Canada Goose Holdings Inc

Good morning and welcome to the Canada Goose Q2 2024 earnings call. All participants are in a listen-only mode. After the speaker's presentation, we will conduct a question and answer session. To ask a question, you'll need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Anna Rahman, Head of Investor Relations. Please go ahead, Ms. Rahman.

Thank you, Operator. And good morning, everyone. With me are Danny Reese, Chairman and CEO, Jonathan Sinclair, EVP and CFO, and Kerry Baker, President. After Danny's and Jonathan's prepared remarks, we will open it up for your questions. Our call today, 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. Certain material factors and assumptions were considered and applied in making these forward-looking statements. Additional information regarding these statements, factors, and assumptions, and regarding material factors that could cause actual results to differ from those projected is available in our earnings press release issued this morning, as well as in our filings with US and Canadian securities regulators. These documents are also available on the investor relations section of our website. The forward-looking statements made on this call speak only as of today, and we undertake no obligation to update or revise any of these statements. We report in Canadian dollars, so all amounts discussed today are in Canadian dollars unless otherwise indicated. Please note that financial results described on today's call will compare second quarter results ended October 1, 2023, with the same period ended October 2, 2022, unless noted otherwise. Lastly, Our commentary today will also include certain non-IFRS financial measures, which are reconciled at the end of our earnings press release. With that, I'll turn the call over to Danny.

Thanks, Anna, and good morning, everyone. We delivered solid second quarter results reflecting the strength of our iconic brand in key global markets and progress across our strategic initiatives. Our Q2 fiscal 2024 revenue was in line with our expectations at $281.1 million, and we exceeded the top end of our earnings guidance range as we balance investment in our growth initiatives with a focus on operational discipline, delivering $15.6 million in adjusted EBIT and 16 cents in adjusted earnings per share. For Q3, we are taking a more conservative approach in regards to our expectations, given the macro environment we see across many of our markets today. As a result, we are revising our full year outlook, which reflects the moderation in sales growth and continued investments in our priorities, balanced with prudent expense actions. Jonathan will expand on both our second quarter results and updated guidance shows. In Q2, more consumers came to shop with Canada Goose than in the same period last year as our brand continues to capture the attention of shoppers around the world. Our innovative high-performance products and elevated luxury experience are resonating with our loyal consumers who even with this high inflationary backdrop are returning to enjoy more of our offerings. As we continue to navigate an uncertain global macro landscape, our business is prepared for anticipated demand amidst the reduced visibility. While this macro environment presents a headwind, we remain focused on building for the long term, guided by our three strategic pillars, driving consumer-focused growth, building our DTC network, and expanding our product categories. I will take you through the progress we've made on each of these pillars. First, driving consumer-focused growth. Due to DTC, channel revenue of $109.4 million was up by 15% compared to the same period last year. Our top priority here is investing in our brand to inspire and engage consumers and drive desirability through customer experiences, targeting marketing campaigns, and partnerships. Starting with our distinctive elevated luxury retail experience that we call Canadian Warmth, which defines the Canada's customer journey. In Q2, we began to roll out the Canadian Warmth experience across our store network, which during our pilot phase showed a positive uplift in conversions. This is important as we look to capitalize on our strong traffic trends. While the effects on conversion across our network are not expected to completely take hold immediately, we are taking a test and learn approach to guide us and moving this metric up and to the right. Second, our brand marketing campaigns. In September, we launched our fall-winter campaign featuring three trailblazing women who represent the Canada Youth ethos, boldly living their authentic lives out in the open. The early weeks of this campaign have been very successful, receiving well over a billion media impressions. In late October, we held our largest event to date in China as we celebrated our fifth anniversary of our first brick-and-mortar store in the region. We welcomed nearly 500 guests to our event held in Shanghai, during which they took in our first ever fashion show in the country, which was held outdoors. The event was one of our most successful activations in the market so far, resulting in over 3 billion media impressions. Chinese shoppers continue to be a driver of our growth, both inside and increasingly outside the country. As of Q2, we had 21 stores in China, a position that we have built opportunistically, backed by strong demand for our brand in this market, and knowing that this would position us well following the pandemic. I was in China last month for our five-year anniversary celebration and visited our stores and met with top customers. And I was pleased to see the level of profit in the stores and truly impressed with the guest experience our customers are receiving. Our third approach to brand building is partnerships, through which we continue to drive cultural relevancy and tap into new audiences. One important aspect being product collaborations. In September, we launched a collaboration with London-based fashion house Rock and artist Matt McCormick that included eight exclusive pieces for women. Products from this collab were featured across select Canada-use stores and placed with strategic and influential fashion retailers like Dover Street Market. In October, we launched another collab with luxury streetwear brand Pure Moss, featuring a colourful limited-edition capsule inspired by the street culture in Brooklyn, catering to both men and women. Both collabs are seeing solid reception from our customers, and more importantly, growing exciting media coverage globally and building brand awareness around the world. Turning to our second pillar, building our DTC network. In Q2, we opened six new permanent stores. In addition to the conversion of two temporary stores to permanent during the quarter, we had 62 permanent stores at the end of the period. We opened new stores in LA, Atlanta, in Philadelphia in the United States. In mainland China, we opened a store in Tianjin, and a second store in Shanghai. And in Japan, we opened our second store in Tokyo. With nine new permanent stores open so far in fiscal 24, we're well-positioned with consumers in our key geographies as we enter the holiday shopping season. We also opened our first travel retail store in the Frankfurt International Airport in September. We're just a month into its opening, And the store is off to a good start, receiving positive feedback from customers as they connect through this important international hub. Travel retail is a new part of our wholesale province, and we're eager to test and learn in the selling environment as we refine our growth plan and attract a brand new type of clientele, traveler. Let's now talk about DTC comp sales, which include both in-store and online sales. DTC comp sales were down 7% year over year, as total store comp sales increased slightly, offset by a decrease in e-commerce revenue. While traffic grew significantly both online and offline across all regions, DTC comp growth was down in the U.S., EMEA, and mainland China. Growth in Hong Kong, Taiwan, and Macau was robust, fueled by the return of mainland Chinese tourists. Canada DTC growth also increased, particularly in cities with high levels of tourism, including Vancouver, Banff, and Toronto. Overall, we saw software conversion in Q2 year over year, which we believe may be due to the macroeconomic environment in which consumers are spending closer to need, exacerbated by the later onset of cold weather that many regions have been experiencing. Turning to online commerce. Although our stores contributed the majority of our DTC revenue to e-commerce, it's an important part of our broader strategy to create a seamless omnichannel experience. We're investing in the end-to-end online shopping journey to drive better conversion and minimize returns. On the front end, we continue to implement new features such as a side and fit module while enhancing the back end through improvements in merchandising, navigation, and site architecture and performance, just to name a few initiatives. In Q2, we made good traction in both top and middle of funnel activities, increasing visits to our product pages and additions to cart. While our overall Q2 DTC comp results were not ideal, our teams are actively working to change its dynamic and trajectory to drive top-line growth, such as converting on the strong traffic trends we have had in the quarter across our own channels. Turning to our third pillar, expanding our product categories, in Q2, Demand for non-heavyweight down products grew, expanding its share of revenue within the overall mix. While total sales for heavyweight down were flat year-over-year, revenue in this category grew within our DTC channel, reflecting continued strength for our core product. Within non-heavyweight down, rainwear was our fastest-growing category in the second quarter, followed by apparel. The Chilliwack Fleece Bomber, Huron Pants, and Hoodie and Hybrid Knit Jacket were the most popular apparel pieces with our customers. When we look at who is purchasing our non-heavyweight down products in Q2, we see that more of our repeat customers are coming back to the brand they love to purchase additional items. This is another reason that we are focused on offering customers amazing and authentic experiences to keep them returning for more. And in our footwear category, sales of our recently launched sneaker line in July ramped up and remained at consistent levels through the second quarter. And I'm happy to see the category performing to our expectations. Taking a step back, we are executing on our product roadmap, and we're excited with the newness we're injecting into our upcoming product assortments. Product is always top of mind for us, and I and our design teams are actively working with top-tier design talent to ensure that execution against our product roadmap continues during this time of transition. In closing, candidate use is first and foremost about our product. We don't compromise on our vision of being a leading luxury brand, which is defined by our product's high-performance style and craftsmanship. Although we are facing an uncertain and challenging global macroeconomic backdrop at this time, our fundamentals are strong, and we look forward to seeing many more people enjoy Canada's products in the months and the years ahead. Before I hand the call over to Jonathan, I want to congratulate him on his appointment to the role of President of APAC, and Neil Bowden on taking on the role of Chief Financial Officer, both of which will be effective on April 1st, 2024. Both Jonathan and Neil have deep experience with Canada Goose, allowing for a smooth transition between roles and continuity across the business, while supporting our growth and expansion in APAC. Thank you, and with that, I'll hand it over to Jonathan.