. While the pandemic has accelerated our digital strategy, it has also reaffirmed our retail store model. In all markets during reopenings, we've been very encouraged by the return of local traffic and the strength of our conversion rates. This tells us our consumers still deeply value physical experiences and personal service. With a selective focus on only the best locations, we have continued to generate strong levels of operating profitability and capital return. Looking ahead, we currently plan to open 10 new stores in fiscal 22, all in premier locations. Of these stores, six are in Asia, three in Europe, and one in the United States. I'm particularly excited for us to be coming to South Coast Plaza in Southern California. It is one of, if not the, top luxury malls in the US, as well as being one of the most productive malls in the country. It is also the perfect market for our growing lightweight offering. Lastly on investments, This fall-winter, we will launch Canada Goose Footwear as we continue to develop as a lifestyle brand. Our focus in year one is to maximize awareness and demand with a focused and tightly controlled pinnacle product. This requires a significant level of upfront investment. It will not be immediately profitable. we strongly believe that we must put the full weight of the business behind seeding this pivotal category. This is the right first step for commercial and financial success at scale in the longer run. Moving on from our investment plans, let me share some colour on how we're thinking about fiscal 22 and Q1. We are confident about the year ahead. We know, that said, that we remain in a disrupted and dynamic environment. The return of tourism, historically an important factor for our sector, remains some way off. Given stable economic and operating conditions, we currently fully expect to exceed a billion dollars of annual revenue in fiscal 22. We are continuing to lean into DTC globally to drive our growth. This assumes that the channel approaches 70% of total revenue. While we don't know today how much of the pandemic's digital shift will be permanent, we do believe we have the right foundations in both e-commerce and stores to capture demand and serve the consumer however, whenever, and wherever they choose to shop. In wholesale, we are assuming annual revenue is in line with fiscal 21. The channel has rebased to a new normal. Significant brick and mortar pressures remain in many markets. We have continued to edit down undifferentiated doors during the pandemic, as we have been doing over many years, and our approach to volumes remains very controlled. we're excited to concentrate more of our business with our best-in-class strategic partners going forward as we come out of the pandemic together. From an inventory perspective, our current position is well matched to our expectation of significant revenue growth in fiscal 22. It also gives us the right level of commercial flexibility for upside in seasons. Given the current uncertainties around offshore supply chains and shipping, we believe that being a domestic manufacturer at scale with a staged evergreen offering is highly advantageous. In terms of gross margin, the expected DTC mix shift will structurally drive our consolidated level higher. At a channel level, the mid 70s for DTC and the mid to high 40s for wholesale remain the right levels for our business over the longer run. From a cost perspective, we are currently planning annual SG&A to have a growth rate in the low 30s. This reflects the suite of investments I described earlier, as well as variable costs not incurred last year due to shutdowns and lower levels of commercial activity. In terms of adjusted EBIT margin, we of course expect improvement relative to the 14.7% we're reporting for fiscal 2021. A full margin recovery is dependent on the return of international traffic, which represented roughly half of our retail store business prior to the pandemic, as you may recall. Our planning assumes that tourism and major global shopping destinations will not be meaningful this year. Until that changes, we believe that our adjusted EBIT margin is likely to remain in the mid to high teens. Let me round this out with some commentary around Q1. This factors into our current expectation of exceeding $1 billion in annual revenues. we're assuming DTC revenue to be roughly two and a half times last year's level. We have more retail stores in operation, but we continue to face closure headwinds in Canada and in Europe. For the stores that are open, the absence of international traffic is also more impactful at this time of year. E-commerce continues to generate robust growth, Whilst not at the level of Q4, it is currently around the 54% growth rate we achieved in fiscal 21 as a whole. As this is a buy-now-wear-now channel, it is, however, a much smaller needle mover at this time of year. In wholesale, we expect revenue to be roughly double last year's level, and in the other segment, which was driven by PPE manufacturing last year, we do not expect any meaningful revenue. In terms of gross margin, we currently expect a mid-70s level in DTC and a low 40s level in wholesale. This is in line with what we had in the comparative quarter in fiscal 20 prior to the pandemic. Lastly, on the expense line, we expect SG&A and DNA combined to have a low 70s growth rate. This is well above our expected annual level. due to the fact that our operations were largely shut down at this time last year. In closing, we have navigated through a challenging year. We came out stronger than ever. We have grown beyond pre-pandemic levels. We are investing with purpose for the long term. Our brand is strong. We continue to innovate with best-in-class product We are optimistic for the year ahead, and we are confident that our momentum, our strong momentum will continue. And with that, I'll pass back to the operator to begin the Q&A.
spk07: Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Please limit yourself to one question only. If you have any follow-ups, you may re-enter the queue. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Ike Boruchel. Your line is open.
spk15: Hey, good morning. Congrats, everyone. I guess, Danny, just a question. The e-commerce acceleration through the year, especially Q4, is just pretty impressive. Can you just talk to what exactly is driving that within your business? And then maybe bigger picture, where do you expect e-commerce penetration as a percent of direct-to-consumer sales potentially to settle out maybe this year or multi-year down the road? Thanks.
spk01: Sure. Thanks, Ike. And great question. I mean, there's a couple of factors at play here, for sure. The first is obviously the massive shift in shopping behavior that was brought on by the pandemic. In this particular quarter, mandatory retail closures were more elevated in a number of markets, and that affected it as well. The second factor is later in-season purchasing that we saw, and we've seen more immediate buy now, wear now shopping in the pandemic. And winter is our season. And we saw that acceleration in previous quarters and even towards the end of Q3, we saw it growing stronger, which we indicated when we last spoke. And Q4 just continued. To that point, we've been investing heavily into that to make sure we capture all that demand and meet our consumers wherever they wanted to shop with us. And in many cases, it turned out to be online, and we were able to – and, you know, we were absolutely able to deliver on that. And, you know, I think that our investments in digital that we made throughout – you know, we pivoted quickly and decided to put a lot of – to repurpose and pull a lot of additional investment into our digital platform also really paid off. In terms of like the percentages, you know, for us it's not really about reaching a certain level of digital penetration. You know, our strategy was to drive overall, our overall DTC mix forward. However, the customer wants to shop and, you know, that, you know, we believe that it would be nice to believe that it's not going to change again over time. And, you know, what's important is to be available to the consumer as wherever, whenever, and however they want to shop. Uh, so, and for that reason, both channels are really important, um, both bricks and, uh, and, uh, online. And, uh, while the, while the pandemic obviously pushed e-commerce further forward, retail remains a very important part of the equation. And, you know, through things like Omnicart and virtual appointments, uh, the lines between those two, uh, mediums are actually growing quite quickly. And, uh, You know, we're working really hard on investing a lot of money and bringing together the best of both worlds for our consumer.
spk07: Your next question comes from the line of Jonathan Komp with Baird. Your line is open.
spk11: Yeah, hi. Thank you. One maybe follow-up, just clarification, thinking about the DTC margin, as e-commerce penetration is higher, I believe that's a more profitable channel even versus retail. So does that help in terms of thinking through the margin recovery relative to the retail traffic levels, just given the higher income penetration? And then my broader question, Jonathan, just thinking through the margin impacts you highlighted, any way to quantify some of the the investment areas, as well as some of the external pressures from factors like labor or freight, what you're expecting there in the outlook. Thank you.
spk00: So, thanks, Ron. So, I'm going to answer those in two parts. Let's take the question around DTC and the component margins. In normal times, we enjoy similar margins from the stores and from online. But at the moment with headwinds in terms of traffic in the stores, clearly the online margin is higher. But overall, the strength of the DTC performance is still producing a mid-40s operating margin. And that's well above the level that we see in wholesale. And therefore, you're right, to the extent that DTC grows faster, that will move our margin forward and give us more scope for investment. To turn to your question on freight and labor, to some extent, this is more of a gross margin question, and it plays into our algorithm on margin, where we always talk about the tailwinds and headwinds of gross margin and the need to keep the two in balance. So for sure, like everyone else in the sector, we are seeing disruptions to shipping routes and higher freight costs. And we look at that in a dynamic landscape. But through our pricing power and our high gross margins, as well as the fact that we've got staged inventory and domestic production, we actually think we're pretty well positioned currently. Obviously, we watch the situation closely and we proactively plan around it. It helps the fact that our average unit selling prices are quite high. But if there is adverse change and there are significant impacts, we would update you. But right now, we're pretty confident that it's in balance.
spk07: Your next question comes from the line of Michael Benetti with Credit Suisse. Your line is open.
spk12: Hey, guys. Congrats on a great quarter. Thanks for taking all our questions here. um danny jonathan i guess this one's a jump ball um but you know that you talked a bit about the tourist that's obviously been a huge part of your business you're you know you're opening a store in southern california so you're clearly not walking away from that focus can you help us think about you know numerically how the the lack of tourism impacted fiscal 21 i know jonathan you've told us a few times it was half of your store's business prior to the pandemic um I'm just trying to think about, it sounds like you didn't account for much tourism in the guidance this year, but if I look at what I think you're telling us you expect this year to be with wholesale flat and B2C getting to about 70%, it looks like you're maybe $750 million of direct-to-consumer. That's significantly above where you were in fiscal 2020 without even having a tourist baked into your numbers. So I'd be curious about how you're thinking about how much that impacted you last year and how to help us think about what the upside could be if we do start seeing tourism come back this year. And then, Jonathan, maybe a little bit more on the strategic rationale about the acceleration of the growth investments that you did talk about. Obviously, it's a significant opportunity as you spoke about it, but why now and why so significantly? I'm curious to hear your thoughts on why the time is now.
spk01: Thanks, Michael, for that question about tourism. Yeah, I mean, your observation is a good one, and that is that we've not assumed the return of tourism this year, and that is the return of tourism to pre-pandemic levels whenever that will happen, which is nobody's able to predict that. Whenever that's able to happen, it definitely offers a material upside to our business, and because it did represent such a large percentage of our sales, and they're completely incremental. They were at the time, and we believe they will be again at some point in the future. But with regards to this year, and of course we're optimistic that will happen at some point in the future. This year, and the way we look at the year to come, we're not planning on tourism returning in fiscal 2022. So that's the way we look at it, and I find it really encouraging that we can grow through these times in the absence of global tourism and still grow at the rate that we're growing, and I'm very excited about the return of global tourism to just add to that momentum.
spk00: I'd echo that. I think that there's, for me, tourism is cold spring waiting to come. as and when it returns, that really will bring us back. I think when it comes to the investment rationale, we're seeing great demand strength globally. And from the investments we've already made, and as we've reported back to you, we've seen the payback in the fall-winter period this year in spades. The digital shift in particular has pulled forward years of digital growth and consumer expectations of experience are way higher. So we need to stay in front of that, and so investing into that right now we see as pivotal.
spk07: Your next question comes from the line of Oliver Chen with Cowen. Your line is open.
spk13: You've made nice strides in the multi-seasonal product. Where do you see that mix? going over time and how will it impact the seasonality you experience. Also, we're looking forward to footwear. We just love your views on how that mix could evolve and what the strategy will be by channel. Thank you.
spk01: Thanks, Oliver. Yes, spring is performing really, really well right now. We're very happy with how it's doing. It's a super important part of our collection going forward and our plans going forward. The Crofton and Cypress in particular are lightweight down styles for spring that are made completely out of recycled materials, and we're really happy to see how well those are doing. I think spring is a very important part of our future plans. I think the lifestyle brand, it's going to be a – an important component and one that continues to grow at a meaningful rate. And so we're very excited about that. In terms of footwear, I'm personally extremely excited about footwear. It's something that we've put a lot of thought into over many years and has had a lot of strategic thinking put behind it. And it's finally coming to fruition this fall. We're very excited about it. I think that I think the market will like what we are like our our interpretation of footwear as well and the products that we bring to market. And, you know, we're going to start with our small and we'll start with the best of the best and grow our product offer from there. I mean, we do believe that over a long period of time, long haul, longer term, it could be a very material piece of business for this company. For this year, you know, I wouldn't consider it to be a material piece of business.
spk07: Your next question comes from the line of Megan Annette with TD Securities. Your line is open.
spk05: Thank you. Good morning. Can you talk a little bit more about your learnings with regards to brand awareness? What's your view on brand affinity today relative to pre-pandemic? And just looking at North America specifically, have you seen any shift in consumer sentiment toward the brand in Canada and also in the U.S.? Thank you.
spk01: Yeah, thanks for the question. We're definitely seeing a growing and positive shift in brand sentiment and in trust for our brand. This quarter, we continue to focus on driving meaningful change that is fundamental to today's consumer, and that has been delivering results. We believe this to be a result of a number of factors, including important progress we've made under our human nature platform, which has been very well received and is a very important part of the future. and our commitment to keeping the planet cold and the people on it warm. That's a sincere commitment. We've released our 2020 sustainability report this year, second in a row. It reaffirms our commitment to net zero emissions by 2025 and adds to new commitments around preferred fibers and materials and sustainable packaging. So we've been continuing to execute against our commitments to address environmental, social, and economic challenges. And we're extremely proud of the progress we've made so far. You know, and I'll add, like, I think it's, you know, one last thing, and that's that I think that, you know, I mean, with or without the pandemic, but if the pandemic is anything to light, is the delicate balance of human and nature. And, you know, I really don't think that if you look forward 20 years, there are going to be many companies around that, that are not good for the world. And so it is our intention to be a leader in helping to transform the apparel industry to be sustainable.
spk07: Your next question comes from the line of Omar Saad with Evercore. Your line is open.
spk10: Thanks for taking my question and all the information on the update. Appreciate it. You know, it's great to hear the success of the DTC in e-commerce. I'd love to ask a follow-up in more detail around the wholesale side of the business. I know it's planned to be flat. Maybe any more details around plans to rationalize or not going forward? And then also on the kind of wholesale.com side, how do you look at that marketplace and is there a role for the e-concession type models that are marketplaces that are out there? Thanks.
spk01: Yeah, thank you for your question. And, you know, to address wholesale first, you know, we've always taken a very controlled, brand-first approach to wholesale, and this includes editing down, differentiating distribution, or going deeper with the best. You know, we do believe we have some strong wholesale partners, and, you know, wholesale is an important part of our business, always has been, and continues to be. You know, even though our DTC business is growing faster, it's not a diminishment of the importance of wholesale. And I Um, you know, but with that said, we, we, we do edit, um, and make sure that, uh, all of our, uh, all of our accounts are, are, um, are, uh, brand accretive and, uh, and, and helpful to building our brand. So, you know, for example, in fiscal 21, we went from 2,100 points of distribution down to 1,900, which is over 1,900. And, uh, you know, when we first went public, we were at 2,500. So we have been rationalizing over time. Um, and, uh, And, you know, that's to make sure that, you know, we are continuing to partner with like-minded partners. And it's a continuous process. I mean, honestly, it's not just been the last three years. It's been the last 15 years. And we continue, you know, we expect it to always be a part of how we strategically think about our business. And, you know, just to, you know, that said, to reiterate, you know, wholesale as a category remains an important strategic part of our business. And we're really excited to get going this coming year with the best-in-class partners that we do have. So that's wholesale. In terms of new ways of doing business on e-commerce with third parties and e-concessions and whatnot, certainly very much top of mind, and we're always exploring new models. um, and new ways of innovating with our partners and, uh, are involved in conversations all the time. Uh, you know, our focus is on staying in front of how consumer shopping is evolving and making sure we provide the best, the best possible experience for consumers. And, um, you know, uh, we're certainly evaluating, uh, how this sort of model can do that. Uh, we don't have any concrete plans at this time, uh, but we, uh, you know, we'll continue, uh, think, think, talk, and, uh, we, uh, We'll watch how the space is evolving.
spk07: Your next question comes from the line of Sam Poser with William Streeton. Your line is open.
spk08: Thank you for taking my question. I wonder if you can dig into your marketing. You know, you're going to increase your marketing spend. I assume a lot of that's going to be digital and direct. And generally when companies have been – that increase digital-owned marketing right now? Because a lot of companies have gotten a good return fairly quickly when they start to crank that up.
spk00: Yeah, I think... Thanks, Sam. I think that, you know, you're right to say that a lot of our investment is digital. I mean, I think in this world it's inevitable. And we have seen and continue to see and hence continue to feel our growth by that investment. The ROIs are exceptional and measurable. So from that point of view, it gives you increased conviction over time. And that's where we put a lot of our emphasis to drive the performance of the business.
spk07: Your next question comes from the line of Camilla Lyon with BTIG. Your line is open.
spk09: Hi, thank you. Good morning, everybody. Just two quick questions. One, just on the wholesale guide, I was wondering, Jonathan, if you could help us by articulating the components of what is the contribution from fewer doors versus what the order book was within that flat guide. And then just long-term on footwear, that's going to be an introduction to your DTC channel first. How should we think about the price points of the offering, and who are your key competitors that you would point to as one thing you would go after from a market share perspective? Because you straddled both the technical as well as the fashion components of the market, so there's a lot of opportunity there, it seems.
spk00: So I think when it comes to... the wholesale business. We have been successful over the years at culling the distribution where it ceases to be brand accretive. We've always been very clear that wholesale distribution serves a purpose in this business, which is to be brand accretive either because it gives a physical presence of the business in places where we're never going to go directly ourselves, or because it puts us with key opinion leaders, or both. And inevitably, over time, some distribution falls away, some distribution comes on stream that's interesting and where we need to be. But overall, we see a gradual decline, and we're sort of somewhere just over 1,900 doors these days. And at the time of IPO, we were around the 2,500 or so mark. So you can see there's a gradual decline going on in the number of doors. We see that as something that will likely continue and therefore produce, as I said before, ever better quality of earnings in absolutely the right quality of distribution for the brand. I think it's early days on Footwear to be talking about it. We'll be talking about it much closer to the launch. We're super excited about it. We see real scope for it in this business, but we're also very clear that it's going to be a launch year where the focus is on seeding and demand generation rather than it being a meaningful business this year. It's a meaningful launch of a business that will become meaningful over time.
spk01: Yep, agreed. I'll just add to that. I mean, I'm very excited about the products themselves. You know, I think, I know that Canada Use is known for best-in-class products, and it's our intention to only ever release best-in-class products into the marketplace, and you can expect no less from our footwear offering when it hits the marketplace.
spk07: Our next question comes from the line of Jaisal with UBS. Your line is open.
spk02: Great. Thank you so much. You know, the past couple calls, not last year, but in the 4Q calls in 2018 and 2019, you gave kind of a three-year view, and that included operating margin guidance. You know, in 2018, you talked about a 26% EBITDA margin by in the 19 call you talked about, you know, a similar type of target. Just given the, in light of the growth of the EBIT margin guidance that you gave today, can you update us on your three-year outlook and when you think you're going to get back to that 26% EBITDA margin that you talked about or EBIT margin? Just give us a little clarity on like what you kind of, how you see the margin trending, you know, in fiscal 23 and fiscal 24. So, you know,
spk00: Thanks, Jay. As you're aware, we're not giving that medium-term guidance formally at the moment. But what I would say is that we already see fiscal 22 as the beginning of the margin recovery. The big needle mover, as Danny said before and as I'd reiterate now, the big needle mover is tourism. Because that's the thing that changes the game when it comes to the retail stores. And that will fundamentally drive sales density in the stores and sales density when you're dealing with a fundamentally fixed cost base ultimately drives profitability in the stores. And that will be the one thing. And because what comes with tourism is a full recovery of retail traffic. and so you know there's a reason why we're not giving medium-term guidance at the moment which is it's just that we don't know when that will resume but for sure when it resumes we're going to be there and that will propel us back both to to where we were and ultimately to where we want to be your next question comes from the line of robbie holmes with bank of america your line is open
spk09: Oh, good morning, guys. My question is just, you know, when you look at the exceeding a billion dollars of revenue guidance this year, you know, which excludes return of tourism, how should we think about sort of the assumption for U.S. and Canada versus, you know, international and China? And maybe I'd be curious, how do you think about the two-year growth rates for, you know, the U.S. and Canada, you know, for this year? So versus, you know, fiscal 20 or calendar 2019, how should we be thinking about that?
spk00: Yeah, I mean, it's... I think the first thing to think about when you're looking at that growth rate is that exceeding a billion dollars is not coming off $903 million as an outturn, because that included PPE, and that's not something we see as a component going forward. So the first thing you have to do is to back that up. And then the second thing I would say is is that we need to look at what's been happening in Q4, because I think that gives you an idea of the underlying brand strength and the direction of travel of the business. So we're optimistic for how we see all of our territories developing. Canada's somewhat more established, but to be honest, we see ample scope there. And for sure in North America, in the U.S., sorry, and Europe, you've seen we're way outperforming already, and we believe that that's something that's got a huge amount of momentum. And that builds up to the crescendo that's Asia, where, you know, at the end of last year, we still only had eight or nine stores in mainland China, which relative to both the potential and the sort of penetration you see in other brands is very early in the journey. So we see a lot of scope for growth in all of our markets, probably led by Asia, but with real opportunity in Europe and continuing growth potential here in North America.
spk07: Your next question comes from the line of Adrian Yee.
spk06: Your line is open. Great. Thank you. Congratulations on the progress. My question is actually on the supply chain. There's not as much of a focus for you because you do so much of it domestically. So I guess, you know, are you seeing any raw material input costs? And then I guess moving forward, others kind of for the fall winter season, other competitors, they very likely need to be raising prices. So how do you think about the pricing environment as you go into fall winter and If others do take inflationary pricing up to pass it through, how do you philosophically think about where you should be in that type of a scenario? Thank you very much.
spk00: That's all right. So I think that, you know, when you think about our balance in terms of margin, Ultimately, we have to deal with input cost inflation and other headwinds. And the pricing power of the brand is such that we're able to move price up in mid-single digits year in, year out. And that creates a tailwind in gross margin. And as I've said many times, we always seek to keep those two in balance. We're not trying to advantage price. you know, cost inflation over selling price inflation, quite the opposite. And we've been able to do that over many years, and that includes in the pandemic, and it includes our prospects going forward. Now, one of the other things that we do is we have a very strong sourcing team, and that enables us to manage our input cost inflation very effectively. and such that actually, although there are always cost pressures in it, we are able to accommodate those very effectively without unnecessary pressure on margin. So we're not looking at egregious upward moves in selling prices, and we're not looking at margin pressure in channel because we're managing this very much in balance.
spk07: Your last question comes from the line of Mark Petrie with CIBC. Your line is open.
spk14: Yeah, good morning. I just wanted to come back to the topic of diversification and the assortment and the ramp up. I guess a couple of things. One, just a comment on lightweight down and the performance of that category in fiscal 21. maybe across geographies and what that tells you about how the brand is evolving or being adopted in some other markets, I guess specifically China. And then also, is footwear the right way to think about footwear sort of ramping more like spring, like rainwear and also knitwear, or maybe more like lightweight down, which I think was a bit of a faster ramp than those other categories.
spk01: Thanks for your question. Let Me Down is doing extremely well for us across all geographies, and it's becoming a true pillar of our assortment. And the Covecrofts and the Cypress collections this year have been true home runs in that regard. And do you want me to say more of your question?
spk03: Sorry. footwear relative to other categories in the ramp.
spk01: Yeah, so footwear, I mean, I think this year being the launch year for footwear, we're going to launch it with the type of product that you'd expect from us as a fall-winter brand, and I think that we definitely have potential to expand that into a much broader footwear assortment over time, and have that be a very material piece of business as well as the overall business that we do. And I'm very excited about that. I think it's a significant category. It's not just couple styles.
spk07: This concludes the Q&A portion of today's call. I will now turn it back to Danny Reese, Chairman and CEO, for closing remarks.
spk01: So thank you for everyone for joining us here today. Before we leave, I would like to also take a moment to touch upon our commitment to diversity and inclusion. At Canada Youth, we embrace diversity in all its forms and definitions, striving to remove barriers to create an inclusive culture and equitable workplace where everyone can live authentically. To further this, we have created an Inclusion Advisory Council, a unified body that acts as thought leaders and advisors on matters of inclusion within the internal community. We are currently in the process of hiring a leader of diversity and inclusion who will set the direction and drive our D&I strategy across the business. This position will partner with our leadership and teams to educate, guide, and champion diversity and inclusion strategies and initiatives. Thanks again for joining us today. I really look forward to seeing you on our next call.
spk07: This concludes today's conference call. Thank you for participating.
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