Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Canada Goose Q2 Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. In the interest of time, please limit yourself to one question and one follow-up question and rejoin the queue for any additional questions. Thank you. Allison Malkin of ICR, you may begin your conference.
Thank you. Good morning, and thank you for joining us today. With me today are Dani Reiss, President and CEO, and John Black, CFO. For today's call, Dani will begin with highlights of our second quarter performance and then update you on the progress against our key priorities. Following this, John will provide details on our financial results and outlook. After our prepared remarks, we will take your questions. Before we begin, I would like to inform you that this call, including the Q&A portion of the call, includes forward-looking statements, including plans for our business and our fiscal 2018 and long-term outlook. Each forward-looking statement made on this call is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and applied in making forward-looking statements.
Additional information regarding these forward-looking statements, factors, and assumptions appear under the headings "Cautionary Note Regarding Forward-Looking Statements and Risk Factors" in our annual report on Form 20-F, which is filed with the Securities and Exchange Commission and the Canadian Securities Administrators and available on our website at www.canadagoose.com under Risk Factors in our final prospectus filed on June 28th, 2017, and in the earnings press release that we furnished today under the heading "Cautionary Note Regarding Forward-Looking Statements." The forward-looking statements made on this call speak only as of today. We undertake no obligation to update or revise any of these statements. During this conference call, in order to provide greater transparency regarding Canada Goose's operating performance, we refer to certain non-IFRS financial measures that involve adjustments to IFRS results.
Any non-IFRS financial measures presented should not be considered to be an alternative to financial measures required by IFRS and are unlikely to be comparable to Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS financial measure in a table at the end of our earnings press release issued this morning and available in the Investor Relations section of our website at www.canadagoose.com. With that, I will turn the call over to Dani.
Thank you, Allison, and good morning, everyone. I am pleased to share that our second quarter concluded a strong first half for Canada Goose. Last week, we held our annual global conference where we brought together employees from our offices around the world to celebrate our achievements and to get inspired about our plans for the year ahead. I am so proud of the team's passion, commitment, and disciplined approach to executing our growth strategies. With strong results across channels, geographies, and categories, we continue to drive awareness and market penetration while also inspiring those who already know and love our brand. Here are some highlights from the business. As a fashion-first brand, it all starts with products. Across categories, demand remains strong, and our three-season relevance is resonating.
With a clear connection to our heritage and an unwavering commitment to authenticity, we are giving our fans more ways than ever before to experience our brand across styles, uses, and climates. Our award-winning lightweight collection, which is renowned for its unique combination of comfort, movement, and versatility, continues to grow significantly. In August, we launched our highly anticipated knitwear collection, our first non-outerwear category. Feedback from consumers has been extremely positive, and the collection is undeniably authentic Canada Goose in both aesthetic and performance. As a brand, we have always built demand ahead of supply, and we are very pleased with the sell-through of the initial knitwear assortment in both our wholesale and direct-to-consumer channels. Building on this momentum, we look forward to thoughtfully expanding our offering and our distribution for future seasons.
Our direct-to-consumer channel enables us to give our fans around the world the ultimate Canada Goose experience, and it continues to surpass our expectations both online and in store. In e-commerce, which we view as our global flagship, we are now in 11 countries as we have opened all seven of the new e-commerce sites planned for this year, which as a reminder, are Austria, Belgium, Germany, Ireland, Luxembourg, the Netherlands, and Sweden. Performance in our Canadian and U.S. sites continues to be strong, and results from our more recently launched European sites are also very encouraging. Traffic growth is compelling in all of our major markets, and we are continuously improving our online experience to drive conversion and better position future site launches.
Moving on to our retail stores, we recently celebrated the first anniversary of our Toronto store in Yorkdale Shopping Mall, and we continue to be very pleased with the contributions of our Toronto and New York stores. We have great brand ambassadors who are consistently delivering an exceptional and immersive customer experience. With great teams in place, we are well on track with our new store openings. I was really excited to be with the team in Chicago last month for opening day. We are very pleased with the store's performance to date and encouraged by the positive response from customers in the Windy City. Similarly, consumer demand for our brand continues to be high in Japan, and we have heard stories of a 100 or so person lineup, which started at 5:00 A.M. on opening day of the new Tokyo store.
In addition to that, we opened our London flagship store on Regent Street just today, this morning, and we're really excited about that. We are excited to build on this momentum with our next two store openings, Boston and Calgary, in the coming weeks, and we remain highly disciplined in identifying and securing the best locations for future store rollouts. In our wholesale channel, we continue to be a bright spot for our retail partners. Across geographies, we are delivering high-quality growth by driving traffic and full-price sell-through. This channel, which plays a central role in brand awareness and reach, will always be an important part of our strategy. In the current retail landscape, we have a singular focus on going deeper and broader with the world's best retailers.
From recommended assortment and merchandising to in-store events and digital marketing, I am really encouraged by how well our team is working with our partners to best position our brand and continue strengthening existing relationships for the long term. In operations, we continue to support a rapid trajectory and build capacity for future growth. I recently came back from visiting our two facilities in Winnipeg, and I'm impressed by how quickly we are expanding there, as well as also in our factories in Ontario and Quebec. We are hiring and training a significant number of sewers each month, we continue to innovate and implement process improvements to drive efficiencies at all six of our sites. Finally, I'd like to take a moment to thank our employees for delivering such a strong performance in the first half of the year.
Across functions, they are working together and delivering on our ambitious growth strategies on time and on budget. We are building an enduring brand for the long term, and none of this would be possible without their contributions. As John will discuss shortly, given our results in the first half of the year and our outlook for the remainder, we are pleased to update our guidance for fiscal 2018. With that, I'm now going to turn it over to John to review our financial results with you in more detail.
Thank you, Dani, and good morning, everyone. As Dani mentioned, we are very pleased with our performance in the first half of the year and our outlook for fiscal 2018. Before I go through the numbers in detail, I'd like to remind you that our results are stated in Canadian dollars. For the quarter, revenue increased by 34.7% to CAD 172.3 million, up from prior year by 36.5% on a constant currency basis. This was driven by growth across all channels, geographies, and categories. Direct-to-consumer, or D2C revenue, grew from CAD 5.5 million to CAD 20.3 million, with strong performance in our North American e-commerce business and incremental revenue from our retail stores and e-commerce sites that were not opened in Q2 of last year. Wholesale revenue increased by CAD 29.6 million to CAD 152.1 million, driven by growth across all regions.
Approximately CAD 13 million of revenue from our order books, which was originally expected to take place in the third quarter of the year, was pulled forward. We accelerated shipment timing in response to requests from our retail partners to put them in a better position ahead of their peak selling season. Through the first half of fiscal 2018, pull-forward revenue in the wholesale channel was approximately CAD 18 million. Consolidated gross margin expanded approximately 410 basis points to 50.4% from 46.4%. This was primarily driven by a higher proportion of D2C revenue. Within our D2C channel, gross margins expanded approximately 450 basis points from 69.2% to 73.7%, reflecting a significantly higher revenue base with our two retail stores and 11 e-commerce sites in operation.
Our wholesale channel gross margin expanded by approximately 200 basis points from 45.4% to 47.4%, due to a shift in sales to higher-margin geographies, a lower cost of purchases in U.S. dollars, and lower inventory reserves. SG&A was CAD 36.5 million, which represents an increase of CAD 6.4 million. This was driven by operating costs from our stores in Toronto and New York City, which were not open in the second quarter of last year, as well as investments across the business to support continued growth. In total, SG&A rose at a slower rate than sales due primarily to the benefit of an unrealized foreign exchange gain of CAD 5.8 million on our term loan facility and the shift in timing of marketing expense to our peak selling season in the third quarter.
Combined, these activities led to an adjusted EBITDA of CAD 46.4 million, compared to CAD 33.8 million, which represents year-over-year growth of 37.3%. Before I get into net income, I'd like to discuss a couple of factors that impacted our effective tax rate, which was 16.8% compared to 20.7% in the second quarter of last year. This was primarily driven by the timing of taxable income in jurisdictions with different statutory tax rates, and to a lesser degree, the non-taxable portion of the CAD 5.8 million unrealized foreign exchange gain. This timing dynamic was pronounced throughout the first half of the year, and we expect it to reverse over the remainder of the year. For fiscal 2018 as a whole, we expect our effective income tax rate to be approximately in line with our statutory rate of 25%.
On an IFRS basis, we reported net income for the quarter of CAD 37.1 million or CAD 0.33 per diluted share based on 111.5 million weighted average diluted shares, compared to last year's reported net income of CAD 20 million or CAD 0.20 per share on 101.7 million weighted average diluted shares. On an adjusted basis, we reported net income per diluted share of CAD 0.29 for the quarter, compared to CAD 0.23 per share in the same quarter of fiscal 2017. Capital expenditures were CAD 9.2 million, compared to CAD 11 million in the second quarter of fiscal 2017. Spend was primarily driven by the expansion of our corporate head office, investments in manufacturing, and preparations for new store openings. The year-over-year decrease in capital expenditures is related to the timing of payments for work completed on new stores and planned capital spend in our shop-in-shop initiatives through the remainder of the year.
Turning to the balance sheet. Working capital was CAD 212.6 million, up CAD 113.6 million from fiscal year-end, reflecting the seasonal build of accounts receivable and inventory. The growth of our direct-to-consumer channel, as well as the pull forward of wholesale revenue, shortened our cash conversion cycle and enabled us to pay down our revolving credit facility. Total debt, net of cash, was CAD 247.4 million, compared to CAD 150.6 million at fiscal year-end. We ended the quarter with CAD 118.7 million outstanding on our revolving credit facility. We remain quite comfortable with its flexibility to support our operational needs. Turning to our guidance for fiscal 2018. Based on our stronger than expected performance in the first half of the year, we have increased our guidance. For fiscal 2018, our current expectations are as follows: Revenue annual growth rate on a percentage basis of at least 25%.
Adjusted EBITDA margin expansion of at least 50 basis points. Annual growth in adjusted net income for diluted share on a percentage basis of at least 35%. This growth rate assumes a year-over-year comparison to adjusted net income for pro forma diluted share of CAD 0.41 in fiscal 2017, a diluted share count of 110.9 million in fiscal 2018. I would like to turn it back to Dani for some closing remarks.
Thanks, John. In summary, we are all very pleased with our financial results for the first half of the year, which reflect the strength of our brand. Across our business, we're executing well. I've never been more excited about the opportunities that lie ahead for Canada Goose. We're looking forward to updating you on our progress on our next earnings call. With that, I'd like to turn it over to the operator to begin our Q&A session.
As a reminder, to ask a question, please press star 1 on your telephone keypad. Your first question comes from Ike Boruchow. Please state your company name. Your line is open.
Hey, everyone, and congrats on the great quarter. Just a quick one on the wholesale shift. I think you guys had a CAD 5 million wholesale shift that helped Q1 and now CAD 13 million for Q2. Should we expect that the CAD 18 million all comes out of the Q3 quarter? Just to make sure, the CAD 5 million that helped Q1, did you not recapture any of that in Q2? Just kind of make sure what's going on with the timing shifts.
Yes. Ike, good morning. I think your position on the CAD 18 million is reasonable, that the CAD 18 million was an advanced shipment that was planned to take place in Q3. It took place earlier in the year, so that should shift into Q3.
Got it. Just to stay with wholesale, just to follow up. Organically speaking, is there anything different in the back half versus the first half in terms of your order book or anything there just from an organic perspective on the top line?
No, nothing different. Really the shift was orders that it was part of our existing order book that was originally planned to be shipped a bit later and was pulled forward. There's no change to that order book.
Got it. Congrats again.
Thanks.
Your next question comes from Camilo Lyon. Please state your company name.
Thanks. Good morning. Canaccord Genuity. Very nice quarter, guys. Staying on the topic of that pull forward of demand or the shipments. Given the strength of that demand, how do you think about managing your supply chain? Are you flexing your manufacturing capacity to make more inventory, or do you prefer to be sold out or keep that brand heat high? Effectively, how do you manage that delicate balance, and how do you view managing the wholesale inventory piece versus your own retail stores inventory?
We're fortunate that because of our Canadian-based supply chain, we have the ability to be flexible. These days we have more inventory because we have more stores, we have to support them with more inventory, and we have the ability to be flexible. The most important thing is that all the inventory that we produce is good inventory that's good for this year, it's good for next year as well. We can allocate that as needed to wholesale or retail.
Can you just remind us, Dani, what parts of the assortment you can be more flexible on? How quickly can you get back in stock on some of these key items? Because you're out of stock, and you were out of stock in some key items in September. It'd be great to know your pace of your ability to get back in stock and on what specific SKUs, if there is a limitation on those SKUs.
For sure. Yeah. Well, we're always happy when things get sold out. We're never afraid to be sold out, that's always a good indicator. All of our Canadian factories are able to manufacture pretty much all of our products. We're able to be flexible on all of them, with the exception of knitwear, of course, which we source in the best place to make it, which is in Italy and Romania.
Your ability to get in stock, what's the timing on that? What's the lead time on that?
We have a strong logistics supply chain, we need to have balance between satisfying our different channels, be it wholesaler, direct consumer, stores, e-commerce. We move pretty quickly. Fortunately, our sales have been strong as well.
Sounds good. Good luck in the holiday season, guys.
Thank you.
Your next question comes from Lindsay Drucker Mann. Please state your company name. Your line is open.
Hi. Thanks. Good morning, Goldman Sachs. I had a couple questions. Now that you have a full sort of fall season, another full fall season under your belt in your stores, I was curious, Dani, if the products that are selling well in your stores mirror the products that are selling well in wholesale, and if there's anything that you are able to glean from the more complete assortment you can showcase the consumer in your retail channels and also online about where the opportunities are to fill out the assortment in wholesale.
It's always interesting when we have our retail stores and where we have the broadest assortments. We certainly learn things from that. All the things we're learning are great and a positive additive to our business, and we're able to help inform future seasons and wholesale recommended assortments based on perhaps sometimes you see a product that sells better than we expected, and we could certainly learn things like that from our performance in our own channels. Having our own channels is great for that reason, and it helps support our business across all of our channels.
Is it possible to give us a little detail on what products are selling especially well in stores that might suggest opportunities for wholesale?
Yeah. Lightweight down as a category. That is one that we've been producing what we believe is best-in-class for product for a long time. It's been growing well for some time, and that's a category that's growing really quickly. There's a good example of something where we're ramping up quickly based on retail sales.
Okay, great. I just wanted to clarify on the wholesale timing shift. Do you guys consider that in its purest form, truly just a shift in timing of orders, or is it a function of sell-through for retailers is stronger on the floor, and so they're ordering for you because they don't want to be out of stock, and they'll potentially look to chase in the December quarter. In other words, we shouldn't view this as just a pure kind of shifting of timing of sales, but more a reflection of very strong sell-through.
We're very happy with our sell-through numbers. I would view it as a shift. The existing order book is still the existing order book and has shifted to the left. I would view it that way. We're very happy with our sell-through numbers, and I think that's the best way to look at it.
Okay. Just one last one. On your wholesale gross margin improvement, I don't know if there's a way to quantify the specific impact from currency which you called out, how much was that of the benefit? When you talk about the favorable regional shift, what specifically was that?
Lindsay, we don't actually get into geographic commentary shifting on these calls. With respect to the foreign currency, there were some movements in the currency and in a number of currencies. The key point there is that we're hedged. You do see volatility in the top-line revenue number, but it's captured in the SG&A line where we have a mark-to-market gain on the hedges.
Okay. Thanks a lot, guys.
Your next question comes from Mark Petrie. Please state your company name. Your line is open.
Hey, good morning. CIBC. Dani, I wonder if you could just give us an update on where you're at in terms of the strategy for China. Maybe just outline your considerations as you think about wholesale partner relationships versus stores versus an e-commerce-led strategy. When could we expect a formal announced plan?
Well, we're certainly making good progress on it. It's something that we spend a lot of time here talking about and trying to get absolutely perfect. We have nothing to announce right now. I think that there are opportunities both direct-to-consumer and wholesale in that marketplace. I think that we're making sure that when we finalize our plans, that we have taken in the proper end state that we want, and we'll start the way we're planning to finish.
Okay, thanks. I wanted to ask also about the performance in knitwear. Could you just give a bit more color in terms of the adoption of that in the wholesale channel, and adoption and sell-through of that in the wholesale channel versus direct-to-consumer, sort of what the takeaways are from that and what the kind of learnings are in terms of your brand as you continue to push into more product?
For sure. We primarily sold knitwear through our direct-to-consumer channels. There are a few partners that at a wholesale level we partner with, and we experienced very strong adoption and our products resonated really well with our consumers in all of those channels. I'd say that I couldn't be happier with that result, and it certainly leads me to believe, and it's very encouraging that knitwear is something that is the right place for us to be, and our fans and consumers believe that. We're going to continue to build those collections and do it in a responsible way. It's always great when a new product launch goes as well as this one did. Okay. Thanks a lot.
Your next question comes from Simeon Siegel. Please state your company name. Your line is open.
Thanks. Nomura Instinet. Morning, guys, congrats on a really great quarter. Just a quick one on the pull forward again. Are you seeing that pull forward volume in specific regions or retailers, or is it broad based? Maybe any learnings there as the brand awareness just continues to grow. Do you think that pull forward might become more normalized seasonality? Just to clarify, with the FY 2018 increase, is there any change to your three-year average targets? Thanks.
Regarding the pull forward, it's fairly broad based. It's across all categories, and we don't really see that change. It's just going to be higher in the quarters that we're reporting on and lower probably in the third quarter. The order book remains unchanged. I'm sorry, what was the second question? Yeah. I'll switch that.
With the-
Go ahead, Simeon.
Yeah. Sorry, Dani. I was just going to repeat the question I think you're about to answer. Just thinking about the 2018 increase, any change to the three-year targets?
Yeah. Thanks for the question. I obviously totally understand why you're asking it. I'm certainly really happy with our performance through the first half of the year. We review our long-term strategic plan after the conclusion of each year. If there's a need for it, we'll provide updates at that point in time. To be clear, we don't comment on it or revise it in the interim. We think it's important and responsible to communicate with our shareholders in a way which is aligned with how we do the strategic plan that we do for this business.
Got it. Makes sense. Then, sorry if I missed it. Obviously really nice sales growth. Did you guys comment on units versus price at all, or would you?
No, we haven't broken that out.
Okay, great. All right. Thanks a lot. Best of luck for the holiday season.
Thank you. Thank you. You too.
Your next question comes from Brian Tunick. Please state your company name. Your line is open.
Thanks. RBC. Good morning, guys.
Morning.
I guess two questions. One, on the store openings, can you maybe give us for a modeling perspective, if we think about London and Chicago and Boston and Calgary, maybe can you give us the average size of the store? We're assuming, or you're not assuming probably the same productivity as Toronto or Soho, but just curious about what size of the stores you're opening there and any learnings that you've implied to those new stores. Second question, I guess, Dani, from a newness perspective, if we think about holiday this year versus holiday last year, where do you think the most newness comes from on the outerwear side? Is it style count or color or weighting? Just give us some idea of where you think the newness is. Thanks very much.
Hi, Brian. I'll comment on the store dynamics, and then Dani can answer some of the other questions. We do have a few learnings, of course, from the new stores. There are some minor changes in the economics of the stores, the new ones versus the old ones, but they're not material. Just as a reminder, a few things to consider when you're looking at the stores. They're generally between 3,000 and 5,000 square feet. Our cost to enter into them from a CapEx perspective is between CAD 3 million and CAD 5 million. They're profitable in the first year and pay back within two years. Those are the hurdle rates we put in place, and all the new stores should achieve those, we're thinking. Dani, were you going to follow on the second?
Yeah. Our collections are always evolving. We always are diversifying our core.
We have a strong group of core classics in our collection, which continue to perform strongly for us across geographies and across channels. Specifically to our stores, they're performing very well in our stores. We're always adding new colorways to there. We're noticing people are resonant I hear about the brushed camel color that we have doing really well. People are really responding well to that. As I mentioned earlier, lightweight is something which is perceived today as part of the core, even. It's growing nicely, and often people will buy multiple styles. They'll come in and they'll buy lightweight, and they'll also buy a warmer jacket. Then, of course, knitwear is the big new thing for us. It was a controlled launch, what we're seeing it go very well, as I mentioned. That's some color on the diversity of product offerings.
All right. This is my final question. On inventory, I think it's up 8% at the end of the quarter. How do you feel about that velocity or turn heading into your guidance for the back half of the year?
Brian, we feel good about inventory. Our working capital's in a good position. Our production processes have been going well up through the second quarter, we're in a good position to supply our customers and our direct-to-consumer channel with products. We feel good about exactly where inventory is sitting.
Super. Thanks very much, good luck for the holiday.
Thank you.
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. In the interest of time, please limit yourself to one question and one follow-up question, please feel free to re-queue for any additional questions. Your next question comes from the line of Jay Sole. Please state your company name. Your line is open.
Hi. Thank you. Morgan Stanley. Dani, you sound really excited about the knitwear launch. Does it change your thinking at all about entering into new categories, do you feel like you want to spend a lot of time on knitwear before thinking about the next thing?
Yeah, I am really excited about it. It's always great when a new product is as successful as knitwear has been for us, it doesn't change our perspective on new categories at all. We're always thinking about them. I think that there are certainly opportunities for us in multiple other categories, we're going to enter those categories at the right time and with the right product. That's the most important thing, whatever amount of time it takes us to develop those plans and to create the perfect expression of that product for our brand or for our consumers is the amount of time it will take. No plans to accelerate based on knitwear, lots of runway, we're really excited about that.
Okay, great. Maybe, John, if I can ask you a question on the gross margin, the DTC channel. It was up to 73.7% in the quarter from 69.2% last year. Can you just talk about what the drivers were of that change?
Yeah, a lot of it's just volume. We've got more infrastructure and growth through the channel, so it's primarily just volume and growth.
Okay, maybe on the last one, just if you could put a finer point on the full year sales guidance. Talking about at least 25% now. Have you given a breakdown or could you give a breakdown between how you see the wholesale sales for the year trending versus DTC sales?
No, we're not going to provide that type of a breakdown on a forward-looking basis. We're just going to leave it at the level we have it.
Okay, thank you.
Thanks.
Your next question comes from the line of John Morris. Please state your company name. Your line is open.
BMO Capital Markets. Nice job on the quarter, guys. Dani, you guys are doing so well in knitwear, but also the lightweight collection. I'm thinking about how you're developing the three-season capability here. In terms of SKU count for those categories or classifications, are you continuing to plan to increase those or sort of stay with what you have currently? Also thinking about how you're staffing merchant and design for those areas. In particular, are you expanding the team, the design team, or have the need to do that? Just kind of want to get a feel for how that's all developing directionally.
We've a really, really strong design merchandising team. I'm really, really happy with their performance and with the way that they're staffed. As the company grow, I'm sure that we'll continue to build our capabilities there accordingly. I believe we have a world-class D&M team, and I think that that absolutely is what's been contributing to the success of new category launches. Sorry, remind me the second part of that question?
Well, it was really kind of directionally, I'm wondering how much breadth and depth directionally you're thinking about expanding, particularly within knitwear and the lightweight collection, SKU count, as you think ahead and plan a year out for next year. Continue broadening out and to what degree.
For sure. Yeah, we're going to address each category individually and appropriately. You probably expect knitwear because it was such a smaller launch to have a greater SKU count. We have three categories, our outerwear, our knitwear, and our accessories. Within those categories, our collections, our Arctic Program, our HyBridge, our Altitude, and our Latitude collections, our outerwear collections. We are looking to not necessarily in those categories where we're more developed, not necessarily to increase our SKU count, but to optimize our SKU count so that we have the right assortment. It's not necessarily an expansion.
Finally, on price points for winter product on outerwear compared to last year. Are your initials or your average price points about the same? Are they up a little bit? Where do you fall out on an average basis year-over-year?
Price points were up marginally this year.
Okay. On outerwear in particular. Sorry, really kind of was asking, but up slightly.
On outerwear for next season? Is that what you're talking about?
No, I'm really thinking about this, the season we're in, just for planning purposes. Yeah.
We did increase our prices this year from last year a modest amount, not dramatically.
Okay, great. Super helpful. Good luck for holiday. Thank you.
Thanks.
Your next question comes from the line of Jonathan Komp. Please state your company name. Your line is open.
Hi, Baird. Just wanted to follow up on the 2018 guidance. John, I was just curious if you could clarify the increase to the full year growth rate to 25% or at least 25%, is that based solely on what you saw in the first half, or did you also change the expectations for the second half?
That's on the full year.
Okay.
It's full year. It takes into account Again, there were a few factors in the first half. We had some pull forward in revenue, that will result in the revenue that was pulled forward not occurring in the third quarter. It's a full year item.
Okay. I'm just wondering, if I adjust the first half growth rate for that pull forward, looks like total revenue was up maybe 27% or so. The second half is kind of implied, kind of mid-20% growth. Is that the right way to think about it on an underlying basis?
Not withstanding the math, that's the right way to think about it. Remember, it's CAD 18 million that was pulled forward from the third quarter into the second and first quarter, that will come out. That's the right way to look at it, I think.
Okay, great. Then just my other question, you talked a little bit about the learnings from the DTC stores you've opened. I know it's only been a few weeks now, but I'm just curious when you look at the Yorkdale store, if you have any learnings at all about whether or not the initial volumes you saw really were more of a honeymoon impact last year that you'd come down from this year, or if you think the sales are kind of stabilizing and even growing on the initial performance from last year.
We're really happy with how Yorkdale is performing. It is the only store that's been open for a full year now. We're talking about Q3 numbers and results, we'll comment more on that in Q3, but happy to share with you that we're very happy with how we're doing.
Okay, makes sense. Thank you.
Your next question comes from the line of Jim Durran. Please state your company name. Your line is open.
I'm from Barclays. I just wanted to focus on replenishment and in-house production. On the replenishment side, if I'm a major customer of yours on the wholesale side and I'm out of stock on an item, how quickly should I expect to be able to get a replenishment on, say, a parka, which is where a lot of your tonnage is?
I think that, honestly, that depends on the style that you're looking for and what warehouse it's in and how quickly we can get it to you. We're not chasing sales. There's always opportunities for reorders, too.
With the hiring you've been doing, plus the purchase of one of your third-party suppliers, is in-house production gaining in terms of percent penetration now? You were sort of in the 30% range, I think, when you first came public. Can you give us an update on where you'd be now on a run rate basis?
Anecdotally, for sure. From a numbers perspective, we'll update those at the appropriate time when we do our internal calculations, probably at year-end. Certainly, I would say that we are making some great progress towards our goal of increasing in-house capacity. I'm really proud of the way we've been able to build in-house training schools and a strong funnel of really highly skilled sewers and craftsmen who can produce our products. I believe that our strategy is working, and I look forward to giving you numbers when we have them.
Do you have a sense of, so far, what impact in-house production gains might have impacted your margins?
Don't have any numbers to provide you on that right now, but I feel good about the whole thing, yeah.
There are a number of factors to consider in something like that. For example, how much we end up paying to acquire the manufacturing, those types of things. There's a number of factors. It hasn't been significant.
Okay, that's great. Thank you.
Your next question comes from the line of Omar Saad. Please state your company name. Your line is open.
Thanks. Good morning. Thanks for taking my question. Can you talk a little bit about weather? I know it's still really early in the season. You guys obviously are a seasonally driven brand to some extent. The fall started a little bit cooler, then it warmed up, and now we're getting cold again. Are you guys seeing those trends in your business, that weather is having an impact in sell-through through your D2C channels? Are you still young enough where you kind of just plow through that and the weather changes and drops aren't really what moves the needle?
Over the years, regardless of what the weather has been, cold in one part of the world, warm in another part of the world, perceived cold winter or warm winter, never prevented us from hitting our targets or from our business continuing to perform well. I think the same holds true this year. The climate around the world is more varied these days than it's ever been. We don't see that as a major factor that will impact our ability to achieve our goals.
Got it. Thank you. Best of luck.
Thanks.
Thank you.
Your final question comes from the line of Oliver Chen. Please state your company name. Your line is open.
Sure. Hi, it's Oliver Chen from Cowen and Company. I was curious about your longer-term views for segmentation across your wholesale partners and your direct to consumer, as you're thinking about how to drive specialness for each and what makes sense for the future of the brand and tiers or breadth diversification. The second question we had is just as you're thinking about net promoter scores and awareness builds and customer satisfaction, what are some key attributes you're monitoring along those axes just to embrace authenticity as well as think about a combination of growing new customers versus keeping your existing customers very impressed and surprised and delighted? Thank you.
Yeah, thanks for the question. From a product segmentation point of view, as I've mentioned before, all of our wholesale partners are very important to us, and we work with each of them to create the right Canada Goose environment in their stores that will be the appropriate environment for Canada Goose and also becomes a destination. As part of that, we work with each of them on special products from time to time that we're able to create so that every retailer can have their own distinct point of view. From an NPS point of view, I'm happy to say the NPS scores that we have seen have been really high, and they continue to be really strong. That's super exciting for me.
It really seems like you're hitting on all cylinders. Did you have any thoughts about what concerns you most, or where are you spending most of your time in terms of prioritizing the biggest opportunities? Because there's a lot of different opportunities happening.
There really are. We have a really strong strategic planning process, which I think works really well for us in terms of how we prioritize our business, and we're really focused. Growing fast is a lot of fun, and it's also a challenging thing. We're focused on keeping our eye on the ball and making sure that we deliver our plans on time and on budget. So far, so good.
Thank you very much. Best regards for holidays.
Thanks. You too.
Thank you.
There are no further questions queued up at this time. We'll turn the call back over to Dani Reiss.
Thank you. Yeah. Everybody, again, thank you so much again for joining us. We really, really appreciate your interest in our business and following us. I feel like it's too early to wish you all a safe and happy, prosperous holiday season, but since I'm not going to speak to you formally again until after the holiday season, I do wish you a safe and happy and prosperous holiday season. Thanks for joining us today, and look forward to staying in touch.
This concludes today's conference call. You may now disconnect.