Canada Goose Holdings Inc

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THE END Oh, my God. Thank you. THE END Welcome to the CanadaGroove second quarter fiscal 2022 earnings call.

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll 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 first speaker today, Patrick Earp, Vice President of Investor Relations. Please go ahead.

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 statements. Each forward-looking statement, including without limitation discussion of our financial outlook, is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and applied in making these forward-looking statements. Additional information regarding these forward-looking statements, factors, and assumptions is available in our earnings press release at as well as in the risk factors section of our most annual report. These documents are also available on the investor relations section of our website. The forward-looking statements made on this call speak only as of today, and we undertake no obligation to update or revise any of these statements. Our commentary today will include certain non-IFRS financial measures, which are reconciled in the table at the end of our earnings press release issued this morning and available on the investor relations section of our website. With that, I will turn the call over to Danny.

Thank you, Patrick, and good morning, everyone. Thanks for joining us today. On today's call, I will provide an overview of our strong second quarter performance, our accelerating momentum, and the deliberate commercial strategy that drove those results. Across all channels, we see strong demand, positive leading indicators, and we feel very good about the business heading into peak season. And today, we are less than a week away from yet another very exciting milestone for Canada to use the launch of our first ever full wear collection. I look forward to taking you through the collection in greater detail shortly. To begin, I will share an overview of our business performance in the quarter. The second quarter has exceeded our expectations. Total revenue, excluding PPE sales from last year, grew by 40%, and our DTC business continues to deliver strong results, with revenue growing by 80% over the last year. This was fueled by a strong retail recovery in the quarter, as well as continued growth across our digital business globally. Wholesale also had a strong quarter, up 25%, showcasing the high demand for our brand from our partners. Looking at the business globally, we are trending up and performing well in every region, with mainland China DTC being our particular standout, growing 86% versus last year. Looking ahead, we are very optimistic as we head into our peak season. As such, we are pleased to be in a position to raise our financial outlook for the remainder of the year. Jonathan will share more details about our financials shortly. We are entering our strongest selling season with the launch of an exciting, altogether new category, footwear. Canada used footwear as one of the most significant milestones in our more than six-decade history. As we've discussed, we are bringing a completely new perspective to the category, balancing performance and luxury, which is the ultimate expression of our lifestyle brand. For launch, we are bringing two innovative styles to market for both men and women. As part of a product development process, we combine our performance-driven, intelligent design with rigorous, extreme user testing. We do not bring anything to market until our global team of experts has validated it. Adventurers, athletes, researchers, and cinematographers logged thousands of kilometers and broke new ground, traversing continents to get us to this moment. And we have tremendous confidence in our offering. Snow Mantra boot is the most comprehensive boot, providing extreme protection and warmth. Like its namesake parka, Snow Mantra is the ultimate in performance, designed for the harshest environments on Earth. The Journey boot, expertly crafted in Italy, is a performance luxury hiker designed for the trails and the demands of the city. We know that consumers want their products to play multiple roles, so versatility is essential in this collection. Our boots work with the wearer, designed with modularity in mind, allowing them to be worn in diverse terrains across wide ranges of temperatures and weather conditions and for a multitude of activities. Footwear is a natural next step in our product portfolio, something we have been working on for years and a category we know our customers have been asking for. Last week, we hosted a limited pre-sale for our Basecamp community, offering first access and a chance to shop the collection early. The results signal strong demand with 10% of the collection selling through in only one week. The collection will launch globally with a campaign true to our brand through our Live in the Open storytelling platform. Over the years, we've shared stories of resilience and perseverance, and with this campaign, we'll continue to explore the real stories of real people. Starting next week, you'll see our heroes, Romeo Beckham, Serene Fox, and Jordan Tutu, share their stories in a way that exemplifies what it means to be a force of nature. I am very excited to be at this moment, and I look forward to sharing more with you next quarter. As a function-first performance luxury outdoor brand, we strive to create products that live up to our purpose, to keep the planet cold and the people on it warm. We've always believed that making a product where they're supposed to be made and not chasing margins in low-cost environments was a sustainable decision. That decision became and continues to be a competitive advantage. And in today's environment, we have seen just how much of an advantage it truly is. Despite losing production for three months last year, we are not short-supplied. Weaknesses of unprepared supply chains have been exposed. Unlike others, the flexibility of our supply chain is an asset in the dynamic environment that we face today. Because of this, we do not expect any material revenue headwinds relating to supply or shipping constraints this fall or winter. Changing gears, last week we opened our first retail store in California at the South Coast Plaza in Costa Mesa. This new store is a testament to our expanded category offering and our lifestyle assortment, and we have seen strong demand indicators since opening. This store is home to our first-ever snow room in the United States. The snow room is the next generation of our award-winning cold room. It simulates a snowstorm daily with temperatures reaching as low as minus 20 degrees Celsius. I'm really excited to bring our authentic brand experience to our fans, existing and new, in California, and to continue to drive experiential innovation across our stores globally. We have continued our strategic retail expansion in key markets around the world, and as you know, we are leading harder than ever before into our DTC business to drive our growth. In just seven years, DTC has grown exponentially to become nearly 70% of our projected total revenue this year. And through the pandemic, we have purposefully accelerated that trajectory. Retail traffic and store productivity continues to be much stronger than last year, driving the lion's share of our DTC growth. At the same time, we see strong growth across our digital business versus last year as well. Both our retail and our digital businesses are stronger than we were at this time last year. And looking forward, this October, we saw a strong acceleration across our DTC network globally. We consider this a positive indication of the months ahead. To close, our results this quarter clearly show that we have a unique value proposition. We know performance. We knew it before it was a trend, and not many brands have that advantage. We continue to see accelerating demand across all channels in all regions. And it's clear that Canada's lifestyle is resonating with consumers all over the world, and I'm pleased to see our business in such a good position entering peak season. And with that, I'll turn it over to Jonathan to go over the details of our financial results and outlook.

Thanks, Danny. Good morning, everyone, and thank you for joining us. The second quarter exceeded our expectations, and our performance has continued to accelerate. We're pleased to be in a position to raise our outlook Reflecting on where we are today, there are three key things that stand out. Firstly, across our business, we see strong leading indicators of demand. Secondly, the unique flexibility of our supply chain is an incredible advantage. Thirdly, we have the right foundations in place for an outstanding fiscal 2022. Starting with the top line, Total revenue increased by 40% to $233 million, excluding temporary PPE sales in the comparative quarter. The demand strength we're seeing is much more balanced than it was at this time last year. E-commerce and mainland China continue to be major contributors, and the rest of the business is now moving in the same direction. Our wholesale partners are requesting product earlier than last year, and our retail stores are more active and all of our geographies are growing. At a channel level, wholesale revenue increased by 25% to £148 million. This reflects a reversal of unusually late order shipments last year due to the pandemic. In a normal operating environment, fulfilling our commitments to our partners early drives a better shopping experience for the consumer as well as higher sell-through. BTC revenue increased by 80% to $83 million. Growth from existing stores drove the majority of the increase, with traffic and productivity well above last year. Retail closures were not a significant factor in the current or the comparative period. Our strong retail performance was complemented by 34% e-commerce growth. All geographic regions delivered total revenue growth greater than 30%, excluding the impact of temporary PPE sales. This is particularly encouraging, given that the stages of retail traffic recovery are still quite varied across these markets. Mainland China was a standout performer. with DTC revenue growing by 86% on top of the strong performance last year and a degree of fiscal disruption. This reflects our momentum and our runway in one of the world's most important markets. Moving on to gross margin, wholesale came in at 49.4%, while DTC was 73.7%. In wholesale, we were selling in core product a season ahead, This gave us a significant uplift from pricing and mix. We also benefited from lower distributor sales, which we had shipped earlier in the year, as discussed on our last call. DTC gross margin was lower than expected due to outperformance in earlier stage seasonal product. In our peak trading months, our sell-through mix is expected to shift back to higher margin styles. We expect this to drive a meaningful uplift from the pricing tailwind we've already seen in wholesale. As a result, our expectation for DTC gross margin remains in line with annual historical levels. As expected, total SG&A was 101 million, up 62% from last year. This was driven by incremental spend in demand creation and strategic initiatives including a timing shift from Q1. We're now at an inflection point for margin and profit. For the remainder of the year, we expect SG&A growth will decelerate. The incremental revenue for these investments will drive further leverage, and the uplift from DTC mix shift will be more impactful. You can already see the beginnings of this in Q2. Despite outsized temporary SG&A growth, Adjusted EBIT margin was just under last year at 6.9% and adjusted EPS grew 20% to 12 cents a share. Moving beyond this quarter, we continue to see broad-based demand across our business. As a vertical manufacturer, we are not supply constrained in today's environment. We have a strong position in staged finished goods. We have the flexibility of in-house production. In this way, we can quickly capitalise on upside in DTC. In wholesale, at a time when many brands are delaying and cancelling orders, we're delivering on our commitments. We're getting products to our partners earlier. This puts them in the best possible position for fall-winter. As we complete shipping the remainder of our order book, we are in a good position to consider high-quality reorder demand if it materialises. This has been captured in our upgraded outlook. The resilience of our supply chain extends beyond our own manufacturing. As Danny said, we go to the best manufacturers in the best places, not the cheapest. in a year with massive disruptions to global footwear production, we are proud to be bringing our first collection to market on time and at expected volumes. This is a testament to both our team and our partners. Finishing up with our upgraded outlook for fiscal 2022, as we enter into our peak trading months, we now expect the following ranges for our key metrics. Total revenue of between $1.125 and $1.175 billion. This assumes approximately 70% DTC mix with mid-single digits wholesale revenue growth. Adjusted EBIT of between $186 and $208 million, representing an adjusted EBIT margin of 16.5% to 17.7%. And lastly, adjusted earnings per share of between $1.17 and $1.33. In a macro environment, this outlook assumes no material increase in pandemic or economic disruptions relative to what we're experiencing today in our various markets. In terms of what's embedded for Q3, Remember, the shift to BTC means accelerating growth through both Q3 and Q4. Our wholesale order book has largely been chipped earlier this year. We expect SG&A to grow at a rate slightly less than total revenue, complemented by a gross profit uplift from BTC mix. Putting all of this together, it will drive significant profit growth year over year. At the onset of the pandemic, we talked about coming out the other side stronger. Strategically and financially, we're well on our way. We have rapidly advanced our DCC journey alongside more focused and elevated wholesale distribution. We have continuously raised the bar on price points and we have become a true lifestyle brand in the eyes of the consumer. Our unit base has received growth versus pre-pandemic levels, and looking beyond this year, the recovery of international retail traffic represents huge additional upside. We appreciate your interest and support in this journey, and we look forward to updating you on our progress in our next call. With that, I'll pass over to the operator to begin Q&A.

Thank you. And as a reminder, to ask a question, please press star, then the number one on your telephone keypad. Again, that is star one on your telephone. And in the interest of time, please limit yourself to only one question and repulse for additional questions. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Ike Buruchow from Wells Fargo. Your line is open.

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

Yeah, absolutely. Thank you, Ike, and good morning. So this is a major strategic change for us, and it's actually a really good thing. Now, the pandemic, it has rapidly accelerated our DTC journey, and alongside that, we have decided to resize our wholesale business. So we do not view wholesale being in line with two years ago as winning strategically. We don't feel that's a reasonable comparison.

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

Thank you.

And your next question comes from the line of Jonathan Komp from Beard. Your line is open.

Yeah. Hi. Good morning. Thank you. If I could follow up on the guidance and thinking across the channels, could you maybe just share more across B2C and wholesale if one is driving more of the upside than the other, how to think through that? And then The trend you're seeing in D2C, how is that shaping your outlook and your thoughts on the store productivity recovery and what the sustainable e-commerce growth rates could be?

Thanks, Jonathan. So I think let's start with the question about the upside. So obviously within the context of D2C, The guidance, we've upgraded our expectations on wholesale, but essentially that's about product that's either already shipped or will largely ship within Q3. Therefore, the range itself is really driven by DTC performance. Now, when it comes to DTC, we are clearly seeing recovery in the store productivity. We're not back to pre-pandemic levels, but we're well on our way, and that's really important. Certainly compared to last year, it's night and day. That said, we're also consolidating on the e-commerce advances that we made last year and seeing further advance. So we're very pleased with the shape and the way in which this is evolving.

Great. Thank you.

Thank you. And your next question comes from the line of Michael Benetti from Credit Suisse. Your line is open.

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

Hey, Michael, thanks for your question. Uh, and, um, As I said before, we're very confident that we can make the transition and continue to be the high-growth company that we are. As expected, our non-for-profit styles are performing well in the marketplace, and we're tracking to our plan. So this continues to build on the success that we've had for years with non-for-wholesale accounts, but that gives us a lot of confidence. And we're significantly increasing our outlook this year, and I think that that's a great proof point of that effect.

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

Thank you. Your next question is from Oliver Chen from Collin. Your line is open.

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

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

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

Your next question is from the line of EG&E from Berkeley. Your line is open.

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

Yeah, thanks for your question. I mean, tourism, obviously, international tourism is down at this point. We know that. And we'll come back fully next year or the year after. But we view that as a significant upside to our business. It was, you know, international tourism did contribute a lot of revenue to our overall business in the past, and we expect that to come back at some point in the future, and certainly that's going to be very positively impressed. Great. Thank you very much.

Go ahead.

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

Thank you. Your next question is from Omar Saad from Evercore SI. Your line is open.

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

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

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

Thank you. The next question is from the line of J-Soul from UBS. Your line is open.

great thank you so much i'm just wondering if it would be possible to give us a little bit of a breakdown of what drove direct consumer growth in the quarter you know specifically how much growth was driven by new stores and then if you look at your existing stores that are in the comp base he gives an idea of how sales for square foot looks in those existing stores versus pre-pandemic levels And then lastly, just also on footwear margins, Danny, if you can just give us a little bit of an idea what you expect the footwear margins to look like. I'm talking about gross margins over time. Will they be similar to the outerwear margins? Will they be below, above? And how long will it take to ramp to get there? Any color would be super helpful. Thank you.

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

I agree. I'd like to add to that just, you know, we have a – We have experience at launching new categories. We have a playbook that we follow. And, you know, I can point to our Lightway Down, which started seven or eight years ago. And we launched that category. Margins were lower than normal at the time. Today, Lightway Down represents over 20% of our business at our margins. are very healthy and in line with the rest of the business. The same thing holds true for Knitwear, which we launched, you'll recall, approximately four years ago, and it's now over $45 million in revenue in 40 years, and the margins are tracking well as well. So, you know, we have a proven playbook on this, and I'm launching new categories and getting into them in the right way, in a responsible way, and in an authentic way that is right for our brand. And we are applying the exact same playbook to our footwear launch, and it gives me a lot of confidence that we are experts at doing this at this point.

Thank you. And your next question is from Sam Poser from Williams Trading. Your line is open.

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

So I'm going to take that in reverse order just to say, yes, we're pretty aligned with your thinking on the wholesale business. I think, you know, The answer on pricing goes to our gross margin algorithm, and that's something that you hear me describe frequently. That's no different this year than it is in any other year that you have headwinds and tailwinds. Typically, we create tailwinds with pricing and with scale and efficiency, and then we deal with the headwinds of investing in new product development as well as input cost inflation. um typically we've taken uh pricing um in big single digits um this year's very different than that um and then inevitably there are you know you tune it as you go but fundamentally this is another another year of the same experiences we have your next question from the line of robbie arms from bank of america your line is open

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

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

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

Your next question is from the line of Megan Annette. Your line is open.

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

Yeah, our new sales, we've been very, very pleased with the way the market has responded to them. I can speak about many different categories, but I can start with makewear and As I spoke earlier about how HAPA has grown and how we're selling through that really, really well. And we have core styles and new styles coming out every season. Our collaborations are doing really well. Most recently, Angel Chen collaboration dropped and has performed very well. Our Pastels collection, which is... which was a collection that hit the market a few weeks ago, has also performed extremely well, selling out and selling through in many cases. Our Crofton and Cypress collection, which is an expansion on our Lightway Down collection, using more sustainable fabric, also have been big hits, and I'll talk about Fulware as well. I mean, just to look at the pre-sale that we did to our Basecamp community to sell through 10% in one week, it gives me a tremendous amount of confidence in the demand for that product category too.

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

Your next question is from the line of Camilo Lyons from DPIG. Your line is open.

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

Thank you for your question. What I can tell you about our North American stores is that we do have a very healthy pipeline of potential store openings and locations in North America. Obviously, we'll disclose those as we firm them up, but I'm very encouraged if we're going to look at the opportunities that we have before us and the kinds of traffic and the kinds of sales volume opportunities that we have and also the opportunity to increase brand awareness in places like North the west coast and you know um opening the south coast father was an important milestone for us and i know we have existing fans out there we're going to make new ones too and uh you know we have new products uh and different products for different climates as well so you know we we know that we don't need to be in a um cold weather market to sell cold water clothing we also um We also have the right clothing for multiple kinds of markets. And the response to South Coast Pfizer so far has been really strong, and we're experiencing at the same time a very strong demand in that marketplace.

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

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

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

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

Thank you. We have your next question from the line of Mark Petrie from CIBC. Your line is open.

Good morning. I just want to ask about the product mix. Can you give us some more detail about the non-PARCA mix in Q2? I know it falls from Q1 just seasonally, but any commentary just with regards to the direction of that would be appreciated. And do you think that this could become a bigger part of your wholesale business? uh in the foreseeable future or do you think that that channel will remain you know very heavily skewed toward parkas thanks so i think um if we if we think about

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

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

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

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

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