Good morning, and thank you for joining us for this next session of the Goldman Sachs Global Retailing Conference. My name is Brooke Roach, and I cover the apparel and accessories brands here at Goldman Sachs, and it is my pleasure to introduce Canada Goose as our next fireside chat session. With me today we have Dani Reiss, Chairman and CEO, and Jonathan Sinclair, EVP and CFO. Welcome, Dani. Welcome, Jonathan.
Great to be here.
Dani, it's been about six months since you unveiled your new five-year strategic growth plan. Can you update us on the progress that you've seen so far versus your expectations, and also the most important opportunities that you see as you look ahead?
Yeah. Thank you again for the opportunity to answer the question. I'm so excited about the opportunities for our brand. You know, since we've become a public company, we've grown tremendously, and there's tremendous opportunities that continue to be ahead of us. And our annual growth rate has been quite good. I think that, you know, we've really been, in the last six months, leaning into our three pillars of growth. The first one is to accelerate our consumer growth and that in particular means to accelerate our growth with different demographics to get and bring different consumers into the brand. You know, we feel that we have a big opportunity with women, female customers to grow a percentage of our sales with women. Also, Millennials and Gen Z.
You know, it's something that's always been important to us, is to stay relevant with today's younger consumers, and that, that applied to this, this generation as much as it applied to previous generations, including my own. And as we've grown older, you know, our existing consumers have stayed loyal to our brand, and being relevant with today's younger consumers is important, and it's working really well, and we're seeing that in our numbers. So that's our first growth pillar. Our second is to really build out our DTC network. You know, we decided when the pandemic happened, we decided that we were gonna continue to build our store network.
We decided it was an important way of connecting with our customers, and we decided that even though we didn't know when it would end, that it would be important to come out strong and have a good network of stores. And in addition to that, we don't have that many stores. Like we, you know, we've opened six of our 16 stores, about a third of our stores we plan to open this year so far. And we're on track to open the rest on time and on schedule, on budget. And, you know, our DTC growth has been very strong. And we see ourselves having between 100-130 stores over the next five years, and we're well on track with that.
You know, our last quarter, our DTC store comp was at 28%, so we're doing very well. The final pillar of our strategy is new categories. New categories, you know, we've successfully launched new categories. You know, from starting up from a brand, I started out with heavyweight down to, and when we went public, that was 15% of our only 15% of our business was other categories. Today, it's approaching 40%. So those are the three key pillars of our strategy. You know, further to that, if I can add one more thing, to talk about a transformation project which is going on internally, and we've been working at that very diligently for many months now.
It's a project that's gonna phase itself over and have impact over a number of years. Ultimately, it's gonna deliver $150 million of annualized cost SG&A cost savings a year, and that's by fiscal 2028. And you know, currently, that there's a number of different work streams that we're working on, both retail and operations and technology, and org op is another one of them. You know, recently, we've redesigned our organization completely, and we've began to implement the implement that. And we've recently been able to rationalize and streamline our workforce by about 10% of our corporate employees, which will make us a more effective and more efficient organization.
It will eliminate the duplication of roles in the organization. So it's a very exciting time and, you know, happy to be maturing as a company as well.
That's great. Let's dive into some of the strategic growth pillars and some of the early signs of success that you've had there so far. Maybe we could start with product expansion. Can you elaborate on the most important drivers of recent success and the contribution that those categories are going to have to growth and margins this year? And then maybe as a follow-up, you know, sometimes we hear from investors who want to understand the growth momentum of the heavyweight down category. Perhaps you could talk about what initiatives you have in place to continue to drive your core, even as you expand into these new product initiatives.
Yeah, for sure. Our core is very important to us, obviously, and has continued to grow alongside our new categories. It's important to note that our new categories, all of them that I referenced earlier, used to be 15% of our revenue, is now close to 40% of our sales, and that's an important metric. And those new categories, while our existing categories and heavyweight down, our iconic category, continues to grow at a nice pace, the new categories are growing faster, and that's important. That demonstrates that they're being adopted at retail and that consumers really love the products that we're producing and bringing to the marketplace.
You know, we have developed over time a new product category playbook, which, you know, we call it, and, you know, it is the way that we get into new products and start them and build them over time until they become a material part of our overall sales and revenue complexion. You know, for example, I mean, lightweight down is the, is a great example. It's the original example that, that we have. You know, we started introducing and playing with lightweight down seven or so years ago. And it was a small category. We've built it, it's matured, and today it's 20% of our revenue, roughly over 20% of our revenue.
Same margin profile as the rest of our business, which is exactly the way we see the rest of our categories growing. So as we get into apparel, which includes knitwear, fleece, which is doing incredibly well, and knit and sweat, and that's what we call apparel. That's growing very quickly. Also, we follow the same playbook, and it's gonna become eventually a material part of our overall sales complexion. It's gonna be similar, if not the same margin or better margin profile. And footwear as well. Footwear's done really well so far. It's our newest launch. It's small, but you know, the market. There's a lot of buzz in the market about it. They're great products. They put function first.
As with everything we do, we wanna make a best-in-class product made in the best place to make it. You know, so footwear, we, you know, we expect to follow the same kind of trajectory and, you know, eventually, be a very material part of our overall wearable.
I think it's also worth adding that to dimensionalize the progress we're making on apparel. If we compare the size of our apparel business with where lightweight down was at this point in this journey, it's about triple the size. So we're really pleased with this speed of adoption of the new categories.
That's great. Let's shift to the second pillar of your strategy, which is growth in DTC, in particular in stores. Store expansion is a pretty big tenet of the five-year growth plan. Dani, how are your new stores performing versus your expectations, and how does that play into your other strategic opportunities, such as winning with women?
Very important. I mean, we're very happy with our performance of our stores. You know, our Q1, our revenues are up 60% and 28% comp growth in our stores. You know, like I mentioned earlier, you know, we think that we have, we feel that we have a very concentrated and relatively small group set of retail stores in our network. A tremendous opportunity to grow that base in really important places around the world that address different demographics and address different categories work for where we pop up.
I think omnichannel is also a very, it's very, very important how well omnichannel is part of this as well, 'cause, you know, we are very committed to be able to be available for our fans and our consumers to buy our products anytime, anywhere, and anyhow they want to do that. And that means that any piece of inventory that we have in any store, any location, should be available to them. And we're working very hard on the technology back end of that to enable this kind of omnichannel technology, so that our customers are able to have that exceptional experience. And our in-store experience has been something we've also really, really leaned in heavily.
You know, we have award-winning installations with our snow rooms, and they're, and I'd say, approximately half our stores now and almost all of the new stores that we build. And, you know, it's really important to have that sort of experience available to our consumers.
I think it's also worth connecting the progress on women's and the progress of the new categories with how the stores are expanding. So as we go into new zones where we haven't had stores before, we're actually able to present the Canada Goose of today in front of the consumer. And so instead of them approaching, "Well, I've always come here for X," they're actually able to engage with the entire offer out of the gate. In the same way, women's, as Dani mentioned, is not half of our business everywhere. It's actually more than half our business in North America, and we're really pleased with that and see real momentum behind it. But in Europe and in Asia, we've got even more opportunity to grow our women's business.
We're really excited for the potential of that as well.
Yeah, two point I'll add as well, you know, like all these new categories that we have, we open stores in new locations. People walk into our stores, and they don't, You know, they see, they see us as a multi-category brand, and they, you know, they, you know, different kinds of consumers are entering our brand through different products than they historically have. So, you know, it's we have more addressable consumers, and we have more products for those addressable consumers, and, and the way they work together is working very powerfully.
Maybe on the regional performance of the stores, one of the questions that we get asked very, very frequently is how stores in North America are performing, both in terms of store productivity, comp growth, as the stores enter year 1, year 2, year 3, and also the profitability of those stores. I'm curious if you can elaborate on that a little bit more, Jonathan.
Sure. I think that the North American business performance in Q1 was a good first step. It's a momentum that we've seen continue, particularly in Canada, which is growing very well. We're seeing growth overall in our North American stores. I think that, you know, there is clearly a macro in the US which is, let's say, not perfect. But what, You know, we've considered that as we've talked about the business, and we believe we're able to navigate that successfully. We're very much more focused on the longer run. If we think about how our retail estate sits around the world, our top-performing sales densities sit in Asia, our second highest sit in North America, and our third highest sit in Europe.
That's fine. We're very happy with that. And actually, even at that level, our margins in the U.S., our full margins are above the average that we're seeing for the network overall. So we're very pleased and it gives a lot of confidence to keep investing in North America. And we do that with very much of a long-term lens, particularly given that we're signing up typically 10-year leases, and therefore, you know, we're looking beyond the time horizon of any economic cycle. And so we feel pretty good about our North American business and its potential, remembering that the U.S. is one of the world's top three luxury markets.
One additional follow-up for you is, as we've invested a lot more in DTC, we've seen sharper swings in the profitability of Canada Goose overall. How are you thinking about that impact on this, on your business over time? And what gives you confidence in the improved profitability that's embedded in the company's guide for fiscal third quarter?
So I think we're going through a business model change in Canada Goose, and we've been doing this for a number of years. We've all talked about the switch between wholesale and DTC. And there's an inevitability in a seasonal business that there's a more marked proportion of business that's done in DTC in Q3 and in Q4, according to our fiscal. And that's quite normal, and it's not a surprise. But what it does mean is that as wholesale occupies a diminishing portion of the total business and DTC occupies more, you start to see the shape of those underlying businesses emerge more into the consolidated picture. So it used to be that Q2 was a profitable quarter, and Q3 was a profitable quarter because it was all about wholesale.
You go back to IPO, we were 89% wholesale. You know, it therefore Q2 was a profitable quarter, a big proportion of the revenue. Q3, obviously, still very important. Q4 used to make a loss. Q4 now makes a profit. It's an important quarter. Q3, proportionately, is a less important quarter, and obviously, you have the carrying cost of the network. So it's not a huge surprise that it's break-even or a small loss relative to what we're seeing in Q3 and Q4. So from a shape point of view, from a strategic point of view, we're actually evolving the way we expected to. As we look forward on that, you know, as product diversification continues to have an impact, and it makes us even more relevant in the first half of the year.
What today is a 25, 75 business on a consolidated basis, may move towards 35, 65, but we're talking a five-year time horizon, not this week, not next week, not next year. So it's a gradual evolution to that that we expect to see happen. When it comes to the third quarter of this year, you know, we understand that there's a macro in the U.S. that's a little bit more challenging. But we've got ourselves used to that, and that's very much factored into our thinking for the year and therefore, quarter. And equally, we didn't assume that China would be a V-shaped recovery, and that seems to be bearing out. So I think that.
But conversely, the stores will, we believe, operate normally throughout the entire quarter, and therefore, we are, you know, we're coming up against somewhat softer comps as a result, in the U.S., because it took a sharp left turn at the end of Q3 last year, and also because, obviously, China was heavily interrupted throughout the quarter. So we therefore think that the growth in this coming quarter will be more marked, and we feel pretty good about it.
Yeah. I want to follow up on some of those macro comments that you provided, because what I'd love to hear you square the doubling of the North America opportunity over the course of the next five years with some of these more modest North America macro comments. How do you think about that as you bridge the short term to the long term?
I think that the, you know, we are, relatively speaking, underpenetrated in the U.S. Now, there, there's huge opportunity for us, to grow, to grow our business in the U.S. So we came with in, in the, barely in double digits in store numbers. We're opening, in important locations. You know, obviously, we, we already had customers, so we've opened in Beverly Center, we've opened in Saks Fifth Avenue in Las Vegas. You know, we've got various stores that are opening around the country where we're not sure, we test with pop-ups. Where we are sure, then we commit to leases. We, we feel that the, the opportunity, in the U.S. is, is very strong.
We see that in the initial take-up of the stores, and so we don't want the noise of a near-term 3-6-month pressure on the economy to get in the way of building the business for the longer run.
Final question on North America before we move on to other geographies. One of the questions that we're getting a lot from investors is how to understand the magnitude of the outperformance that you're seeing in Canada today, relative to the U.S. Can you contextualize what you're seeing there and the durability of that outperformance?
Yeah, I can talk about it a little bit. For sure. I mean, Canada is, obviously, a very strong market for us is the one. It's a market where we're, you know, very, our penetration or our mix of DTC to wholesale, skews more DTC, and we're very well known. Our brand awareness is very high. You know, we continue to, I think, we continue to. We're a very strong brand in Canada. Canada is very proud of Canada Goose, and we, you know, we're a beloved brand in our home country. We're also a market where, because of the home market advantage, what, you know, typically happens is where our products are more attractively priced in our home market.
That is a good opportunity for tourism. Now, you know, during the pandemic, we've been able to keep Canada extremely strong. As it is today, even with an absence of a lot of tourism that has yet to return. This tourism we all imagine will return over the next five years, and as it does, I think that's gonna even strengthen Canada and all of North America even further than we've been able, you know, we've been able to make with local markets. So, you know, the strength we see today is actually coming mostly from local and regional markets, as opposed to tourism, where historically a lot of it came from before. So, I think that those are some of the reasons that we have a lot of confidence.
We often get asked about, you know, "Are you done in Canada? Are you mature in Canada? Because it was your home market, and it was your first market." And the reality is, we've got a ton of opportunity. We're not done with the store network. We're not done on the expansion of technology and the impact of omni-channel. Canada is not done in terms of the category expansion. We've got a lot of runway ahead of us, even in our first market.
Yeah, for sure, and not, you know, just talking about Canada, but I wanna, I wanna make a big high-level comment, like, it relates to all of our markets, including Canada. You know, when people or Jonathan just talked about being saturated or... Like, we're nowhere close to that. You know, we're actually a small brand. Our company just passed CAD 1 billion, you know, last year. And, you know, there's companies, as we know, in the world, that are many billions of CAD, and they're not over-penetrated, or they're not oversaturated, and they don't get those sorts of questions. So, you know, we've been getting these sorts of questions since our IPO days, and I think that, and even before that, you know, I think since that time, we have demonstrated that we can diversify our product categories.
We can grow in all the markets the way that we anticipated and believed we could, and we've proven that we can do that. I think that when you look at, you know, the size of other brands and the size of the potential, it's in the many billions of dollars. That's why we're so convicted that we can continue to perform and continue to execute against all of our growth plans.
China is one of the biggest growth opportunities that you've seen for the brand. You talked about it a little bit earlier, but you've also talked about, you know, some reopening momentum and some macro comments in the region in aggregate. Can you elaborate on your view of China growth this year, both in terms of recapturing the CAD 160 million of lost revenue relative to where you think you could be, but also into FY 2025 and beyond?
Sure. I'll start. I'll give also our first line, Jonathan, in order to give some more color on it, financially. But I think, you know, China is a massive market opportunity for us. We're very excited about it. You know, when we entered China before the pandemic, there was a lot of pent-up demand for our brand. And on relatively modest brand awareness numbers, but there was a ton of pent-up demand, and we entered the market, and we performed extremely well. And you know, our brand awareness and the demand for our brand in China continues to be very strong. And that's why during the past few years, we continued to open stores in the Chinese market, knowing that they may not be open all the time.
It's important to have that infrastructure, and we want to come out strong when they can, when they could be open. So today, we have 19 stores in mainland China. And you know, 19 stores in mainland China is not a lot of stores. There's a lot of. I mean, there are many companies with way more stores than that in China. And I think that, you know, what's important for us is to continue to stay relevant, to continue to appeal to just continue to have a strong brand, and we do. Our brand is very strong, and so, you know, we. Our core fundamental belief, and despite any near-term headwinds, to the extent that they may affect us or not, we have a long road ahead in China.
And, the size of our business today, you know, pales in comparison to the size of the business that it can be. And, you know, and that's what we're building this for.
I think there's probably three points to that. Firstly, on the famous CAD 160 million, things I'll live to remember for a long time. I think that we always said we didn't, we did not plan a V-shaped recovery, and that was because none of us understood the consequence on the Chinese economy of the zero COVID policies and how long it would take to recover. So yeah, we've anticipated some of that coming back. The stores were open, they weren't. But we did not anticipate it all coming back this year, so we see that as upside. Secondly, we've been very pure about how we've approached our distribution strategy. As Dani said, lots of other people have got lots more stores. We're tier one and tier two cities only.
Online for reach beyond that, but we're tier one and tier two, and we're not going beyond that. With only 19 stores, take the city of Shanghai, for example. We have two stores. We have one store in Puxi, one store in Pudong. I can name any number of brands who've got any number of stores in Pudong and any number of stores in Puxi without even really trying. The reality is that we will develop our footprint there without stepping away from the major centers of wealth and without stepping away from the major centers of population that are in our addressable market. The third point I'd make is, it's worth remembering why Canada Goose is appealing in China.
Because as luxury went into China, everybody went together, and they all went to the same landlords, and all the landlords adopted them. This, I'm going back 10, 15 years. The result is all the malls look the same because they've all got the same brands. Now, you get somebody like us come along, we represent differentiation, we represent newness, we represent a different consumer set, and therefore, we actually enhance the stores, along with other brands that might do the same. So, as a result, you know, when we're at the CIIE, and we're back there again this year for the second time, we have landlords beating a path to our door, offering us space.
So instead of us going to them and saying, "Well, what can you give us?" They're going to, "Come to me, come to me, come to me," and various conversations around that. So the result is, it gives us great confidence to think about how we develop that market over time, and we know we're at the starting gate. And what is a market that's one of the top three, as I said earlier, in relation to the U.S..
Yeah, easily. I'll add one more thing to that, which is Canada Goose is also known for representing brand Canada, and Canada's brand around the world is a very strong brand, and we've seen that. I've seen that time and again, probably in the world, how people around the world love Canada. And I think the relationship between Canadian people and Chinese people is very strong, and the brand of Canada has certainly helped us in our journey, and I think it continues to.
Last quarter, you reiterated your fiscal 2024 guidance. How does your guidance account for uncertainty in today's macro environment by channel and geography?
So I think, you know, I've talked a bit about the U.S., China macros, which are probably the two that are getting the greatest discussion. We've reflected those, but we've also reflected our size, our stage of evolution, our opportunity, the steps we've taken in the business. And so we think that we've fairly included it. Is it all in there? Who knows? We believe so. But we've also got a very strong story in Vietnam, and Dani talked about that. You know, we've got strong momentum behind the business. We feel pretty confident about what we've got lined up. Sure, wholesale's down, but we saw that coming. That's why we, you know, That's why our wholesale assumption's down 6% year-over-year. That's what we said.
I think that that's okay by us because, you know, in the end, wholesale for this brand is something that we take great care to manage. We'd rather have less inventory out there, less wholesale, and know that it's going through in the best possible way, than to overload the channel, because that doesn't help anybody. So we're very clear about that.
One of the questions we're asking all companies at our conference today is their outlook for the consumer backdrop. Do you think that the consumer is going to face more headwinds or less headwinds next year in comparison to 2023? Are you thinking, how are you thinking about the health of the consumer in your core income demographic cohort?
You know, I think that we try and think about our business for sure, for the long term. We really don't think about it quarter-by-quarter and even year-to-year. It's, it's generation to generation, and we are growing. We are growing year-over-year, and we have grown year-over-year, and we continue to do that, both, in the top line for sure. Our EBIT margin went down a little bit or, you know, a little bit during, COVID, and we've passed a recovery. We were at 25%, headed towards 30% before the pandemic, and there's no reason why, with the return of Chinese tourism, and Asian tourism, that can't come back.
You know, I think that, you know, this brand, we've seen, like in the, in the 27 years I've been involved in this company, we've grown through every economic cycle, every recession, every economic downturn. I think that our products are inherently built for protection, and I think that, you know, I think that they're, they're products that are appealing at any, at any time. So, you know, while there may be macro pressures during any specific time of year to year, we don't base our decisions on that, or, you know, those are things that are beyond our control, and we know that our brand is strong. That's the most important thing. We have the product available.
We are putting a lot of marketing behind it, and we have consumers who are very interested in what we have to offer.
I think what I'd add is that certainly since I've been here and beyond, we've conducted market research on our consumers, on a sort of, sort of brand health, brand guidelines type of basis every six months around the world, multiple cities. So you get a lot of continuity of read, and we're not detecting any shift in how consumers see us in these times. And that's really important.
That's great. One other question that we're asking all companies at our conference today is that of their category outlook, given some of the share of wallet shift dynamics. You know, luxury has seen a little bit more pressure this year as more consumers spend their dollars on experiences versus things. As you look into next year, what do you think is the one most important factor to drive increased spending in your core category?
I think for us, new products and excitement is very important. I think staying relevant with the younger demographics and with all of our demographics. But our new categories and, you know, some of the collaborations that we're doing are very exciting. And I think that these are the things that we need to do to stay top of mind with our consumers, and you know, I believe that they're gonna be effective.
That innovation allows you to drive another mid-single-digit pricing increase next year?
Absolutely. It's a fundamental in this business that the pricing power remains very strong. You know, I referred to the market research we did before. Price just simply doesn't come up as a conversation in that. I think that, you know, we've been whilst we're, we always talk mid-single digits, it's a lot more sophisticated than that because we've got so much continuity in what we sell. Continuity in this business is measured in years, typically, rather than in seasons. And so that means we've got a lot of data of price versus volume over time. And with that understanding of the elasticity, it means that our price changes are surgical.
They ladder up to the mid-single digits that you referred to, but we actually do this in a very considered way, geography by geography, and then deploy the international pricing matrix over it.
Let's put all of this together. You've got a lot of strategic growth drivers, a lot of new initiatives. Jonathan, maybe sticking with you, the five-year outlook target talks about a very healthy improvement in your long-term EBIT margin relative to where you are today. Can you provide an update on the cadence that you think is achievable, in the near term, versus the drivers that accrue towards the end of that time horizon, and each of the key levers that will drive that 30% EBIT margin over time?
Yes, I think it's relatively straightforward. I think there are really three things that are gonna make the difference. The first is the development of the store network. We're gating the stores in at CAD 4,000 a sq ft, Canadian. And we're gating those stores at 40% margin. So if it ain't gonna, if it is not gonna deliver CAD 4,000 a sq ft, it's not gonna deliver a 40% margin, it isn't gonna have Canada Goose over the door. It's simple as that. By the time we get to the sort of size of the estate that Dani talked about, you can do your math in terms of 3,000 sq ft and CAD 4,000 a sq ft. Work that through.
It's about a third of the gap that, that exists between where we are today in margin and where we wanna be. The second part is the organic growth. The reality is that our sales density for our network has been higher in the past, and for reasons Dani outlined, has come down. We see a lot of, a lot of opportunity through the development of our business, development of omnichannel, development of the categories, to grow that sales density in our existing stores. And that's part of our organic growth, alongside growth in online, alongside growth in wholesale, and growth alongside omnichannel, alongside the establishment of travel retail. You put all of those together, and that's worth the second third of the gap. The last piece comes in the transformation program.
So we've talked about CAD 150 million as the, our goal for running, for our annual saving and running costs, and that, and that comes in between saved costs and avoided costs. But the important thing is, it's coming from a number of strands. It's not just in one place. It's the organization and operating model that Dani described before. It's in sourcing, it's in supply chain, it's in technology, it's in marketing. It's not just about what we spend, it's the, the efficiency with which it gets spent and the strategic precision of where we, we put the money. And by doing that, we believe we can realize those savings within fiscal 2028. You put.
As we open the stores, as we get the comp growth and the organic growth in the business, and as that transformation program moves from planning into implementation, we start, we expect to start to see meaningful progress towards the 30% goal.
Great. Thank you, Dani. Thank you, Jonathan, and thank you all in the audience for being here today.
Thanks, everyone. Thank you.