Canada Goose Holdings Inc. (NYSE:GOOS) Q1 2024 Earnings Call Transcript

Canada Goose Holdings Inc. (NYSE:GOOS) Q1 2024 Earnings Call Transcript August 3, 2023 Canada Goose Holdings Inc. misses on earnings expectations. Reported EPS is $-0.7 EPS, expectations were $0.64. Operator: Thank you for standing by. Welcome to Canada Goose First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session [Operator Instructions]. As a reminder, today's program is being recorded. And now I would now like to introduce your host for today's program, Ana Raman, Vice President, Investor Relations. Please go ahead. Ana Raman: Thank you, operator, and good morning, everyone. With me are Dani Reiss, Chairman and CEO; Jonathan Sinclair, EVP and CFO; and Carrie Baker, President. After Dani's and Jonathan's prepared remarks, we will open it up for your questions. Our call today, including the Q&A portion, includes forward-looking statements. Each forward-looking statement, including without limitation, discussion of our financial outlook, is subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were considered and applied in making these forward-looking statements. Additional information regarding these statements, factors and assumptions is available in our earnings press release issued this morning as well as in our filings with US and Canadian securities regulators.

These documents are also available on the Investor Relations section of our Web site. The forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these statements. We report in Canadian dollars so all amount discuss today are in Canadian dollars unless otherwise indicated. Please note that financial results described on today's call will compare first quarter results ended July 2, 2023 with the same period ended July 3, 2022, unless noted otherwise. Lastly, our commentary today will also include certain non-IFRS financial measures, which are reconciled at the end of our earnings press release. With that, I'll turn the call over to Dani. Dani Reiss: Thanks, Ana, and good morning, everyone. We kicked off the year with another strong quarter marked by healthy consumer demand for our products. Q1 revenue grew 21% over the same period last year to $84.8 million as more consumers around the world sought out our products for their style, performance and unmatched craftsmanship. Later, Jonathan will discuss our first quarter financial performance and our expectations for the second quarter. Today I'm going to focus on the progress we've made in Q1 across our three strategic pillars, driving consumer focused growth, building our DTC network and expanding our product categories. First, driving consumer focused growth. Revenue growth in our DTC channel was strong in Q1, up 60% year-on-year. During the quarter, we grew the number of customer shopping in our stores across our major markets led by Asia Pacific, which doubled from the same period last year as traffic returned following the removal of COVID restrictions. We are focused on creating great customer experiences, attracting customers to our well-known brand and keep loyal fans coming back for more. In Q1, we launched AI driven support on our e-commerce sites to offer real time self-serve to our customers. We're already seeing benefits from this initiative with over 25% of incoming customer conversations received in the quarter positively resolved through this tool. Initiatives like this with the unlocking of data through our CRM program will help us better engage with customers and provide elevated experiences. Growing our women and Gen Z customer segments is a part of our consumer focused growth plans. In Q1, the number of women shopping with us grew in the high teens over the same period last year. Our revenue share from Gen Z increased slightly from an already strong base within our overall mix. We continue to apply our longstanding playbook to remain top of mind and culturally relevant to our women in Gen Z customer segments to help build momentum for our bigger selling season. In Q1, we sponsored Canada's first ever WNBA event, which was broadcast across North America. Our pieces also appeared in front of the camera in some of the biggest film and TV programs this year through our established partnerships in the entertainment industry. These included Ted Lasso, Fast X, the latest in the Fast and the Furious franchise and two different episodes of our popular Netflix series, Never Have I Ever, which had 11.5 million views in its first week. Moving to our next strategic pillar, building our DTC network. Q1 DTC comp sales growth was up 28% year-over-year and strong across all of our key markets with especially robust performance in Macau and Hong Kong, fueled by the return of Chinese tourists. DTC growth of this order across all of our markets reinforces our confidence in our global retail network. Since our last earnings call, we opened four new permanent stores bringing our permanent store count to 55 stores. These stores were in Dublin, Las Vegas, Bellevue near Seattle and LA at the Beverly Center, which opened in July. We also reimagined and relocated our Beijing Sanlitun store to find a new level of customer experience. This flagship store is our largest store in the world and includes a VIP lounge featuring original Canadian art, a roof terrace garden, archived product displays in our [snow room], which features video and sound to provide a full Arctic experience. Traffic and sales have exceeded our expectations in its first few weeks of opening. We also opened two pop-up stores in the US, in Miami and Anchorage. These cities are both big tourist hubs, growing local and international demand. We especially have a strong local following in Alaska, a state where our brand has a long history. Turning to digital commerce. Our retail store strategy is part of a broader plan to create a seamless omnichannel experience, one that brings the customer journey from discovery of our brand to conversion of a sale to the post sale experience, whether that happens on or offline. Digital commerce is an important part of this. We continue to invest in both our front and backend e-commerce capabilities. On the front end, in Q1, we tested optimizations across mobile and desktop devices to reduce friction by helping customers more easily find the products they love and make their purchase. We're seeing some early positive conversion results, which we'll continue to learn from and build on. For the backend, we're advancing initiatives to improve digital merchandising and optimization of returns process to enhance operational efficiency and the overall customer experience ahead of the main selling season in the second half of the year and beyond. Turning to our third strategic pillar, expanding product categories. In Q1, apparel accessories were among our highest growth categories, increasing their share of revenue within the overall mix by a healthy margin. Within apparel, the HyBridge Knit Jacket and Hoody and Chilliwack Fleece Bomber were the most popular with our consumers, while our Waist Pack and Arctic Disc 2 were our top sellers within accessories. It is worth noting that our HyBridge and Chilliwack styles are iterations of our core pieces that are clearly continuing to resonate with customers. As a result of this demand, Q1 year-over-year revenue growth of our non-heavyweight down product outpaced that of heavyweight down through our DTC channel. Just a couple of weeks ago, we introduced our new sneaker line marking the next step in our footwear journey. The Glacier Trail Sneaker is a versatile piece that offers the highest levels of function, performance and comfort that our brand is known for. With the year round appeal, the sneaker has offered in a variety of colors for women and men. Although, orally, we have seen very good sales velocity out of the gate and are excited for the opportunity ahead in this category. We also launched Generations Canada in July, expanding our e-commerce platform to more customers since our US launch in January. This nascent platform reflects the core of our DNA as a sustainable brand that stands the test of time and the elements. We are compiling learning that we can apply across the US and Canada as we continue to expand our presence and capture a big opportunity in the [circular] economy. Finally, we recently released our fiscal 2023 sustainability report, which demonstrates our continued commitment to keeping the planet cold and the people on it warm. I'm pleased with the progress that we made last year across our operations, materials and community goals. In closing, our Q1 performance and the progress we made across our strategic pillars during the quarter continues to demonstrate that we are moving very well in the right direction. We have an internationally recognized brand. We're excited about the opportunities to bring Canada Goose into the lives of many more people around the world, all the while continuing to focus on making the highest quality products and creating memorable experiences for our customers, so that anyone that our brand touches is inspired to live their authentic lives in the open. And now I'll pass over to Jonathan to discuss our financial results. Jonathan Sinclair: Thank you, Dani, and good morning, everyone. We are pleased with our first quarter performance, characterized by strong top line growth. Revenue for the first quarter was $84.8 million, up 21% year-over-year or 18% on a constant currency basis, above the high end of our guidance range. Growth was driven by healthy demand for our products across our priority markets. DTC sales of $55.8 million grew 60% or 54% on a constant currency basis from the same period last year and that arose from continued retail store expansion and an increase in existing store sales. DTC revenue was 66% of total sales in Q1 compared to 50% in the same period last year as we optimized the greater DTC share within our channel mix. Consistent with our strategy over many years, we are intentionally shifting our proportion of channel revenue to sell directly to our end consumers. The right mix between DTC and wholesale channels positions us to capture new customers and retain existing ones with optimal unit economics. Q1 wholesale revenue of $27.1 million was down 18% year-over-year or 19% on a constant currency basis, that primarily arises from the streamlining of our wholesale partners. Even so this was above our plan due to earlier shipments to customers. We're concentrating our efforts on serving our top accounts that are brand accretive and positioning us within our target segments. Similar to others in the sector, we noted caution amongst the wholesale community, which is reflected in our order book. Q1 revenue increased across our key regions year-over-year as more customers shopped at our stores in North America, APAC and EMEA. North America revenue was up 24% to $41.6 million, up 20% on a constant currency basis, driven by continued retail expansion and an increase in existing store sales. Canada DTC comparable growth was faster than the US, up by double digits in most stores. This indicates continued brand momentum in our most established markets, which benefited from a return to tourism. The US experienced 15% year-over-year growth from existing and new store sales. We saw a higher proportion of new and existing consumers entering our non-heavyweight down categories and demonstrating significantly higher interest in apparel. We also gained traction with women in the US, which is one of our top markets for this segment. Share of revenue increased within the country's mix compared to the same period last year with our rain, everyday and lightweight down pieces resonating with women. Our progress in Q1 further strengthens our belief in our long term US retail expansion strategy, while also continuing to grow DTC comps as we continue to navigate the uncertain economic environment. Turning to Asia-Pacific. This region had a stellar quarter with revenue increasing 52% year-over-year to $24.5 million, up 43% on a constant currency basis. We saw broad based growth across each buck key markets, including Mainland China where lifting of COVID restrictions has led to a strong rebound in domestic spending in stores, as well as in e-commerce. As Dani mentioned, we had especially strong performance in our stores in our ex-Mainland China Asia-Pacific markets with the return of Chinese tourism. Our stores in Japan also saw strong growth this quarter led by domestic and tourist demand. It's worth reminding you that there maybe significant upside to our top and bottom line should Chinese tourism return to a more normalized level in the West this year as we've not considered this in our guidance. Asia-Pacific consumers continued to purchase our non-heavyweight down offerings, such as apparel and accessories, which grew triple digits this quarter over the same period last year in the region. Finally, EMEA revenue was down 7% year-over-year to $18.7 million or 6% down on a constant currency basis as lower wholesale revenue was partially offset by growth in our DTC channel. Our stores have continued to benefit from more tourism from the US, from the Middle East and more recently from China. Most of our European stores registered double digit comparable sales growth year-over-year in Q1 as they benefited from a more normalized operating environment. Despite the hot weather, our heavyweight down collections saw notable growth in EMEA in the quarter, almost doubling as compared to the same quarter last year, as more wholesalers gravitate to our iconic offerings. Given the outsized impact of wholesale in the region, it was most impacted by the dynamic in our wholesale order book. Moving to gross profit. First quarter gross profit grew 29% year-over-year to $55.2 million, primarily driven by higher revenue and gross margin expansion. Q1 gross margin increased 400 basis points to 65.1% compared to last year due to a higher mix of DTC sales as well as favorable product mix and pricing. The increase in the gross margin of our products was seen across all categories with non-heavyweight down outpacing margin expansion of our established heavyweight down segment. DTC gross margin expanded to 73% in Q1 while wholesale gross margins increased to 51%, up 40 and 30 basis points respectively compared to the first quarter of last year. Gross margins were favorably impacted by pricing product mix due to the higher proportion of heavyweight down sales and lower freight costs. These margins are entirely consistent with our long term expectations of mid-70s DTC and mid to high-40s wholesale gross margins on an annual basis. The adjusted EBIT loss increase to $91.1 million compared to Q1 of last year. That primarily arises from increased SG&A expenses. Our adjusted EBIT loss in the quarter was favorable compared to our first quarter guidance range, mainly as a result of strong revenue growth. SG&A increased 24% year-over-year to $154.9 million, largely associated with higher costs associated with the expansion of our retail network and strategic investments in technology and across our transformation program, which we expect will enable operational efficiencies across the organization to support sustainable growth and profitability. Adjusted net loss attributable shareholders was $73.1 million and an adjusted loss of $0.70 per basic share. Moving to our balance sheet. We ended Q1 of fiscal '24 with inventory of $522.1 million, up 3% from $504.7 million at the end of the same period last year. As expected, year-over-year growth in inventory decelerated for the second consecutive quarter as we more closely aligned the supply of products with anticipated demand and utilized the evergreen product we have on hand. During our first quarter, we stopped production at one of our two Montreal facilities, consolidating production into our other facilities. We also brought more production in-house to introduce greater flexibility and improve overhead leverage. In Q1, approximately 75% of our domestically produced jackets were manufactured in-house compared to 58% in the fourth quarter of fiscal '23. We expect the planned deceleration of inventory growth and a shift to in-house production to continue to support further gross margin expansion. During the first quarter, we bought back approximately 1.16 million shares for a total cash consideration of $26.3 million ending the quarter with $48 million of cash on our balance sheet compared to $81.8 million at the end of quarter one fiscal '23. Since the commencement of our buyback program, the NCIB, we have repurchased 2.7 million shares or approximately 50% of the amount authorized under this program. We're very comfortable with net debt average of 2.7 times adjusted EBITDA at the end of the quarter. In Q1, we extended our revolving facility through 2028, solidifying the balance sheet. Canada Goose is investing across multiple fronts to position ourselves for long term growth, represented by our three strategic pillars and our transformation program, the latter of which we expect will strengthen our foundation and add greater efficiencies into our operating model to support long term growth and the associated margin expansion. In Q1, we laid the groundwork for our transformation program and are now focused on beginning implementation across a number of initiatives, including enhancing store productivity and optimizing production and procurement. Stay tuned for further updates on this front as we advance these initiatives into implementation. Turning to our outlook. We had a strong first quarter and are pleased with the progress we have made to achieve our full year plans. Our outlook contemplates an uncertain macroeconomic environment together with foreign currency volatility. We continue to plan against a range of scenarios and our guidance represents our assessment of market conditions and the most likely consumer impacts. Our fiscal '24 outlook assumes continued momentum in Asia Pacific balanced with a more challenged consumer backdrop in the US as noted by others in the sector. Our priorities for fiscal '24 remain unchanged. We intend to continue investing in our strategic pillars and of course in our transformation program to build for the long run. We remain confident that this is the right path to achieve sustainable growth and improved profitability. As such, we are reiterating our full year fiscal 24 guidance. We expect total revenue to be in the range of $1.4 billion to $1.5 billion for the full year. Our revenue guidance assumes DTC revenue in the mid to high-70s as a percentage of total revenue, driven by mid single digits to mid-teens comp sales growth and continued store expansion as we continue to plan to open at least [16] new permanent stores in the year of which four are already open. We also continue to expect wholesale revenue to decrease by 6% year-over-year as we maintain our visibility over our order book and our delivery comprising the vast majority of the year’s wholesale business. We expect non-IFRS adjusted EBIT to be in the range of $210 million to $240 million in fiscal '24, representing an operating margin in the range of 15% to 16%. This assumes gross margin percentage to be in the high-60s on a full year basis with DTC and wholesale gross margins in the mid-70s and mid to high-40s respectively. We are not including any benefits from the transformation program in the fiscal '24 guidance. We expect non-IFRS adjusted net income per diluted share in the range of $1.20 to $1.48. This assumes an effective tax rate in the low-20s as a percentage of income before taxes and weighted average diluted shares outstanding of 106.3 million for fiscal '24. Consistent with this annual guidance, our guidance for Q2 is as follows. We expect revenue to be in the range of $270 million to $290 million. Our revenue range reflects the earlier shipments of wholesale orders that took place in Q1 that will no longer be included in Q2. We expect non-IFRS adjusted EBIT to be in the range of $20 million to $30 million loss, reflecting the impact of us expanded store network in the summer quarter in terms both of the number of new stores we are operating and the number of stores we're planning to open in our second quarter, as well as the planned timing of marketing spend, which is later this year than last. We expect non-IFRS adjusted net loss per basic share to be in the range of $0.17 to $0.24. In conclusion, we had a strong start to the year. More new and existing customers are returning to our stores. We're showing up in more places and people love our products. Customers are shopping with Canada Goose seeking the very best in craftsmanship, style and performance. We're pleased with the progress we've made across all fronts in our first quarter to position us well for long term growth and improving profitability as we continue to execute against our strategic pillars and our reiterated annual guidance. With that operator, please open up the lines for questions. See also 15 Most Popular Music Streaming Services and 10 Oversold NASDAQ Stocks to Buy.

Q&A Session

Operator: [Operator Instructions] And our first question comes in line of Brooke Roach from Goldman Sachs. Brooke Roach: Dani, I was hoping you could talk a little bit more about your updated thoughts on how the Canada Goose brand is resonating with the Chinese consumer now that you're a few months further into the reopening? And then perhaps for Jonathan, can you elaborate on the outlook that you now see for China following a strong fiscal first quarter? How does the trend that you're seeing this quarter impact your view on the recapture ability of the $160 million of lost China revenue from the prior year? Jonathan Sinclair: As Dani is not on the call, Carrie is going to take the question on China, and I'll reverse on the second question on the outlook. Carrie Baker: So yes, we had stellar results in APAC. In mainland China, we saw a strong rebound spending across our DTC channels, mostly that's because we're seeing people come back into stores. We saw especially robust performance in Macau and Hong Kong and that's really because of the return of tourism to Chinese Mainland. And then Japan also saw strong growth both from locals and from tourists. So we're really energized by what we're seeing and we expect that to continue. Jonathan Sinclair: And I think as we think about the outlook for China, the key thing to think about is when it was most impaired last year. So we've already said at the beginning of this year that we are expecting progressive improvement. We've obviously had a very good start to that. China was at its most disrupted in Q1 and Q3 last year. And so that's when I'd expect to see the growth that it's strongest. And if you recall, what we said was we have not included in our guidance an assumption that we recover the whole of the hit that we took last year, but we're seeing progressive improvement towards it as you can see here. Operator: [Operator Instructions] And our next question comes from the line of Robert Ohmes from Bank of America. Robert Ohmes: Jonathan, I think, maybe my first question is just the -- can you give us any help on the pricing tailwind to 1Q sales, how significant was the pricing increase benefit? Jonathan Sinclair: I think from my point of view, we've always said we are sort of around the same mid single digits or so in pricing. This year's not been any different than that. You'll have heard me talk a number of times about the relatively scientific way in which we go about this, both in terms of in architecture in any one market and the application of it across multiple markets. And that this year has been no different than that. We've maintained the model from what we can see, the international pricing metrics is alive and well and operating across the sector. And therefore we've obviously had pricing benefit in our numbers as we would expect and in line with the sort of rate we've experienced in previous years. Robert Ohmes: And just a quick follow-up. On inventory, it's great that you're -- the growth of it is slowing. Is there ever -- will you ever go through a period where inventory levels that you carry could be worked down a little? Because obviously they've gotten a little bloated during COVID and I thought maybe they would work down somewhat.

Jonathan Sinclair: So if we think about inventory, I mean, what we've said, is that it would -- the year-over-year growth would reduce progressively and you saw that in March, you see it again now. We have worked very hard to tailor what we produce, what we buy to our sales expectations. We act very responsibly on that. We've always said in the past we're not afraid to be sold out if that's what it takes. And therefore it is conceivable over time that inventory is -- vacillates around the level that we're at, conceivable it could be slightly lower, conceivably slightly higher but in and around last year's level is where we think the right place is for us to be against the guidance that we're giving on revenue growth. Clearly, we work hard to make sure it's as efficient as it can be it. But let's remember so much of it is continuative that it maintains its value over time, it doesn't represent margin risk, it doesn't represent obsolescence risk and therefore, we're able to work our way through it and satisfy demand where it's there. Operator: Our next question comes from the line of Sam Poser from Williams Trading. Sam Poser: I just have a question about the DTC business and the evolution to getting to around 35% in the first half of the year, so you can sort of become more profitable in total with your DTC. Can you tell me where you are in that -- towards that long term target and how you're thinking about it please? Jonathan Sinclair: I think we talk about 35% of the total business being in H1 rather than just DTC, but obviously, we're working toward that, we're seeing good growth in our non-heavyweight down business. And that's important in the context of relevance in the first half of the year when the temperatures are somewhat higher. But I think, it's something that we are making excellent headway on. And you see that in the rate of growth that we've experienced in DTC in the first half, which is really quite -- first quarter, which is really quite strong. Sam Poser: And you mentioned part of this, I believe in your prepared remarks. But within that, I guess within the portions of non-heavyweight down, it sounded like Asia-Pacific was the -- performed the best in that category, followed by Canada, followed by US, followed by Europe. Is that accurate, am I thinking about that right? Did I get that right? Jonathan Sinclair: Well, certainly our standout performance was non-heavy, was Asia-Pacific and that's not a surprise in the context that it's the fastest growing region in the border either. But it really is outsized performance and we're delighted to see the progress there. But I will say we're making good progress, both in North America and in Europe in those categories. And so it's not like it's purely one geography and loss another, we're actually seeing good growth around the world with just the outsized growth in Asia-Pacific generally, meaning that we're making more headway this quarter in that region compared to the others. Carrie Baker: Yes, if I can just add some color too, in terms of the categories. So yes, as you heard us talk about apparel and accessories among our fastest growing categories, it's great. What I like to see about that is that people are coming in, they're buying a broader assortment of Canada Goose, they might even be entering the brand through some of those categories. And especially, we launched -- our footwear is climbing year-over-year this quarter, we just launched our Glacier Trail Sneakers, which are -- the consumer response has been phenomenal to that. So for us, there's just so much more to offer. We have way more -- seasonally relevant products that people are buying now through wear now. Operator: And our next question comes from the line of Oliver Chen from TD Cowen. Unidentified Analyst: This is [Katie] on for Oliver. Our first question is around the wholesale channel. Do you plan to take any action that would give you more control over selling in that wholesale channel, such as, for example, bringing in the Canada Goose sales associate? Carrie Baker: We already do. I think depending on the account or the door that we're talking about, so whether that's providing sales associates, robust training programs. So we work really hand in hand with all of our partners to make sure that that experience is as close to a Canada Goose experience as we possibly can get it, even though it's inside somebody else's doors. So I think what you're seeing, and I know we spoke to this in the remarks. But what you're seeing in wholesale is mostly a result of our just continued streamlining. Of course, EMEA has a different impact just given the size of wholesale business in that market in this quarter. There is of course some caution from wholesale partners across -- you're seeing that across the sector as every brand, but mostly as a result of us looking at the partners, looking at most -- which ones are brand enhancing, which ones are going along this journey with us in terms of representing who we are best and us making choices as a result of that. Unidentified Analyst: And then as a follow-up. Could you just touch on sort of the productivity of the new stores that you're seeing and how does that compare relative to your legacy stores as well as your expectations?

Jonathan Sinclair: So we've opened -- as you've heard, Katie, we've opened four stores so far this year and we are delighted with the performance that we're seeing to date. We've seen consumers react really well, we've seen good traffic flows in those stores. We've picked them very, very carefully to make sure that we've got the right environment, the right adjacencies. And so we're getting what we expected at this point and we're very pleased with it. Carrie Baker: I can just add too. The thing that also encourages us, as we talked a lot, you've heard my famous line of Quest West. But when you look at the stores we're opening, talking about Vegas, we're talking about Seattle, LA, these are non-winter, warmer climates and the response has been equally strong. And so again, that just gives us more confidence that our strategy is working, consumers are responding and we have a lot of opportunity, particularly when you look at the US, we're so early in our journey that we have many more stores to open and expect them to perform as we've seen so far. Operator: And our next question comes from the line of Jay Sole from UBS. Jay Sole: Jonathan, if you could talk about the DTC growth, growth you're expecting this year. Can you give us an idea of how much that growth you expect to come from the new stores versus how much you expect to come from e-commerce versus how much would come from stores that maybe were closed last year that are up this year versus how much of like-for-like growth you expect this year from your stores that were open last year that are also going to be open again this year? Jonathan Sinclair: So to try and give you some flavor of that, obviously, you've got our core guidance assumption in terms of the overall DTC comp growth. So that's an important element in its own right. And that excludes sales being made this year and days when the stores were closed last year, so that's additional. And obviously, there's a significant proportion of that growth and you see some of that contained in the gap between the DTC comp growth and the aggregate growth of DTC. The other piece obviously is new stores, we've got 16 new stores coming online. You could assume that they've the half the year and you know our sales density and therefore can make, I think, a good stab at that as a result. I think we've got a good crop of stores coming online this year, they're going to be around for most of the -- they’re most of the productive period of the year, the second half. And therefore, you can assume that there's a healthy contribution from those stores. Online, we've been doing a lot of work, as you've heard from Dani's prepared remarks around where we're heading. We're very optimistic about what that can bring. We see it as complimentary. We're looking forward to our first peak season with omni-channel in the UK, which we haven't done before, as well as continuing to refine it in other markets. Our Chief Digital Officer's been doing a ton of work around this. We can see a lot of opportunity and we think there's a real upside there. Hope that gives you a good flavor for this. Jay Sole: It does. And if I can just follow-up with one more. Can you talk about what you're seeing from tourist traffic trends especially in different geographies like Europe for example or even in North America? Jonathan Sinclair: I mean, we are seeing some tourism return. It's interesting, because it's very different by region. I called out in my own remarks what we're seeing in Southeast Asia in the outperformance of the non-Mainland China's and Southeast Asia markets where we are definitely seeing a return. As you look beyond that, it's much more gentle, I think partly because we saw some early recovery last year. And frankly travel from Asia to the rest of the world is a little bit more muted, some of that's flights, slots, some of it's about people getting back into it. It will just take a little time and that's what we've said and that's why we've not included that upside in our guidance assumptions at this point. Now if it happens, great and that's got the potential to be an upside. Operator: And our next question comes from the line of Jonathan Komp from Baird.

Jonathan Komp: Jonathan, if I could just follow-up on the first quarter results. It looked like a pretty solid bottom line EBIT upside quarter relative to the revenue upside. So could you just, and sorry if I missed this, share any more details on the profitability flow through that you saw? And would you extrapolate any of those observations to the full year or is it just too small of a quarter to impact the full year view at all? Jonathan Sinclair: So I think -- it is a small quarter, but nevertheless, the momentum and the narrative around it is positive and that's very much how we'd like to start the year. We were pleased with the performance, we've got -- we found some cost efficiency in the business as the quarters progressed and that's been helpful to the bottom line for sure. And with that level of comp growth at these sorts of gross margins, inevitably there's a profit flow through, through from that and we're very pleased with it. But it is a small quarter and therefore, we feel that it's appropriate at this point to reiterate full year guidance rather than do anything else in the light of it, but it's set us up well. I think I draw attention to the gross margins being slightly ahead. I think the comp growth is comfortable and positive. I think we've got a good landscape at this point. Jonathan Komp: And then one follow-up I had just on inventory. Could you maybe share a little bit more, you touched on this, but just share a little more on what you're thinking. If you could quantify some of the production cuts you're making, either the magnitude or the duration or both? And as we think forward about the costing of the inventory that you produce, is there any sort of future concerns about lower utilization impacting your cost of goods or anything like that? Just more color on the inventory moves you're making. Jonathan Sinclair: I mean, if I can sort of take it to its natural consequence and say, are we worried about where the gross margin's tracking there, we're not and then let me back up into that. So that means that what we're doing is we are putting proportionately less of our production in Canada, which is, call it, round sums, three quarters, 80% of what we buy and make. We're putting proportionately less of that with our third parties and more of it through our own facilities. And actually what that does is that produces our overhead leverage. And that addresses the fact therefore that if you're making slightly less, you don't see cost growth and therefore margin dilution coming out of it, that's one part of it. Second part is -- and we've got less overheads, because we've got one less facility. And so if you take that facility out, which is let's say 12%, one eighth of the number of facilities. Then in reality you've sort of created a further tailwind there. So we're not concerned about that. It still means that we -- I mean we've got ample inventory to meet our needs. So it's very aligned with our expectations of revenue as mentioned in the guidance ranges. So we feel pretty good about that. I think we feel like we've got the right framework coming into place now that helps us grow inventory at or below the rate of revenue growth in the longer run. And as I said this year, staying relatively flat to last year. Operator: And our next question comes from the line of Ike Boruchow from Wells Fargo. Ike Boruchow: I guess my question is on the geographic performance. So another quarter of Canada, well outpacing the US. Maybe just talk about the dynamics in both markets, how are you expecting this trend to play out for the remainder of the year? And then is this more a function of you guys outperforming in your Canadian market or underperforming in the US, is it both? Just trying to understand a little bit more geographically in North America? Carrie Baker: The US experienced healthy growth. So I mean, when you look at the numbers, it's up 15% year-over-year. It's -- obviously that strengthens our belief in our long term strategy. We do still feel like we're early in that market, many more stores to open, many more brand -- consumers to reach when you look at our brand awareness opportunity. I think Jonathan mentioned earlier, we have seen traction with women there, which is great. That is a big market for us in order to improve that mix back up to levels where we see other luxury players achieving. When you look at Canada, I mean, of course it's our home market. We would expect it to be healthy, strong. There's the highest awareness here. It is also a strong tourism market.

And we probably benefited earlier days than maybe some other markets from tourists returning to Canada. So I don't think it's an either or situation, they're just at very different stages in maturity. And you see different consumer behaviors as a result, how they're coming into the -- whether it's stores, e-commerce, whether they're coming into old products or new products, there's just slight difference but they're both performing quite well. Jonathan Sinclair: And what I'd add on the US is also that we've been talking about seeing sequential improvement in the performance of the US since turn of the calendar year, which is obviously difficult and that's continued. So I think that's also context to think about as we reflect on our performance. Ike Boruchow: And again I’m just -- I'm not trying to nitpick on revenue, your constant currency growth is 8% in the US, it's over 30 in Canada. I just wasn't sure if there's something that's -- it's better than the negative that you had in Q4, so improvement. I was just kind of wondering like at what point do we hope that these kind of more realign, is that later in the year, is that in time for holiday, that's kind of what I was getting at? Jonathan Sinclair: And the other piece that goes with it is inevitably the macroeconomic backdrop is with a level of uncertainty that everyone's working with, but we're very confident in what we've got and we believe it's starting to produce the numbers in the way we've seen here. Operator: This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Ana Raman for any further remarks. Ana Raman : Thank you, Jonathan. And with that, this actually does conclude our first quarter 2024 conference call. Thank you everyone for joining us, and goodbye. Operator: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.