Canada Goose Holdings Inc

Hello, and thank you for standing by. Welcome to Canada Goose Third Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 11 again. I would now like to hand the conference over to your speaker for today, Amy Schwalm. You may begin.

Thank you, Operator, and good morning, everyone. With me are Danny Reese, Chairman and CEO, Jonathan Sinclair, EVP and CFO, and Kerry Baker, President. Our call today, including the Q&A portion, contains forward-looking statements. Each forward-looking statement, including our financial outlook, is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were considered and applied in making these forward-looking statements. Additional information regarding these forward-looking statements, factors, and assumptions is available in our press release issued this morning, as well as the risk factors section of our most recent annual report filed with the securities regulators. These documents are also available on the investor relations section of our website. The forward-looking statements made on this call speak only as of today, and we undertake no obligation to update or revise them. Lastly, our commentary includes certain non-IFRS financial measures, which are reconciled at the end of our press release. With that, I'll turn the call over to Danny.

Thank you, Amy, and good morning, everyone. This quarter showed us overwhelmingly that our brand strength globally remains strong, even in the face of short-term pressures. In mainland China, consumers returned in full force to shop with us following a period of significant disruption in December. We also saw solid top-line growth in the United States, driven by strong performance across our store network. And our gross margin expanded year-on-year for the third quarter in a row, up over 160 basis points, with margin improvement across all product categories. With that said, we did face challenges during our seasonally significant third quarter. The largest being in mainland China, where disruptions were worse than we had anticipated, impacting our performance significantly. And in North America, we saw a softening of demand towards the end of the quarter. In a few moments, I'll dive deeper into both of these trends. These short-term pressures will not change how we think about our business. We are and have always been building this brand for the long term. Now more than ever, we are focused on building deeper relationships with our customers, strengthening our DTC network, and continuing to expand categories, all while staying true to our luxury DNA. And we know that our strategy is working. We continue to be recognized for it as well. We are proud that for the fifth year in a row, Deloitte has named us in their Global Power of Luxury Goods Report as one of the world's fastest-growing luxury brands. Our competitive advantages remain strong. Our Made in Canada vertical integration has enabled us to, so far, offset many of the cost pressures and supply chain delays facing the industry. And we have continued to deliver a steady stream of new and carryover products to our global distribution network. Turning to the quarter, we posted revenue of $577 million, down 1.6% from the prior year period which included a 53rd week. Using the same trading weeks from the comparative quarter in both periods, revenues grew 2.5%. Before we dive into our results in more detail, I want to spend a moment discussing the pressures that impacted our earnings. It's really important to note that we firmly believe these trends, disruption in China and softness in North America, are temporary and our brand strength remains incredibly healthy. starting with mainland China, where the region was largely locked down for most of the quarter. We did expect a certain level of disruption. What we did not anticipate was the sudden reopening in early December. This led to a surge in infections, which had a significant impact on our business during what is typically our most productive trading month. Consumer traffic decreased dramatically and staffing levels were impacted due to illness. We were proud of how our local teams were able to navigate the difficult circumstances that they faced. On a more positive note, the reopening did give us a clear message from our consumers in mainland China. Canada Goose's brand remains strong. Traffic and transaction growth jumped immediately following the disruptions in December. In January, same-store traffic was up approximately 30% year-over-year, and in Hong Kong, traffic has tripled from the same period last year. And that strong progress has continued. Stores are fully staffed, consumers are back shopping in person, and the familiar lineups have returned to many of our stores. We are confident that our brand has retained its full strength. We also have the added benefit of Lunar New Year in the fourth quarter, which, for the first time in three years, was celebrated without restrictions. Traditionally, we see a pickup in store traffic and transactions about three weeks prior to the holiday, and this year was no different. And we hit another milestone in January, surpassing the 1 million follower mark on WeChat, another example of our brand strength in the region. All of this clearly shows that our best days are yet to come. In North America, we are seeing a continuation of mixed results early in the fiscal. Both in Canada and the United States, store traffic is up more than 30% year over year as more consumers are choosing to shop our experiential store network. With that being said, conversion in our North American DTC business is lower than we expected early in Q4. As I said, we believe these pressures to be temporary, and we continue to focus on driving brand heat and relevance through our exciting partnerships and collaborations. On that, I'm very excited about our upcoming collection with NBA All-Star as part of our long-term partnership with that organization. The new collection which will be our third so far, launches next week, and it has always created a lot of buzz and hype for our brand. In January, we celebrated our 11th year as an official sponsor of the Sundance Film Festival in Park City, Utah. This year, we returned to Main Street with our exciting Canada Youth Space Camp experience and pop-up retail store. Sundance is the perfect backdrop for our brand, truly the intersection of performance and luxury. and an opportunity for our brand to celebrate our authentic, decades-long relationship with the film and entertainment industry. Looking ahead, we are also moving forward with our store expansion program much earlier in the calendar year than in past years. We plan to open three new permanent stores early in Q1, one in each Seattle and Los Angeles, as well as a second store in Las Vegas. So let's turn back to the quarters. In our DTC channel, our stores have the strongest monthly comps of the quarter in December, with total company DTC comps at 9.3%. In fact, every single geography posted positive DTC store comps in the month of December. In North America, we saw notable growth across categories. Specifically, apparel grew 61% compared to last year, reaching 5% of total sales in the quarter. And for the full year, non-heavyweight down grew considerably up 20% to nearly 42% of revenues year to date, up from 36% the prior year. As you can see, we continue to make progress against our category expansion strategy. Importantly, our gross margins have remained strong, expanding 160 basis points. We are particularly proud of this point, considering the intense promotional activity that dominated much of the consumer retail behavior this holiday season. We bucked that trend. Our gross margin reflects the strength of our non-promotional DCC network, as well as our exclusion from much of the promotional activity in wholesale this quarter. As we look ahead, although we continue to make significant headway on our key growth drivers, we are cautious about the fourth quarter. The softening of demand in North America, along with China's weaker-than-anticipated third quarter, has led us to lower our fiscal year 2023 expectations. We now feel that these align better with the current environment. Jonathan will give more details on this in just a bit, but I want to emphasize that our long-term expectations for our brand remain unchanged. We are well positioned to see tremendous upside in both the medium and long-term. Before closing, I want to share some progress that we've made on the core pillars of our strategy. First, growing our DTC network. There is a substantial amount of room to grow as we continue our quest west. In the quarter, we opened two permanent stores, one in Las Vegas and another in Denver, and two pop-up stores, one in Aspen and the second in Detroit. All four locations included the full breadth of our assortment and our Las Vegas location includes our award-winning snow room experience, which has been a big hit in the desert. Beyond these four store openings in North America, we also opened new stores in China, Japan, and the UK this year. At the end of the quarter, we now have 51 permanent stores, roughly a 25% increase from last year. As well, in partnership with our new South Korean distributor, Latte, we've opened five permanent and 12 temporary pop-up shops in only nine months. Our progress in South Korea has exceeded our expectations and is only the beginning of the story there. We still have a long runway ahead of us and I'm looking forward to sharing more of that with you in the future. And we continue to focus on expanding our product offering, reaching more consumers in more seasons. We see opportunity to expand our offering for women and building on our already strong residents of the younger generations. We are innovating in our women's offering to focus on stylish versatility and it's working. In the third quarter, we saw strong reception to our Aurora and Marlowe Parkas, both achieving approximately 70% sell-through, a fantastic performance for two new styles. Our pastel collection continues to be a hit with women, particularly in APAC, with the region driving around a third of global sales of the collection. And lastly, we launched a beautiful collaboration with Reformation in the quarter, which resonated particularly well in the United States. The reaction of the collaboration generated across our social channels, especially with women and Gen Z, was overwhelmingly positive. On a final note, and one that I'm particularly proud of, in November we donated over 10,000 parkas, jackets, and accessories to UNHCR, the United Nations Refugee Agency, in support of their humanitarian efforts in the Ukraine. The products went to Ukrainians who have been impacted by the war and needed protection from the onset of winter. In conclusion, I want to once again thank our teams around the globe who have continued to put our customers first. Our brand remains as strong as ever, and we are better positioned than ever to execute against our strategy and accelerate our growth. We look forward to sharing more with you at our investor day next week. Thank you. And now I'll turn it over to Jonathan Tinkler.