Canada Goose - Q2 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Canada Goose Q2 2023 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 will need to press star one one on your telephone. You will then hear a message that your hand is raised. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Amy Stwalley, Vice President of Investor Relations. Please go ahead.

Amy Stwalley (VP of Investor Relations)

Thank you, operator, and good morning, everyone. With me are Dani Reiss, Chairman and CEO, Jonathan Sinclair, EVP and CFO, and Carrie 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 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 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 will turn over the call to Dani.

Dani Reiss (Chairman and CEO)

Thanks, Amy, and good morning, everyone. I'll start by saying that we are heading into our most important season, and we are well-positioned across our business to drive and capture demand globally. There is no doubt that the macroeconomic backdrop continues to present challenges, but I'm very confident that the strong underlying fundamentals of our business will help us navigate them well. This morning, we released our results for the Q2 of fiscal 2023, which beat our expectations. However, despite our strong performance in the quarter, we are not seeing the level of improvement we had assumed in Mainland China. COVID-related disruptions, including mall closures, lockdowns, and travel restrictions, continue to impact traffic. As we head into our most important quarter, we are seeing these disruptions affect an increasing number of cities in which we operate.

As a result, we have updated our outlook for the year, which Jonathan will cover in further detail shortly. Let me be clear, our brand remains strong in Mainland China, regardless of the temporary headwinds. We saw this brand strength during the holiday period, Golden Week in October, and more recently leading up to Singles' Day in November, where both traffic and sales trended positive across our network. These holidays have historically been meaningful shopping events, and that has continued for our brand. This gives me confidence in our long-term vision, demand, and brand strength as we move forward. Regardless of temporary challenges we may face, our focus for the remainder of the year is clear. We will continue to execute against our long-term strategy, growing our DTC mix, deepening our presence in new and existing markets, and growing our performance luxury offerings. Now, turning back to the quarter.

Topline revenue grew 19% to just over CAD 277 million. On a constant currency basis, revenue growth was 22% ahead of last year. Our strong top line flowed through to meaningful bottom-line returns. We significantly exceeded our Adjusted EBIT expectations as well as earnings per share. This performance demonstrates the margin strength of our business when we are in season and delivering. Turning to channel and regional highlights. Overall, our performance in our Q2 was driven by strong wholesale performance and continued strength in North America. Our strong wholesale performance was driven by two factors. One, our ability to fulfill requests from wholesale partners to ship orders earlier in the season. Second, an increase in order book value driven by higher units and price, particularly in Europe.

This shift in wholesale timing not only allows our consumers the ability to shop the full assortment of Canada Goose earlier in the season, but also opens the door to potential reorders later in the season. In North America, where our DTC retail network was a particular standout, the strong performance has continued beyond our Q2, accelerating as we would expect to see heading into our peak season. In EMEA, we saw our top line grow 34% and by 44% on a constant currency basis. This was largely driven by wholesale, while our stores benefited from increased tourist traffic, mainly from the United States. Lastly, in APAC, our results were impacted by performance in Mainland China, which, as I mentioned earlier, continued to be affected by COVID restrictions. Outside of Mainland China, we continue to execute against our regional diversification strategy.

In South Korea, through our new distributor Lotte Group, and in Japan, through our recent joint venture. Moving from the quarter to an update on progress against our growth strategy. The four key tenets of our strategy include, number one, growing our direct-to-consumer mix overall. Two, increasing our penetration in key markets. Three, re-envisioning our product offering. And finally, expanding our margins. We are at the early stage of development in the majority of our large international markets, and we're driving our penetration higher in the US, EMEA, and APAC, including Greater China, Japan, and South Korea. Last quarter, we spoke about our plans to open more stores in China in the leading shopping districts with excellent adjacencies. The fact that we are renewing leases and securing new leases for stores is a testament to the brand strength we've built in China.

Our DTC progress in China also demonstrates the confidence we have in the long runway ahead of us, especially compared to many other luxury brands. As I've said before, we are investing in China for the long term. This week, we will unveil our pavilion at the fifth annual China International Import Expo, the preeminent event for foreign business in China. At the event, we plan to highlight our China-specific programs, collections, and investments. I'm excited that our brand is showing up so strongly at such an important event in China. In Japan, through our joint venture, we opened a store in Osaka in October. The performance of the Osaka store has been very encouraging. Also, we are on schedule to open in Ginza, one of the most prestigious shopping districts in Tokyo, this December.

Not only are we expanding our presence in Japan, but I'm pleased to see our brand elevating as we open in some of the most influential luxury retail locations in the country. In South Korea, in partnership with our new distributor, Lotte Group, we opened 14 new shop-in-shops. Our performance has already exceeded our expectations and gives us confidence not only in our partnership with Lotte, but in our strategy and the opportunity ahead of us in this highly influential market. In North America, we have begun our quest west in the United States as we deepen our penetration in key markets across the western United States. There remains so much potential across many cities in the U.S. As we mentioned on our last call, we will open the Wynn in Las Vegas in the coming days, followed shortly by a new store at Cherry Creek in Denver.

We also plan to open two more temporary stores this fall, one in Aspen and a second in Detroit. In Europe, we opened a new permanent store in Manchester in October. The store sits on New Cathedral Street in the heart of the city's luxury retail district. We'll continue to look for further strategic opportunities across the U.K and the continent for this fiscal year. Our DTC strategy is working. Excluding mainland China, we generated 28% DTC revenue growth, and our DTC comparable sales growth excluding China was 3.2%. I think it's also important to point out the relative newness of our DTC store network. Since the onset of the pandemic, we've opened 25 stores, and for many, we are yet to see their full potential. We continue to see tremendous opportunity across our existing store network globally.

Moving from our DTC business, I'd like to give an update on key product launches heading into peak season. Enhancing our product offering and expanding categories is a core competency for our brand and a key pillar in our long-term strategy. Our new collections and collaborations are resonating with consumers, driving traffic and buzz around the world. On our last call, we spoke about the opportunity we have to increase the share of our women's business. We plan to grow our women's business from the 50% we currently see to more closely align with the industry at approximately 60%. We are taking meaningful steps to do just that while continuing to build on the strength of our highly successful men's business. For example, last quarter, we spoke about our new fall/winter collection with styles and silhouettes designed with this in mind.

Annie Leibovitz shot the campaign, which features a cast of amazing women. The response to the campaign and collection has been tremendous. Despite having only launched in September, we're making meaningful progress against the objectives we set for this collection, motivating our target consumer, Gen Z and millennial women, and driving awareness for our women's business. As of today, Gen Z and millennial women make up the core customer for the collection. Combined, they represent two-thirds of the collection's consumer. As well, our first ever all-female campaign is reaching and resonating with new audiences, with more than 60% of purchasers being first-time buyers. I'm happy to see this new collection deliver so strongly against its objectives as we push our women's business to new heights. We also see an opportunity to deliver on our goal to grow our women's business through collaborations, reaching new audiences with influential partners.

In December, we plan to launch a new collaboration which will lean into a more feminine expression of Canada Goose's functionality. This collaboration will offer a fresh perspective of the brand, exactly the type of disruptive design that will help us capture consumers' attention and their imagination. Our most recent collaboration with Shanghai-based Feng Chen Wang was unveiled in September during Paris Fashion Week. In October, we hosted impactful launch events in both Hong Kong and Shanghai to celebrate the launch. The multidimensional head-to-toe assortment leans into Feng's innovative and deconstructed approach to design, an exciting interpretation of our brand, and initial reaction has been strong, especially in APAC. As part of our growth strategy, we continue to re-envision our offering and expand into new product categories. In Q2, non-Heavyweight Down sales grew by 46% to 44% of total sales.

This is up from 36% of total sales in the prior year quarter. Following their success in Q1, fleece and knitwear sales continued to perform very well, growing more than 60% from the comparative quarter last year. Fleece was the standout, with sales growth of almost 170%. We continue to make meaningful progress against our strategy to expand our product categories, and I'm excited about the opportunity ahead of us. This November also marks the 1-year anniversary of our launch event of footwear. We continue to grow the category, adding two styles earlier this year in August, with another three set to launch before the end of the year. The opportunity we have in front of us in footwear is meaningful, and we will continue to execute against our strategic playbook to build the business for the long term.

Importantly, this category expansion has not come at the expense of gross margin. Our Made in Canada vertically integrated operating model continues to benefit our business. Specifically, we've been largely insulated against the expedited freight costs and supply chain issues we have seen impact gross margin across the industry. Before I pass it over to Jonathan to go over our results and outlook in more detail, I sincerely wanna thank our teams around the world for their laser-focused efforts on driving our brand success. I am confident heading into our most important season that we have the right product to capture consumers' imagination and attention and therefore drive traffic, stores in some of the most exciting retail locations in the world, and the right team and partners to deliver a stellar experience for our customers across our channels globally.

We continue to see massive growth potential across our business, and we will continue to drive growth even in today's macroeconomic environment. As I have said before, our business has grown through every recession, save the first wave of COVID, and this year will be no exception. With that, I'll turn it over to Jonathan to go over our results and outlook in more detail.

Jonathan Sinclair (EVP and CFO)

Thank you, Dani, and good morning, everyone. Today, I shall be comparing the Q2 ended October 3, 2022 with the prior year quarter, which ended September 26, 2021, unless I say otherwise. I will be quoting reported growth rates as well as growth on a constant currency basis where it is meaningfully different and available. As Dani mentioned, total revenue grew 19% and 22.3% on a constant currency basis to CAD 277.2 million in the quarter. This growth came from continued outperformance in North America as well as growth in wholesale. DTC revenue increased 15.6% or 18.5% in constant currency to CAD 94.8 million. We enjoyed the benefits of continued retail expansion and an increase in existing store sales in North America and in EMEA.

Asia Pacific continued to be impacted by COVID restrictions, which reduced store traffic through store closures, restricted store hours, mass testing, and mandatory quarantines, to name but a few of the factors and their consequences. DTC comparable sales declined by 4%. Excluding Mainland China, DTC comparable sales growth was 3.2%. This quarter last year, Mainland China DTC revenue was up 86% with materially less COVID restrictions in place. Wholesale revenue increased 21.2% or 24.7% on a constant currency basis to CAD 180.7 million related to earlier shipments requested by customers and an increase in order book value, particularly in Europe. Fulfilling orders through our wholesale partners helps us drive a better shopping experience for the end customer, and in turn, creates the potential for higher sell-through and reorders.

Importantly, the earlier timing of shipments represents a full return to normalized shipping patterns pre-pandemic. Turning to performance by geography, revenue increased in North America and in EMEA, while Asia Pacific declined slightly. The gap between reported and constant currency growth arose with 30.3% of our revenue denominated in Canadian dollars this quarter, compared to a lower number of some 25%, which is typical in a full year. We enjoyed U.S. dollar revenue tailwinds offset by headwinds in other currencies. North America was again the standout this quarter, with growth in the U.S. and in Canada of 20.3% and 25.2% respectively. We have four new stores coming online in the U.S., part of our best performing region globally. They are opening during our peak season in a territory that's completely underpenetrated by our retail network.

As Dani mentioned, EMEA grew 34.4% and 43.7% on a constant currency basis, and that's largely due to the expansion of our wholesale business with key partners across the region and, to a lesser degree, from improved productivity in existing stores compared to the prior year quarter. To an extent, business has inevitably transferred from online to stores, even if that online business remains substantially above where it was two years ago. Europe has continued to benefit from travel corridors reopening and increased U.S. tourism. That said, the macroeconomic environment is challenging with soaring inflation. To date, however, we have not seen any material impact on demand, and the luxury consumer appears to be quite resilient, but we continue to monitor this closely.

As we have said, Asia Pacific results were impacted by COVID restrictions in mainland China, as well as the temporary closure of our Macao store. Although these challenges have been more prolonged and restrictive than anticipated, optimism about the strength of our brand in this market is unabated, as evidenced by our continued investment in the region. Further, we have diversified the regional mix through our joint venture in Japan, deeper wholesale partnerships, and a revitalized distribution partnership in Korea, all of which helps offset some of the challenges in mainland China in the Q2. Despite very tight restrictions, particularly around Beijing leading up to the Party Congress mid-month, we saw sales momentum improve during Golden Week in the first week of October. Since then, however, we have not seen the business build in line with our expectations for our peak season.

Dynamic zero-COVID restrictions, closures, mandatory quarantines, and lockdowns in most of our key markets where we have retail distribution have curbed store traffic and consumer buying. Turning to gross profit, we grew consolidated gross profit by 22.8% to CAD 165.8 million, primarily driven by higher revenue and gross margin expansion. Q2 gross margins increased 180 basis points to 59.8% and were favorably impacted both overall and at a channel level by pricing and by lower product costs from increased production efficiencies. We also have less distributor sales, which attract lower margins compared to the prior year quarter following the creation of the Japan joint venture. As a result of these factors, both DTC and wholesale gross margins expanded, coming in at 77% and 51%, respectively.

We were able to deliver stronger margins compared to the prior year quarter despite inflationary pressures and the diversification of our product mix away from a concentration in heavyweight down. Adjusted EBIT increased 70.1% to CAD 29.6 million, well ahead of the top end of our guidance of CAD 18 million, reflecting the impact of higher revenue as well as strong gross margins and cost control. The increase in adjusted EBIT was primarily due to higher gross profit and the timing of marketing spend, partially offset by incremental personnel costs as well as the expansion of our retail network and investments in strategic initiatives. Adjusted net income attributable to shareholders increased 63.1% to CAD 23 million and CAD 0.22 million per diluted share, which also exceeded the top end of our guidance range of CAD 0.14 milllion per diluted share.

Turning to our balance sheet, we ended Q2 fiscal 2023 with cash of CAD 97.1 million compared to CAD 98.9 million at the end of the comparative quarter. Net debt, including capitalized leases, was CAD 734.1 million compared to CAD 582 million at the end of the prior year quarter. The increase was driven by the timing of our buyback last year, the expansion of our retail network, the impact of foreign exchange on our U.S dollar-denominated term loan, as well as the financing needs of the Japan joint venture. We're very comfortable with net debt leverage of 2.7x Adjusted EBITDA at the end of the quarter. Inventory was CAD 511.5 million compared to CAD 416.4 million at the end of the comparative quarter.

Just over a quarter of the increase, CAD 27.4 million, was related to the Japan joint venture. Inventory levels have increased ahead of our peak selling season as domestic production gradually returns to pre-pandemic manufacturing levels. We have mitigated supply chain risks through earlier acquisition and higher volumes of offshore production in support of growth relative to comparative quarter. Now turning to our outlook. As many of you know and appreciate, as we build in our peak season, each successive week has an increased weight starting in October. After a positive shift in momentum during Golden Week, restrictions and other disruptions have worsened the trend. The reality of upholding a dynamic zero-COVID policy against the very transmissible current variants has meant fairly consistent periodic disruptions persisted. When you consider this alongside the broader global macroeconomic uncertainty, we felt it was prudent to meaningfully revise our guidance ranges.

It is extremely challenging to predict the bulk of the year's trading based on merely a few weeks of visibility, but recent events impacting trends are not supportive of our original outlook. Critically, this does not change our confidence in our brand strength globally, nor in our conviction in China as a significant growth market for Canada Goose, especially given how under-penetrated we are. For all the reasons we've detailed, we remain excited about our future prospects here. We now expect total revenue of CAD 1.2 billion-CAD 1.3 billion compared to previous guidance of CAD 1.3 billion-CAD 1.4 billion. For DTC, this assumes comparable sales will be down in the low single digits at the bottom end of the range and up in the high single digits at the top end of the range.

The decrease in our current assumption from our original low teens comparable sales growth, which drove CAD 1.3 billion revenue, reflects this larger headwind. On the other hand, we've been able to add a number of temporary store openings, which we've been able to finance through SG&A savings. Excluding the impact of these additional China headwinds, we would have been inside the ranges we previously detailed for DTC comparable growth. DTC sales are still expected to comprise 70%-73% of total revenue, and wholesale revenue growth is maintained at 6% for the year. At roughly double the contribution we saw last year, we continue to expect CAD 60 million-CAD 65 million in revenue from the Japanese market, roughly split equally between our DTC and wholesale segments.

Moving to profitability, we now anticipate Adjusted EBIT of CAD 215 million-CAD 255 million for a margin of 17.9%-19.6% compared to previous guidance of CAD 250 million-CAD 290 million for a margin of 19.2%-20.7%. This revised outlook assumes that the revenue reductions in the DTC segment are somewhat offset by cost control measures for the balance of the fiscal year. We continue to expect a lower underlying SG&A growth rate compared to growth in fiscal 2022. We assume consolidated gross margin will be in the high 60s as a percentage of total revenue. Gross margin benefits from our vertically integrated Made in Canada manufacturing model, as well as from the conversion of our Japanese business from a distributor arrangement to a joint venture.

This more than offsets the impact of a product mix in favor of non-Heavyweight Down, especially in the warmer parts of the year as we continue to expand these product categories. This complements the colder periods of the year when sales of Heavyweight Down are more prevalent. Flowing through, we now expect adjusted earnings per diluted share of CAD 1.31 million-CAD 1.62 million, compared to the previous outlook of CAD 1.60 million-CAD 1.90 million. This does not assume any incremental share buyback activity. Lastly, I will cover our outlook for the Q3. We expect total revenue of CAD 580 million-CAD 660 million. This implies a split of revenue in the second half between Q3 and Q4 of 50% and 22% of the fiscal year respectively.

Remember that Q3 fiscal 2022 included an extra 14th week, and that 14th week is aligned to the 13th week of Q3 in fiscal 2023. As such, the first week of Q3 last year adds CAD 24 million of revenue to consider when comparing growth year-over-year. We expect Adjusted EBIT of CAD 220 million-CAD 255 million. We're now at an inflection point for margin and profit. The incremental revenue from the investments we've made will drive further leverage, and the uplift from the DTC mix shift will be more impactful. We expect SG&A to be in the low-to-mid-30s as a percent of revenue in the Q3. This flows down to adjusted net income per diluted share of CAD 1.47 million-CAD 1.72 million.

In summary, we feel confident in our revised outlook, given our strong brand heat, our new collections and collaborations, and the value proposition that our products offer. While the environment presents challenges, we remain focused on the things we can control. We are closely monitoring the trends and buying behavior moving through our peak season, and we're prioritizing increased store productivity across our growing retail network. Further, we are carefully assessing risk-based returns for disciplined capital allocation and investment and tightly managing non-strategic spend. Our prospects are exciting, with a wealth of opportunity for our brand to grow significantly globally over time, and we remain focused on driving profitable growth. With that, I will pass it over to the operator to begin Q&A.

Operator (participant)

Thank you. As a reminder, to ask a question, you will need to press star one one on your telephone. In the interest of time, we ask that you please keep your questions to one. Please stand by while we combine the Q&A roster. One moment. One moment for our first question. It comes from the line of Ike Boruchow with Wells Fargo. Please proceed.

Ike Boruchow (Managing Director and Senior Equity Consumer Analyst)

Hey good morning, everyone. Question for Dani, then I have one follow-up. I guess, Dani, just at a high level, you know, the prior guidance you had indicated, I think the low end included some limited disruption in China. We're clearly getting more than that right now. I think that's pretty much a macro dynamic we're seeing with all of our brands. I guess how do you know, how do you keep a finger on the pulse of the brand heat you have over in mainland China today? Is there anything you can talk to to help us understand just exactly your vision for the brand overseas once these transitory pressures kinda subside?

Dani Reiss (Chairman and CEO)

Yeah, absolutely. Thank you, Ike, for the question. Yeah, I think that, you know, there are absolutely a number of macro factors, including, you know, including the ones in China that are affecting our brand and affecting all brands at this time. You know, I think our brand is very strong. I'm very confident in the strength of our brand in China and around the world in all of our markets. I can point to specific things, for example, I think Jonathan spoke to in the script, but, you know, very importantly, you know, when the market is able to function normally in a normal way, such as it was during Golden Week, our brand performed normally as we would normally expect it to perform.

Similarly, leading up to the Singles' Day event of 11/11, we're seeing extremely strong signs of performance. I think those are the sorts of things that suggest that, you know, encourage all of us that our brand continues to be strong in China. Further to that, you know, to talk about China specifically, we continue to sign leases with landlords in the most important malls, in the most important places, which just reaffirms their confidence in our brand and the extent to which our brand drives traffic to their malls. If that were not the case, they would not be signing those leases with us.

You know, it is unfortunate that these COVID headwinds and economic headwinds that are impacting the world and China today are in fact doing so. You know, we all know that these macro conditions will pass, and I'm extremely confident that once they do, our brand is very well positioned and very well beloved by the global consumer to continue on its growth trajectory.

Operator (participant)

Thank you. One moment for our next question. It comes from the line of Michael Binetti with Credit Suisse. Please proceed.

Michael Binetti (Managing Director)

Hey, guys. Thanks for taking our question here. Can you speak to the cost control measures you spoke to for second half? Maybe just highlight what a couple of those buckets are. I think the new guidance is about CAD 590 million-CAD 650 million SG&A for the year, previously CAD 620 million-CAD 680 million. So a meaningful cut, and I'm mostly curious, you know, what are the buckets that might have to come back next year if the environment is better? And then on I guess just anything we can hear on China, on the stores that you've opened over there. What does productivity look like in those stores when COVID lockdowns are not in place? Just to get a sense of how the business is tracking. Thank you.

Ike Boruchow (Managing Director and Senior Equity Consumer Analyst)

Yeah.

Jonathan Sinclair (EVP and CFO)

Thanks. Thanks, Mic. I think when it comes to the cost control measures, you know, all businesses have discretionary spend. We're very focused on making sure that we are targeting our spend on the strategic initiatives in the business that to secure the future growth, and that has not changed. At the same time, we're making sure that we're super careful on the decisions that we're making and that we're only investing where it's gonna make the difference, either for this year or the next. Therefore, we've tightened up across the piece in that. Whether you're talking about the headcount or you're talking about the discretionary spend, it all, you know, that's really a very strong focus and it's a very strong discipline in this business.

Add to that the fact that there are variable costs in the business as well, whether we're talking about rents or credit card commissions or various store labor components that typically do vary in line with revenue, and therefore you've got a further component there. The one other thing I would say, we are maintaining our marketing investment in this business. It's very important for the brand. It's very important that we drive demand. Otherwise, you know, we're trying to find a way to grow in a way that's just not feasible. So that's the other component. When the stores are open in China, moving to your second point, actually, we're seeing really good productivity. We're seeing performance in line with expectations, both in our existing stores and in the new ones.

Unfortunately, it's just the windows when that can happen at the moment are rather incon-

Operator (participant)

One moment for our next question. It comes from the line of Oliver Chen with Cowen. Please go ahead.

Oliver Chen (Managing Director and Senior Equity Research Analyst)

Hi. Thank you. Good morning, Dani and Jonathan. As we think about China and Asia going forward, what are things within your control? Has the guidance reset enough in terms of what you're seeing? I know it's a very dynamic situation there, a lot of uncontrollable factors. Is there any interplay with your digital footprint? Jonathan, I would love a few thoughts on Europe, you know, as inflation as a factor. However, you expressed some optimism or a solid luxury consumer there as well. Thank you.

Dani Reiss (Chairman and CEO)

Yeah. Thank you. Thanks for your question. Yeah, I think that, you know, the things that within our control are, you know, the extent to which we deploy our marketing resources against e-commerce versus our brick and mortar stores, and we're gonna continue to do that. I think that one of the reasons why the range you talk about being a wide range, I think one of the reasons it's wide is that it's really, really difficult to predict the span of outcomes over the next few months in the region and even in the world with regards to the macroeconomic situations and political and geopolitical situations that exist.

You know, one thing I do know to be true over the last, you know, 25 years of being in this business is that, you know, October is bigger than September, and September and November is bigger than October, and December is bigger than November. I believe that is something that is gonna remain to be true this year. The variables that will control the degree to which that is true is gonna depend on some of the things that are outside of our control. We will continue to focus on those things that are within our control.

Jonathan Sinclair (EVP and CFO)

I think when it comes to Europe, you know, our results were. I'm gonna start by talking about our results rather than just the prospects. Our results were mostly in line with our expectations. You know, we've launched a new website right at the end of the quarter, which to service the European region. We're very excited about the initial performance there. We see that as having significant scope for growth. We're also looking forward to the launch of omni-channel services starting in the U.K, and we see that also as being important. When we consider the performance of the stores in the quarter, actually, each of the stores bar one, and then only slightly, were up.

One was very slightly down, and the rest of them were all up. Actually, we're seeing really good health in the region, and we see that as grounds for optimism, even if we're sanguine about the macroeconomic environment.

Carrie Baker (President, Brand and Commercial)

Just one point to add on that is I think one other point that looks to our confidence in the brand is just our strong wholesale order book, just both in price and volume. That is a huge sign for us in terms of their continued strength, in addition to what we already saw in stores.

Operator (participant)

One moment for our next question, please. It comes from the line of Omar Saad with Evercore ISI. Please proceed.

Omar Saad (Senior Managing Director)

Good morning. Thanks for taking my question. Wanted to dive in deeper around some of your comments in North America, some of the pickup you're seeing there. Are you getting indication in markets where weather is getting cold, seeing some of that re-acceleration? You also mentioned that kind of West Coast. Maybe you could talk a little bit more about the balance of your business across North America from east to west, and when to kind of put some numbers around what that opportunity could mean. Also in North America, are you seeing more new customers coming into the brand, or is it the growth you're seeing more existing customers buying more from the brand, new categories, transitional wear, knits, et cetera? Thanks.

Carrie Baker (President, Brand and Commercial)

Thanks for the question. I think, when you look at North America, I mean, the growth is happening everywhere. I'll answer your last question first. The new customers that Dani talked about are a new campaign that focused on women with a new collection. We're so happy to see, you know, it's attracting a new female customer. That doesn't mean it's not resonating with existing customers. We're just you know the faster growth is happening with new customers. Our quest west, again, our health in North America is we're seeing it across channels. I think we're seeing it across regions. It's just there's more white space opportunity as we go west and introduce our brand in a different way. You know, seasonality plays a factor there.

There are also, I think I talked about this last quarter, people in West are not just coming to us for their first product being a winter product. They're coming into Lightweight Down, they're coming into Vests. They're really seeing a variety. We're able to present a, you know, a more fulsome view of what Canada Goose as a luxury lifestyle brand is, and they're, you know, they're picking up on that. So I think, you know, bottom line, I think we have lots of growth in North America and hope to see that continue throughout the rest of the year.

Operator (participant)

One moment for our next question, please. It comes from the line of Brooke Roach with Goldman Sachs. Please proceed.

Brooke Roach (VP of Equity Research)

Good morning, and thank you so much for taking our question. You mentioned a wide range of outcomes that are possible over the next few months, which certainly makes sense, based on the current environment. Can you help us flesh out the assumptions embedded for both China and the rest of the world on like-for-like comps?

Contribution from new stores that drive the high end versus the low end of the updated sales guidance range, and then perhaps talk to the level of conservatism that's now embedded for China closures as a function of COVID versus some of these other unknowable macro pressures in other regions? Thank you.

Jonathan Sinclair (EVP and CFO)

Thanks for the question, Brooke. I think it's really important to try and understand this. You know, in the end, you know, what we're seeing is one particular set of circumstances change what we were expecting, and that's what's going on in mainland China. As a result, the impact is on our mainland China business, and it's not on the other components. Obviously, the other components under sort of South America and Europe have a more challenging economic backdrop, but fundamentally, they're performing in the way that we'd have expected them to do. Now, within mainland China, our business is down, and we expect it to stay down with this. If.

If you listen to the sort of range of slightly negative to slightly positive in terms of the overall DTC expectation, we would be in range. If for what we talked about originally, which is the low to high teens, were it not for the Chinese business being under so much pressure. You can see there what the size of the headwind, which in this quarter in like-for-like terms is around CAD 0.07 million, is actually expected to be bigger going forward. That's what's baked into these assumptions.

Operator (participant)

One moment for our next question, please. It comes from the line of Jay Sole with UBS. Please proceed.

Jay Sole (Managing Director)

Great. Thank you so much. Would it be possible to elaborate on sort of what your store opening plans are for next year, just at a high level in terms of the stores you've already committed to and signed leases for? Maybe just going back to China. Can you just talk about e-commerce trends specifically in China? I know you touched on this, but just to elaborate, what kind of growth rate you're seeing online, and if you've seen any kind of transfer from stores to online as, you know, stores have been closed? Thank you.

Dani Reiss (Chairman and CEO)

Thanks, Jay, for your question. In terms of store opening plans, I mean, we have nothing new to announce specifically, in terms of what stores we're gonna be opening. I think it's fair, though, that you expect us to continue to open stores at more or less the same pace that we've been opening them this year, last year, and so forth. You know, we will always wait for the best real estate to become available and be patient and you know, for that to happen. When that happens, we will, you know, we have the bandwidth and the capacity to open a larger number of stores if we need to in a year. We're prepared to open a smaller number if that's the right thing to do.

We're always gonna keep in mind the right thing for the brand for the long-term health of the brand so that we will be a meaningful player in this space for decades to come. You know, I think with regards to China, it's reasonable to expect that as the busy season ramps up, an inability to or unwillingness to go out to stores, you know, could certainly result in a transfer to more online sales, but that's speculation, and it's hard to 100% predict to the degree to which that will happen.

Certainly, we'll do our best to encourage people to shop wherever they're comfortable shopping and making sure that they're aware that the inventory is available and that you know and that they can do that.

Jonathan Sinclair (EVP and CFO)

I'd add to that, it perhaps unsurprisingly, China was by far our best performing website business within the Q2. It's held its own at a time when business was heavily down in the U.S. That trend is something that we see continuing at the moment because clearly, as Dani says, it's the most comfortable way for people to shop. Certainly our initial steps towards eleven eleven and Singles' Day are very encouraging.

Operator (participant)

One moment for our next question, please. Next question is from Mark Petrie with CIBC. Your question please.

Mark Petrie (Research Analyst)

Yeah, thanks. Good morning. I think, Carrie, you mentioned just talking about the wholesale business a little bit, and I just wanted to follow up on that. Obviously a point of strength in Q2, but I know a channel that you continue to manage very closely. I guess two questions. You know, does the greater macro uncertainty make you think any differently about the role of wholesale and within your business and sort of the penetration level and sort of business mix? And then specific to this fiscal year, is there any appreciable difference in both the number of doors and then also the depth that you're getting at your wholesale accounts in terms of the assortment? Thanks.

Carrie Baker (President, Brand and Commercial)

Thanks, Mark. Wholesale, no. Sure, we manage it closely with our partners, and in line with their expectations, but it hasn't changed fundamentally, in terms of the role it plays and, you know, the ability to serve our customers where they're shopping. I think for us, I mean, it's always been, you know, to use a Jonathan term, a managed economy. We work with them. We don't give them everything they want, nor will we. That won't change. But I think it's a matter of working with them, making sure they're set up for a really good holiday season, which they are. We are able to pull forward and move shipments earlier. They, we're very excited to have that product available.

There hasn't been any significant change. Again, we're always editing around the edges. There hasn't been any sort of significant changes in terms of the number of doors or where we're playing.

Operator (participant)

One moment for our next question, please. It comes from the line of Adrienne Yih with Barclays. Please go ahead.

Adrienne Yih (Managing Director and Senior Equity Research Analyst)

Good morning. Thank you for taking my question. Two questions, one on the wholesale DTC mix and then geo mix. On the wholesale piece of it, the CAD 180 million, how much of that was earlier shipments? Jonathan, you said that this is the normalization, the act of normalizing the pattern of shipments. From this point forward, we should expect sort of a regularity kind of on a year-to-year basis. That's my first question.

Jonathan Sinclair (EVP and CFO)

Yeah. I mean, the answer is, if you think about wholesale, and it's growing at 6% for the year, the reality is therefore that the timing difference that's coming up is the component that is above 6%. That's timing and some that we anticipated and some of it got asked for by customers beyond that, and that's how we end up here. I think that when it comes to normalization, that's you're exactly right to interpret it the way I've said, which is that meaning that this is normalized, so absent anything else changing, that's sort of the shape we'd expect going forward.

Operator (participant)

Thank you. Our last question, one moment, please. It comes from the line of Robert Ohmes with Bank of America. Please proceed.

Robert Ohmes (Managing Director)

Oh, hi. Thanks for taking my question. My question is for, you know, probably Jonathan. Can you talk a little bit about the inventory levels you expect going forward? I think you guys mentioned production coming back online. You're acquiring some offshore production earlier, and obviously the sales forecast has been lowered about CAD 100 million. Just how should we think of inventory levels, you know, for the next couple of quarters? And then maybe connected to that, is there a scenario where you would maybe need to become a little bit more of a promotional brand or do more in the off-price channel?

Jonathan Sinclair (EVP and CFO)

I think that, let's start with the fact that this is not a promotional brand, and that's a core part of the strategy of the brand. Robbie, I honestly just don't see that changing. Our inventory is healthy. The model that we operate to here, as you'll recall, is very much one which is a continuative evergreen model. A very high proportion of what we sell is continuative and goes from season to season. That's something that isn't new, and it means that it becomes a hedge against inflation. It reflects the fact that we're our own manufacturer as well.

Our normal expectation, to some extent, this is how we would expect it to pan out, is that revenue and revenue growth and inventory growth should move more or less in line. That said, of course, this year we've got a bit of distortion from Japan, but I think that's the right way to expect this to go. Clearly, revenue volatility will have some impact. You've got to remember that the gross margins in this business are quite wide and therefore, what we're talking about here is DTC volatility. The most volatility that you're gonna see is CAD 25 million of cost of goods.

Operator (participant)

With that, ladies and gentlemen, we close our Q&A and conference for today. Thank you for participating, and you may now disconnect.