Canada Goose Holdings Inc

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Quarter One Fiscal Year 26 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Neil Boden, Chief Financial Officer. Neil, please go ahead.

Good morning, everyone. With me today are Danny Reese, our chairman and CEO, Kerry Baker, president of Brandon Commercial, and Beth Clymer, president, chief operating officer. For today's call, Danny and I will start with prepared remarks, and then the four of us will take questions as usual. Today's presentation will contain forward-looking statements that are based on assumptions and therefore subject to risks and uncertainties that could cause actual results to differ materially from those projected. We undertake no obligation to update these statements except as required by law. You can read about these assumptions, risks and uncertainties in our filings with US and Canadian regulators. These documents are also available on the investor relations section of our website. We report in Canadian dollars so the amount discussed today are in Canadian dollars unless otherwise indicated. Please note the financial results described on today's call will compare first quarter results ended June 29th, 2025, but the same period ended June 30th, 2024, unless otherwise noted. With that, I'll turn the call over to Danny.

Thanks, Neil, and good morning, everyone. Since we kicked off fiscal 2026, it is clear spring is a growth opportunity and we are capitalizing on it in a big way. This season, we showed up differently with fresh product, bold marketing, and a clear point of view that sparked new energy around the brand. And as customers engaged with us, we delivered, executing with strength across every channel. The first quarter marked a strong start to the year with revenue up 22% year over year. Our -to-consumer business showed positive momentum, continuing since December of last year, delivering 15% due to see comparable sales growth for the quarter. This now marks seven consecutive months of positive comps. Our performance in North America and mainland China were particularly highlighted this quarter, which gives us confidence as we enter the peak season. Our seasonally relevant assortment, commitment to maintaining a consistent and impactful marketing presence, and our focused execution of a -to-consumer strategy is clearly working. On our fourth quarter call, we shared our operating imperatives with you. Please continue to provide the foundation for our execution. First, expanding our product offering to enhance year-round relevance. This quarter, we introduced more new units than ever before, making our stores more seasonally relevant and well positioned with the collection that resonated with consumers in the moment. The Emerson t-shirt, a new style launched this season, topped our best sellers this quarter, followed by the Beckley Polo and Chilliwack fleas. Apparel was our fastest growing category in Q1, but newness and relevance across our assortment also drove higher growth in our core outerwear products as well. Second, building brand heat through focused marketing investments. In the first quarter, we continued to drive brand momentum through strategic marketing investments in our spring, summer, and snow goose summer campaigns. The spring, summer campaign brought a fresh energy to the brand, playful and relevant with a clear message. We do summer too. It challenged old perceptions and made people take notice. Backed by more Stephen-specific product and elevated storytelling, it sparked real momentum. The snow goose campaign built on that heat, resonating globally and driving a strong lift in our media reach, engagement, and follower growth. Clear signals that that campaign landed. What Heider is doing is bold. He's reaching deep into the DNA of Canada Goose and pulling it forward, reinterpreting our heritage in a way that feels right now. Snow goose puts us squarely in the pop culture conversation, creating something that speaks to long-time fans while capturing the attention of a whole new generation. To channel development, we are executing across direct to consumer and wholesale to deliver an elevated experience at every touch point. A direct to consumer comparable sales growth has remained positive in recent months. We're seeing strong alignment across product marketing and channel operations, driving store conversion higher year over year in every region. These are clear proof points of the progress that we are making. That said, we are not standing still. Our teams around the world continue to push for more and we're seeing the translate into the second quarter, with July showing yet another strong month. Finally, I want to highlight the recent release of our fiscal 2025 impact report. We are continuously looking to improve and innovate, ensuring that our efforts lead to a more sustainable future. In fiscal 2025, we achieved a 9% reduction in scope one emissions and a 25% reduction in scope three emissions, while additionally investing in 10 renewable energy projects fully match our scope two. I'm very proud of both our progress and of our teams for their commitment every step of the way. In closing, I'm energized about the momentum we have built, especially in the uncertain economic environment. We're unlocking major growth opportunities that set Canada Goose up for continued success through the rest of the year and beyond. And with that, I'll turn it over to Neil.

Thanks, Danny. Our first quarter fiscal 2026 results are a continuation of the strong performance we delivered as we closed out fiscal 25 and the early progress we're making on our key operational priorities this year. Let me walk you through the financial results. Revenue for the first quarter was 108 million, up 22% on a reported and constant currency basis from last year's first quarter. D to C comparative sales growth of 15% on a consolidated basis was the primary contributor to our strong quarter with standout performance in both North America and APAC and across both e-commerce and stores. First, some color on channel performance before getting into the regional picture. All the figures I cite are on a constant currency basis. D to C revenue increased to 78 million, up 23%, reflecting success of our broader D to C strategy. We sharpened execution and delivered a more elevated experience alongside more newness and made a greater investment in marketing. The combination of these initiatives is translating directly into our financial results with comparable D to C sales up 15% after a growth of 7% in Q4 of fiscal 25. In wholesale, we achieved an 11% year over year increase in revenue, both delivering on our order book, including travel retail and some wholesale replenishment activity. While timing shifts may cause quarterly fluctuations, our view for the wholesale business is stable performance this year, following the channel reset over the past few fiscals. That said, we are monitoring retail health in every market and while there are some spots of caution, we are working together to build the Canada Goose business in this critical channel. Other revenue was 12 million, up from 9 million in Q1 last year, mainly due to hosting two friends and family events this year, compared to one in the prior year. Now commentary on the geographic revenue trends in Q1. In North America, revenue is up 27% as our D to C channel continue to deliver very strong performance. Stores led the way with double digit D to C comp sales growth each month in the quarter. While we're very pleased with the performance in both countries, the exceptional growth in the US is particularly encouraging as we head towards our peak season. In APAC, revenue increased by 27% driven by higher revenue in both channels. Mainland China delivered strong D to C growth, driving the region's overall performance. While softer trends in Japan tempered growth, the region still achieved double digit D to C comparable sales growth, underscoring the strength of our brand in the region. While macroeconomic challenges had an effect on traffic, our store conversion rates improved year over year, evidence of our operational improvements bearing fruit. We opened a new store at WF Central in Beijing late in the quarter, marking our third store in that city. In EMEA, revenue was down slightly year over year due to a planned decline in wholesale revenue, partially offset by higher D to C revenue. The decrease in wholesale revenue was primarily due to timing shifts to later in the year and some planned decline in the order book across the region. For the quarter, D to C comparable sales growth was low single digit negative, reflecting a UK consumer who remains under pressure, while the business in continental Europe is performing at a higher rate. We're focused on ensuring our conversion and brand marketing are optimized to mitigate some of the macro factors that are weighing on performance in EMEA. Moving down the income statement, let's turn to gross profit, keeping in mind that in Q1, small dollar impacts can have an outsized effect on our gross margin figures. Gross margin expanded 170 basis points year over year to .4% favorably impacted by margin expansion from our European manufacturing facility. Pricing, product and channel mix did not have a significant impact during the quarter. Boarded SG&A expense for the quarter was 225 million and an increase of 75 million or 50% year over year. This included a one-time charge of approximately 44 million related to an arbitration award to a vendor in a previously disclosed commercial dispute, as well as a higher earn out of 9 million linked to the purchase of our knitware manufacturing facility in 2023. Excluding these one-time charges, our underlying adjusted SG&A was up 16% year over year as we made investments in important revenue driving areas like strategic marketing spend, product creation talent, including design, merchandising, product development talent and store labor, which helped fuel our strong comp sales growth for the quarter. Adjusted SG&A grew at a slower pace in revenue and therefore improved as a percentage of revenue by 850 basis points year over year. As a reminder, our fourth operating imperative in fiscal 26 is operating efficiently with pace and accountability and SG&A as a percentage of revenue is the key metric we are tracking to monitor our progress. We're pleased with our progress here and plan to continue to focus on this by driving revenue growth and spending SG&A efficiently and on more revenue driving investments leading to EBIT margin expansion over the long term. Our adjusted EBIT was a loss of 106 million for the quarter, which increased from a loss of 96 million in Q1 last year. Adjusted net loss attributable to shareholders was $88 million or 91 cents per share compared to a loss of 76 million or 79 cents per share in Q1 of fiscal 25. We ended the quarter with a balance sheet in the strong position. Inventory was $440 million down 9% on top of a 7% reduction in Q1 of fiscal 25, driven largely by higher demand over the last 12 months and tighter inventory management. This marks our seventh consecutive quarter of year over year inventory declines. Our inventory turnover has improved as well, rising to 0.9 times from 0.8 times at this time last year. As we plan the year with the benefit of demand signals of the last few quarters, production and purchasing have returned to a more normalized level, although still down from highs a few years ago. Supply chain agility, a competitive strength of being vertically integrated and more coordination across the product creation value chain continues to be an area of focus and an exciting opportunity for us. We end the quarter with $542 million of net debt compared with 766 million at the end of the first quarter of fiscal 25. This significant improvement reflects our strong operating cash performance, including our efforts around inventory management over the past 12 months and resulted in higher cash balances and lower borrowings on our credit facilities. Our net debt leverage was 1.8 times adjusted to EBITDA compared with 2.8 times adjusted EBITDA at the same time last year. CapEx in Q1 was higher versus the prior year as we were strategically allocating capital, primarily to store openings and renovations that directly support revenue generation and brand elevation. We started fiscal 26 in a strong liquidity position to provide flexibility to make strategic investments and navigate uncertainty in the operating environment while maintaining an efficient capital structure. Lastly, I want to address the evolving trade environment. Consistent with what you heard from us last quarter, approximately 75% of our units are manufactured in Canada and virtually all comply with the USMCA requirements, making them currently exempt from tariffs. For a European product, we are paying modestly higher tariffs, but they will continue to have a minimal financial impact. We continue to monitor the ongoing developments as it relates to potential new US tariffs on Canadian goods as well as potential second order impacts on the consumer. In this fluid environment, our strong operational foundation and manufacturing advantages position us well to navigate the evolving trade dynamics. To close out today's remarks, we are seeing meaningful progress across our four key operating priorities to start the fiscal year, which is leading to continued momentum in our financial results. As we look ahead, we remain focused on what we can control elevating our brand, driving operational excellence and deepening connections with our customers around the world. On behalf of our senior leadership team, I want to thank our Canada Goose teams around the world for their continued efforts and great results. Carrie, Beth, Danny and I will now take your questions. And with that, I'll turn the call over to our operator. Operator, you can open the line.

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We kindly ask that questions are limited to one and one follow-up for today's call. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brooke Roach with Goldman Sachs, please go ahead.

Good morning and thank you for taking our question. I was hoping you could talk to the drivers of the sequential acceleration in comp in a little bit more detail. How much of this is coming from some of the Snow Goose products that continue to expand this quarter versus your core and looking ahead, how are you thinking about Snow Goose's opportunity to scale into the important winter season? Thank you.

Thanks Brooke. It's Carrie, so I'll talk about, really there's three things. So there's, we talked a lot about marketing in terms of investments that we were making earlier and higher up in the funnel. And so that's the job that that needs to do is bring new energy, engage the consumer in a different way and bring new customers. And so that's working, right? So if you remember this time last year, we were a tiny bit quieter in the summer. And so we launched with a very bold spring summer campaign that really did the job, increased reach, increased engagement, the press coverage that we got from that was so strong. And so we know it's landing with the consumer. Then when you move into product, and Danny mentioned this in his remarks, but the assortment is so much more representative of a seasonally relevant collection. So when you look at the apparel growth that we've seen, we're a brand that is known for warmth and outside of winter. We're just really not known as that brand, but this campaign, the collection really challenged that perception and people responded to it. And so then the third thing I would say is really is just our execution. So our continued efforts on making sure that we've got the product in the right place, that our brand ambassadors in store are focused on conversion and you'll see that in the results as well. Conversion was up across every region this quarter. And so the combination of those three things together really was helping us drive our comps. When you think about Snow Goose, so Snow Goose did the exact job that it needs to, right? Hyder's collection is supposed to be the top of the spear, really avant-garde, very bold, different for Canada Goose and bringing freshness, bringing excitement. And so it's much more of a brand heat driver. We're looking at this for now versus a commercial driver. It does do obviously help us. And as you see that when we look at basket size, it's obviously driving much more of a halo impact than we had anticipated, but that will continue. So we're looking at Snow Goose as the more like a capsule collection on top of our mainline, really driving brand heat. And so we've had drop one in the summer, we'll have drop two soon, shortly. And then we'll be looking at a fall drop as well.

Great, and if I could just ask Neil a quick question. Understood that there's a lot of changes happening with the timing and the magnitude of marketing investments as you look to reinvigorate the brand. Can you just help us understand how we should be thinking about year on year SG&A growth for the balance of the year? And if there's any puts and takes by quarter that we should be thinking about? Thank you.

Yeah, it's a good question, Brooke. I'll make some maybe more general comments, given that we don't have guidance out for the year. We talked a lot about in the call in a few months ago about making investments in things that we expect to deliver revenue growth. And some of that will happen over the longterm. Clearly the investment around marketing in the first quarter was higher than it had been prior in the prior year. We would expect that to continue, especially as you just heard from Kerry that we're focused on a few more snow goose related drops as well as getting into our main season. The other areas of investment that we're looking at are, we're gonna open some new stores this year as we talked about before. And within those stores, we see that labor is an investment that delivers revenue. And so those are all the areas around investment that we're focused on. As it relates to maybe more discretionary SG&A spending, that's a spot where we're being more disciplined about what we expect out of those investments and making, I'd say more clear choices about things that are not necessarily delivering revenue. So, in balance, we're expecting to see some lift in SG&A as you'd expect here every year to fuel some of this growth. And I think we're comfortable with what that looks like.

Great, thanks so much. Best of luck going forward.

Go ahead. Your next question comes from the line of Oliver Chen with TD Cohen, please go ahead.

Hi, thanks a lot. We, across the luxury goods sector, you've been bucking the trends nicely in China. So we'd love to hear about what you're seeing and all the success that you're having there, especially given that's a tough market. And then as we think about newness, which does impress us, is there any quantitative aspect to the level or percentage of newness and or what we should know about about the flows upcoming that could help us understand the degree of newness? And as you think about Heider's success, he's done a really good job with shows at Tom Ford and other. What are you thinking about amplifying his messaging in terms of speed of that and what's achievable creatively with respect to fashion and messaging and unification? Thank you.

Thanks, Oliver. So let me start with the first question. I think that was on APAC in China. So yes, we're thrilled with the performance in China and the greater APAC region overall, actually. So when you think about it, it's no different in terms of the playbook that we're executing earlier, marketing, tougher the funnel, reaching that consumer, diligence in making sure that that product is available. And that is really responding when you think about APAC, the temperatures, the idea that spring is not necessarily the same everywhere as it would be in North America, but that customer is responding to the newness that we're bringing forward to the table. And then the execution. So the discipline of in-store execution with our brand ambassadors and our store teams. But the other difference, particularly in that region, is when you look at e-commerce. So we've talked about our live streaming success on Duyan before and WeChat. So expanding that is really resonating. It's driving a lot of traffic and engagement with our brand. And so that is obviously a helpful factor as we deliver in that market. Japan is maybe the outside sort of market in the APAC region where it's a little bit under pressure, a little softer comps, but very happy with what we're doing in China. The second question, I think you were talking about degree of newness and the impact of newness. So very strong. So again, that's a part of our long-term product strategy to nearly double the amount of newness. And that's mostly in carryover where we're animating some of our heritage or iconic style. So bringing a new reason to buy that second expedition or third expedition, but also introducing new, complete new styles. And apparel is a big driver of that. So we're thrilled with that. It's much more of a seasonally relevant product. It's making sure people are thinking about Canada Goose outside of winter, which we're obviously thrilled with.

One thing, Kerry, this is Beth. I'll add on the newness front, Oliver, this is really a effort across the organization to significantly evolve our practices to accelerate that pace of newness, creativity, elevation. So merchandising, sourcing, product development, manufacturing, you name it, there are investments in team members, new ways of working to really accelerate that newness. So we feel like we're just getting started. We're also, you're excited about the newness you're seeing in the store. We are too, we're thrilled with the commercial results we're seeing from that newness. But we think that the snowball is just beginning to build on the impact that we'll have this year and over the longterm.

Great, great. And one follow-up, yeah, that'd be great. Yeah, on the fashion show potential.

I mean, so we're a very different brand in some words. So we're not trying to replicate those things, but it's obviously a benefit to us in terms of just his, you know, Heider and his style and what creatively he thinks. And he's pushing our boundaries. As Danny said, he's bold and what he's doing is working for us. So, you know, putting us in the center of pop culture, whether that's through our expeditions, we took, you know, for his, this summer drop, we took everybody to Utah to really showed up differently, but authentically, right? He's not trying to turn us into a fashion brand that just is not in our DNA. And so that's what we love about him. That's what he loves about us. And so I think the fact that he's so focused on taking what makes us great as a brand and just elevating that, amplifying it, and you'll see that come through the product. You'll see that come through the marketing, the expeditions that we do. And that impact is going to soon impact our mainline collection. Right now it's just been on Snow Goose, but very soon it will be on all of our collections.

Hey, that's very helpful. Neil, lastly, just on puts and takes on gross margin that we should know about regarding any headwinds or non-recurring. And was two versus one friends and family expected? Should we know anything about that as well? Thanks a lot. Best regards.

Thanks, Oliver. On the last point, yes, that was expected, minimal level of activity, but two is obviously twice as

much as one. So that created a little bit of elevation in what was pretty small overall dollars. As it relates to margin for the quarter, I probably said this last quarter and in the first quarter, and I'll preview next year first quarter. It's a small quarter, so you can get some noise. The one put and take, which I think we did talk about 12 months ago, was sort of the flow through the European knitwear manufacturer. It was a positive this quarter. Last year it was not. And so that was probably the main underlying driver of expansion. If you back that off, as we said, net-net pricing, product mix, and channel mix was basically not a factor. Neither of those were a factor. Although I will say clearly, I take it as good news that product mix is not necessarily a factor, given that we're mixing pretty significantly out of some of that core product and into a whole bunch of newness. And so we love what that shows about the underlying power of this gross margin in this business, particularly in the first quarter and as we grow the top line in a pretty significant way.

Thanks. Best regards. Thanks, Oliver.

Your next question comes from Adrian G. with Barclays. Please go ahead. Great. Thank you very much.

Neil, understanding that Q1 is a very small quarter, but it seems like you have some really nice in inflection and wholesale, some really strong trends, all geos, all categories, obviously positive. What would you need to see to kind of reinstate at least the current quarter guidance? And how should we think about the shaping of, I know you talked about gross margin, but from an SG&A standpoint, should we expect sort of a double digit increase to get behind the new product? And then Beth, I know back in fall, we had talked extensively about kind of the store productivity drivers and driving productivity within the boxes in non-seasonal quarters. Can you talk about some of the developments there and how you've been able to kind of generate more four-wall productivity during the slower quarters? Thank you.

I'll start on the guidance point, Adrian. Thanks for your question. I think where we are in the year, I guess there's still, at least from our perspective, quite a bit of uncertainty around what the trade environment looks like. And as we said a few months ago, those sort of second order impacts on consumer health are still weighing on us, especially as we've got 5% of the year done with a lot more to go. And so we need to see more, and we're clearly monitoring the Canadian-US dynamic more than anything else. There seems to be some more clarity around Europe, but as we see, anything can happen at any day. So we're maintaining a bit of prudence around what the outlook is for the year.

And I'll take the SG&A one. It also relates to your question on store productivity. So obviously we're not giving any guidance on what to expect in SG&A, but our philosophy on SG&A growth this year is twofold. One, make investments in critical areas that are gonna drive revenue growth in the short, medium, and long-term. So those areas, as Neil mentioned before, include marketing investments, product creation investments, and store-level investments. So store-level investments are both new stores, but also labor and other investments in the stores. I'll talk about when I address the next part of your question. So those investments, we are in real time looking at what are the investments, what are the KPIs coming out of them, are they working, do we do more? So we intend to be very fluid over the course of the year to make those investments where we're seeing the returns and to act where we're not. So therefore, it's hard to say exactly what that SG&A growth will be, because we want to be nimble and responsive to the impact we're seeing it have on the consumer and our commercial results. The other part of SG&A, which is all the rest of the controllable expenses, our job is to keep them as lean as possible and make sure that we're looking for as much productivity as possible to offset any inflation or investments we make there. So that's really the two-pronged focus that we've got as an organization that will guide our SG&A expense for this year and beyond. With regards to your question on store productivity, we feel great about the progress in the first quarter, obviously with the comp growth, and as you said, the consistency we saw of strong performance across regions, across stores, et cetera. I think a notable highlight on the year we did part of our SG&A growth in the quarter was a big investment in store labor in existing in-comp stores. You heard us talk a lot about that last year, but really we beefed up our focus on store labor, kind of tail part of Q1 last year and really into the back half of the year in terms of peak readiness. This year, we're ahead of that game and we're doing it earlier. And we are seeing that manifest in two things. One, the comp growth and higher sales productivity, sales per labor hour per store. So more labor hours, but also more dollars of output out of each of those labor hours, which is great. And also manifesting in better peak readiness. Store teams are hired up sooner, trained sooner, completed all their product education and really ready to go. So as we enter peak, we expect that will really, really bear fruit as well. So I think that we feel great about the store productivity and are making some intentional investments that we think are bearing fruit in that regard.

Thank you, that's very helpful. Neil, just a quick follow-up. How can we think about the wholesale shift impact into Q1 and how does that impact Q2? Thank you.

We're not necessarily focused on the quarter to quarter there, Adrian. I think our view is over the year, we expect to be more or less stable. So last year and so a little bit of growth in the year on some earlier orders and a little bit of replenishment. And we're talking about pretty small dollars, obviously. We don't anticipate that translating to any significant change in the second quarter. And as I say, our focus is really what's the full, what does the full year look like and are we delivering against that order book?

Okay, any comments on the order book? Yeah,

so I mean, truly, it's, we're doing the job exactly as we want it to, right? So following the reset last year, it's stabilized, it's growing, you look at inventory, it's much cleaner. The assortments are much more representative of a candidate whose full lifestyle brand, which we're happy to see. Their sell-through rates have improved lower, so that plus they're not returning product. So we're very happy with that. The response to the fall order book has been, or to the fall order collection, that's what I'm trying to say, has been very strong and also beyond that. So spring, we're bringing them in early. Again, we've been very strategic with working with our top, globally strategic accounts, not the volume of accounts that we used to work with because we're trying to bring them on this journey and that what we're doing is working. They're responding very well and we're happy with what we're seeing so far.

Fantastic, best of luck, thank you.

Adrian.

Your next question comes from Rick Patel with Raymond James, please go ahead.

Thank you and good morning, everyone. Can you frame the newness that you have in stores right now? I guess, how much of the floor set today would you consider to be new products that are driving year-round relevance versus what you might consider to be part of the core? And do you feel that merchandising is where it needs to be today or do you expect to continue leaning into having more newness to have more year-round relevance?

Great question, thanks. So hard to quantify the exact number. I'll share a little bit more of a philosophy on introducing newness and how we're trying to flow that because it relates much more to your second question about where we're at with merchandising. So there's been a very concentrated effort to flow it earlier, so to bring newness in, obviously matching up with our marketing campaigns and investments, but we're not in a place where we're dumping all of the newness all at once and then hoping it works for the whole season. We're doing a very strategic flow to make sure that there are offerings for, depending on regions, that people will grab and it builds throughout the season as we head to peak. So the newness is working, we're seeing that response, but I would say from that, when you look at our full year perspective and a fall winter, we just started to drop some of the fall winter collection newness, but again, as we look ahead, we're less focused on, this is our spring collection and then we're done with it and then we're gonna introduce our fall winter. That's just not the kind of brand we are. We're not a runway brand that is putting something on the runway and then pulling it off when it's done that season. We're much more broad in terms of full year relevance, making, responding to, whether it's weather conditions, responding to the needs of different regions at any given time. So it's much more of a flow than I would say it had been in previous years. Second question, so on merchandising, no, we're not done yet. And I don't know if I'll ever be able to say that we're done because there's constant improvements that we can be made. So as we talked about earlier, we hired a new head of merchandising early and she joined early in January this year and building a team, organizing that team around, just how do we optimize not only the collection, but the way in which we work? How do we bring newness to the table? How do we make sure that we can introduce the right level of newness by right category? We have no interest in just building an assortment, building a skew count and waiting to see what the consumer responds to. We are very deliberate, much more disciplined, I think, than I've ever seen us be. So happy with the progress that we've made, but believe that there's lots more to come in future seasons and future years.

And I know you're not giving guidance, but can you unpack the factors that drove the increase in SG&A and Q1 as we think about stores, marketing and the merchandising areas? I guess, curious about the relative size of those buckets and as we think about the go-forwards, we expect the relative size of those buckets to be consistent with where you landed in Q1. Just some color on the shape of investment would be helpful.

Yeah, I'm not really gonna comment on the size of the bucket, but I think you can assume that the bulk of the SG&A growth was on those investment areas, that we were able to stay really nice and lean and have productivity funding any investments and inflation we're seeing in the other areas. So it is a very investment, strategic revenue-driving, investment-focused SG&A growth, and that would be our expectation over the balance of the year. So with regards to how much marketing or how much is store labor, on that specifically, but consistent with what I shared in response to Adrian's question before, I think we are looking at that data in real time and learning and dialing up investments that are really working and dialing down investments that are not so that we make sure we are generating maximum or long-term return out of those investment dollars.

Thank you.

Thanks, Ray. Your next question comes from Ike Borchow with Wells Fargo. Please go ahead.

Questions on DTC, maybe for Neil or Kerry, not sure. I just, to double-click, I think you said you were doubled with the comp every month of the quarter, and you kind of made a comment about momentum is sustained, I think. I'm just kind of curious, like I know there's no guidance, but have you seen any real slowdown in the DTC trend that you guys saw in the last quarter so far?

I think the first part of your question may have been cut off, but I think we got the gist of it as it relates to the DTC performance. So we'll take it from there, and then you can ask a follow-up. And so the sort of the general trend here is that channels, both stores and e-commerce, across the world performing very well. As you saw, positive double-digit comps in both North America and APAC, and little single-digit negatives in Europe. And I think I focused that European answer really specifically on what's happening in the UK. Continuation of trend that we've seen there for now, I'm gonna guess about 12 months, where traffic is downed, and so we're doing the thing that we can control, which is drive conversion through all the things that you've heard Beth and Kerry talk about over the last couple minutes. And so we're pleased with conversion in spite of pretty stiff traffic headwinds. The other probably spot of softness, and again, I'm sort of echoing what Kerry said earlier, is consumer in Japan. Earlier in the quarter was maybe a little bit stronger, exiting Q4 was stronger, but seems to have moderated a little bit here in the first couple months. Another area where clearly there's been some trade tension, and so perhaps that's using some lower consumer confidence. But again, our focus in that market is over the long term on building the brand, on putting in great stores, on improving the operations. And so some transitory headwinds are okay with us. And so that's the sort of downside picture. You've heard all the upside stuff, channels, store ops, conversion, all in the strong positives here over what has now been many months.

I guess the crux of the question, Neil, is I know there's no guidance, so I'm not looking for a specific number, but the things you're doing and the kind of momentum you're seeing, especially with some seasonal changes in the mix, is the trend sustainable if you guys execute as you move into the much more meaningful to the profit quarters in the winter months. That's kind of just what I get a high level trying to understand.

Yeah, absolutely, I call it, it's Kerry. There's no reason to believe that it could change, right? We have to keep controlling the things we can control, which is what product we're putting in, how are we engaging and attracting customers through our marketing investments, and then at the finish line of e-comm and in-store conversion. So I think the fact that we are seeing this continued momentum, this is not just a one month type of story, gives us a lot of confidence that that will continue, barring the macro headwinds that, of course, we don't know all of them, but we're watching the ones that we already know about that Neil just mentioned. So we've seen that continue into Q2, we're happy with the trends that we're going, and there's no reason to believe it would change barring some outsized impact event that we don't know about.

I think it's also important to put in the context of where have we come from and where are we going. So there has been a lot of work on, and you've heard us describe this, Ike, around, how are we performing in stores? How are we measuring it? What does the traffic look like and how does that compare to our labor? Is the labor trained? Are we measuring the things that are happening inside the stores in a way that is driving behavior? A whole bunch of retail, sort of 101, that has obviously borne fruit here over the last 12 or 15 months. And so, you couple that with a little bit more focus on marketing and product that we love and that the consumers clearly love. Things are working here, and so that's why we've got confidence around the sustainability of it, in spite of what is still a pretty choppy, tough consumer market. So, the things that we can control, it sounds a little cliche, are where we're focusing our energy, and that is clearly resulting in the positive outcomes.

Sure, Al was adding

to

that very quickly, is that we are really happy to be in the position that we're in, and we way rather be here at the beginning of the year, having seen acceleration and momentum going into the rest of the year. I would way rather be sitting here with this situation. It gives me lots of confidence as opposed to what could be a very different situation. And we're all very excited about that.

Yeah, no, totally makes sense, Danny. And then just one more follow-up. Kerry, I think you mentioned to Adrian's question, which you followed up on the order book, and you used the word healthy. I guess I'm just trying to ask a simplistic question. If the wholesale door calling is largely behind you, and you've got an order book that's healthy, is there a reason why the wholesale business couldn't be growing from here? I know you're not really planning it that way, that's not how you're talking about it, but I'm just trying to understand, is there a reason why that couldn't occur, given the two variables that I just kind of threw out there?

No reason at all. So we would love that. We're just not, you know, we're not making a commitment to that at that point, because there are still, you know, when you look at the wholesale market, depending on, you know, in North America is very different than what it is in EMEA. And so we don't want to get over our skis, but we would say the order book response was strong. And over the year, we feel like that will produce exactly what we were expecting. Are there pockets of upside? Absolutely, I would be crazy to say that there's, you know, we don't think that we can overachieve, but we're not, you know, we're not predicting that. We think that's a very important channel, and the response that we're getting from the partners that we are investing with is exactly the response we want.

Yeah, I'd echo what Kerry said, you know, I believe that there will be a point in time where wholesale doesn't continue to grow. We have not built that into this year's plans, because we don't want to be responsible in how we do that. But wholesale over the long term is a very important channel, and I have lots of faith that it will be a strong one for us going

forward. Makes sense, thanks guys.

Your next question comes from Alex Perry with Bank of America, please go ahead.

Hi, this is Lucas Upson on for Alex Perry. Thanks for taking my question. Can you guys speak to the drivers of the sequential improvement that you expect throughout the year, and how much is expectation for better macro versus your own initiatives?

So, yeah, talk about sequentially because we're not operating in a situation where we've got a guidance out for the year, so just qualify any comments here with that. Our expectation has been that focus on positive comp, D to C performance and the drivers that deliver that, whether that is in store or digitally, are the key levers that we need to pull on in what is a relatively tough macro environment. And so our plans for this year were not a massive amount of growth in the industry, and internal improvement that delivers continued performance. And as I just said, and as you heard the rest of us say today and over the last couple of quarters, we have a lot of work to do internally and we like what we're seeing. We see that that's turning into positive comp results, but it's not the work is not over. And so, month to month, we are week to week, we're focused on what's happening in stores and what's happening in the digital business to ensure that the top line continues to grow.

I'll add Lucas's best that we're still a relatively small brands with a tremendous amount of runway. And so I think as we see challenging and volatile macro environments, we're not as intimidated by that because we know there is a lot we can do in our control to succeed even in those challenging environments. And obviously you're seeing that with the results of the last two quarters. And so certainly macro will be what it will be, but I think we feel that we're very well positioned and have a lot of white space opportunity in front of us to continue to execute no matter what's going on in that macro context.

Great, and then just to follow up in regards to APAC, do you guys see APAC outside of mainland, outperforming mainland as the remainder of the year continues? I

think, I mean, that's a fairly specific question. I'd say that the business outside of APAC, outside of mainland China is essentially Japan and a few stores in greater China and Australia. And so it's a fairly small part of the business. As a general point, you've heard our commentary on Japan. I think in Hong Kong in particular, we've had two stores there for now quite a while, there continues to be some pressure around the traffic and sort of whether that's transitory or more permanent, we're monitoring along with others. And so while it's not maybe a material impact in the overall business, I suspect that mainland China has more upside over the rest of the fiscal than the rest of, or at least greater China.

That's helpful, best of luck going forward. Thank you.

Your next question comes from Jonathan Kopp with Baird. Please go ahead.

Yeah, hi, good morning. Neil, if I could follow up just on SG&A, typically it looks like Q1 is less than 20% of the full year spend that ultimately happens. I'm just wondering if we should be thinking that that'll be the case again this year, that typically is, and then a bigger picture, any thoughts on the revenue scale you think you need here to get back to historical levels of higher EBIT margin here?

Thanks, John. I'll start maybe on the second point on revenue trends and then work back towards the SG&A question. And so, you know, low through of profit on revenue growth is a critical area of focus for any retailer and we're no different than that. I think as you heard us, as we talk about, we've talked about a number of times, in this year in particular, we are making some investments that we believe are going to deliver that revenue scale over the longer term. And so that is all the things we talked about here, marketing investments, store level investments, and product creation talent. The, you know, precise scale of how big do we need to get in order to start to see more meaningful margin expansion, I think we're gonna have to leave for another time because that looks a little too much like, I think, longer term guidance, but, you know, suffice to say that we think there's a ton of opportunity to grow that and with that scale, there will be significant margin expansion. It's just a matter of, you know, when does that happen, which I'm sure is of interest to you as well. On the, you know, kind of what's the, you know, is 20% of the year's SG&A in the books in Q1, you know, I think I'm gonna have to go back to the same sort of general comment, which is, you know, we don't have the quarterly guidance out there, we don't have the annual guidance out there, and so the timing of investments this year are tied to when we think they are most likely to deliver the most upside. We had obviously a major change in respect of StoveU's capsule in the first quarter here, which delivered, you know, required some marketing investment at a higher level than we had a year ago. We think that that delivered also some positive outcomes on the top line. You know, the timing of when stores open and, you know, things like that, and how long are we in, sort of pre-lease periods, those are factors as well. You know, these are all things that, you know, we best view over the full year, rather than in specific quarters, and, you know, how much is it gonna be this quarter versus next quarter? So appreciate that's maybe not as precise as you're looking for, but, you know, that's kind of just where we are at the moment.

Okay, that's helpful, Coller. And then just one separately on China. I might've missed it, but did you close one store in the market there during the quarter? And then, you know, I believe last fall you started calling out Duyen as a positive driver for traffic, just as you look forward to anniversaring the strength there, you know, any thoughts on the ability to continue to drive, you know, traffic growth through the channel there? Thank you.

So, yeah, Duyen and WeChat live streaming continue to be great for us, expanding. Last year really was our first test, and making sure that we understood the nuance of the channel, how to optimize for that. So we've been learning constantly and tweaking and hopefully expanding. So the products that we offer, the way we engage people with our hosts on that will continue to be a great driver. So we're really excited about the future of that platform, for sure.

On the store closure point, we did in fact, we had a lease expiry in Dalia, and we had another store open there in the last 12 months. And so we felt like that was a better spot. And so, yes, we did close.

Okay, great. Thanks again.

That concludes our question and answer session. I will now turn the call back over to Neil Boden for closing remarks.

Thanks, operator, and thank you everyone for your interest today. Have a great rest of the summer, and we look forward to updating you on our progress here in a few months.

Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.