Canada Goose Holdings Inc.
Q3 2019 Earnings Call Transcript

Published: 14 Feb 2019

[Operator:]

Good morning. My name is Denise, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Third Quarter 2019 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. [Operator Instructions] Thank you. Patrick Burk, Senior Director of Investor Relations, you may begin your conference.

[Patrick Burk:]

Thank you. Good morning and thank you for joining us today. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. For today's call, Dani will begin with the highlights of our third quarter performance. Following this, Jonathan will provide details on our financial results and our updated outlook for fiscal 2019. 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, includes forward-looking statements, including plans for our business and our updated outlook for fiscal 2019. 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 appears 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 SEC and the Canadian Securities Regulatory Authorities. It is also available on the Investor Relations section of our Web site at canadagoose.com 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 and we undertake no obligation to update or revise any of these statements. During the call, in order to provide greater transparency regarding Canada Goose's operating performance, we refer to certain non-IFRS measures that involve adjustments to IFRS results. Any non-IFRS measures presented should not be considered to be an alternative to financial measures required by IFRS and are unlikely to be comparable to non-IFRS measures provided by other companies. Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS measure in the table at the end of our earnings press release issued this morning. This is also available on the Investor Relations sections of our Web site at canadagoose.com. With that, I will turn the call over to Dani.

[Dani Reiss:]

Thanks, Patrick. Good morning, thanks for joining us, happy Valentine's Day. Fiscal 2019 is shaping up to be another year of amazing results and impressive progress against our strategic vision for building Canada Goose into an enduring brand. I'm really proud that we continue to deliver when and where it matters most, and I remain as confident as ever about our long-term success. With our largest quarter now behind us, I am excited to share the highlights and give you some context to our great results. The financials are truly impressive. Despite the law of large numbers, we achieved significantly higher rates of growth off of much larger bases. Revenue increased by 50.2% to $399.3 million and adjusted EPS grew by 65.5% to $0.96 per diluted share. To put that all into perspective, adjusted EPS in the quarter was larger than our annual figure for all of 2018. On a global stage, our brand voice and consumer connection have never been stronger. Awareness and affinity are growing in the markets that we are prioritizing. And we have a lot of remaining runway. Our results show that we know intuitively and what research confirmed that we continue to be a highly desired and relevant brand. We are clearly seeing the benefit of all the commercial investments we're making in activation, brand storytelling, and presentation. And in opening five new stores, we are continually reminded that bricks are not dead. Across a wide range of markets, all of our openings performed well and existing stores are also continuing to deliver strong results. I am very encouraged but not surprised by guest feedback showing that we are moving the needle on our high touch experiences. Getting this right is critical. And doing it in peak season with high traffic is the ultimate test and we passed that with flying colors. These great results start with great product. The luxury performance outerwear category continues to evolve with consumers looking to express their style in new ways. As part of this, we're seeing a lot of demand for newness through color in the marketplace, and our fall winter collection delivered that. Amongst our heritage styles, which continue to grow at very healthy rates, we successfully introduced an expanded palette of seasonal colors and prints with white and silver verse styles being particularly sought after. Alongside our core primary colors, we staged the flow of these into the marketplace which elevated floor diversity and sell-through momentum. Our new approach jacket made a big splash with its release on Black Friday. With inspiration from our history working with legendary Canadian adventurer, Laurie Skreslet, it features high visibility neon shades for the mountain in an urban and modern silhouette. At a time when consumers are bombarded with promotional messages and brands are competing on the lowest price, we chose to cut through the noise with a high impact product movement. With a creative integrated marketing campaign focused on eye-popping experiences at retail we drove global awareness and fast sell-through at full price on one of the biggest discount shopping days of the year. It is a great example of how we can build demand in ways that very few others can through an authentic story and product. It's this type of swimming upstream that has driven and will continue to drive our business. When it comes to product, I've often said that two of the most powerful aspects of our business model are our foundation of enduring iconic styles and how we are able to innovate around the strength of those styles. By introducing newness in our authentic and measured way, we excite our fans and create demand ahead of supply, and we gradually build into that over time. Ultimately, this is about seeding and developing new generations of apparel products to add to the depth and diversity of our already very strong core. One great example of this is our new lightweight down hybrid base jacket which is designed for a wider range of cold temperatures than the classic hybrid light is. It has been a standout performer in its first year and we look forward to doubling down on that demand in years to come. More broadly, lightweight down continues to grow significantly. Its DNA is deeply rooted in what has made us the reference parka, and it appeals to consumers looking for more versatility. We made a concerted effort to drive higher awareness coupled with greater year-round distribution and the results strengthen my conviction that we have an incredible opportunity to continue to lead this category going forward. Alongside a great product, both distribution channels continue to raise the bar. As a vertical brand, the breadth and quality of our multi-channel distribution model is so powerful. Our strength across e-commerce stores in wholesale is truly unique. And it is grounded in how disciplined, maybe even obsessive, we have been about developing them in a balanced and complementary way. Starting with direct to consumer, e-commerce continues to be a driver of our growth. Our existing size put in another strong performance and as we expected Team O has proven to be the right way to serve our fans online in Mainland China. On singles day, we're one of the top 10 brands in our space despite offering no promotions and having only been on the platform for just over a month. Equally as important, we hit all of our operational and customer service metrics. Overall, on our e-commerce channel, we have also been fine-tuning the degree of localization in their merchandising and marketing and the initial results have been promising. Moving onto stores, we are now in year three of our journey with 11 company operated stores across three continents. I remember interacting with customers in our first store in Toronto on opening day and I could see right then and there that we had a massive opportunity in front of us. Reflecting back on that, it has certainly delivered on that potential and then some. The common thread that I see in each of our stores is consistency in performance. From local focus markets like Short Hills and Montréal to global shopping destinations like Hong Kong and London every single store has delivered exceptional experiences and results. Underlying this is our selective focus and tailored approach and commitment to continue this improvement. We have been and will continue to be exclusively focused on owning the best retail opportunities. The results speak for themselves and we are not straying from that approach. The second piece to our retail success is recognizing the importance of localization. While brand consistency is key, we are not taking a cookie-cutter approach to any aspect of our stores. From seeding and activation, the and store environment and merchandise we are very focused on leading and executing at a local level. The last part of the equation is continuous improvement. We are constantly elevating our game and our stores are an immersive gathering place to interact with our fans and help them find new ways to love Canada Goose. We saw great traction this year with our generations of warm holiday photo booths and the introduction of our cold rooms, which I'm really proud to say, Vats Company called the best retail experience of the year. And we are excited to continue innovating on experiential retail in new ways in the years to come. And parallel to our great result in DTC, Wholesale also had another outstanding quarter. The rate and quality of the growth that we have achieved is a real testament to multi-channel distribution done right. Last time we spoke, I went through the great work our team has done with our world-class partners to elevate our storytelling and presentation. We continue to see the benefit of that in the latter innings of fall-winter shipping period. On the back of high sell-through levels early in the season, retailers continue to request earlier shipments of remaining order book commitments and to reorder allocations. And because of our success expanding in-house manufacturing we were able to respond to this faster, putting our partners in stronger merchandising positions to meet peak consumer demand. To sum it up, both DTC and wholesale channels outperformed. Neither channel impeded the growth of the other. They both delivered exceptional results. Continuing on to the topic of manufacturing, we have just hit another major milestone. Earlier this morning, we announced that we are opening our second Québec production facility in Montréal closely following the opening of our third Winnipeg facility. In Montréal, we will have 100 employees producing jackets by the end of March and we expect to create over 300 new jobs his first year of operation. At a full capacity, the new site will employ 650 people. With this edition, we now have a total of eight in-house manufacturing facilities in Canada. This is yet another example of how scaling Canadian production is a core competency and Canada use. It is a foundational part of our long-term vision and it is something that we're executing on consistently. We have had great success in [indiscernible] opening our first shop there in 2017 and just over two years we created over 500 new jobs. The city has a great history of apparel manufacturing and solar training in school has been integral. We are creating a pipeline of skilled labor that we need to support a growth. This is also a major point and significant point, a leadership for us. Montreal Chabanel District was once a central part of apparel manufacturing in Canada, but this has been eroded by a shift offshore in pursuit of margin. Well, some brands only have their headquarters in the city. They're missing the great history and potential that this area has. This is the perfect opportunity for us to rebuild and revitalize. The cut and sew industry there and have a lasting impact on the community. In summary, and back to my initial remarks. Fiscal 2019 is going to be another great year in academic use. Our brand and products continue to resonate globally. Both channels are going from strength-to-strength and we have made massive progress expanding in-house capacity. We're really excited. We are excited about next year as well and we remain deeply committed to our long-term vision. And with that, I will turn it over to Jonathan to go over our financial results.

[Jonathan Sinclair:]

Thanks, Dani. Good morning, everyone. And thank you for joining us. Before I go through the numbers, I'd like to remind you that they are stated in Canadian dollars. I should comment on the quarter and then update you on guidance. As Dani just said, our financial performance in the quarter was outstanding, in this our largest quarter. Revenue increased by 50.2%, the $399.3 million or 49% on a constant currency basis. Relative to last year, the Canadian dollars appreciated relative to the U.S. Dollar and to a smaller degree, the euro, and the pound, which somewhat benefited our reported top line. Our DTC channel led the way with revenue increasing to $235 million up from $131.7 million last year. All of our new stores put in a great performance relative to previous openings. And Tmall also had a strong start. Our well-established stores and our e-commerce sites also went from strength-to-strength. Like Dani, I'm really encouraged by the quality of guest feedback on our retail experience during peak trading. On the back of sell through momentum, wholesale also put in a very strong quarter. Revenue grew to $164 million from $134.2 million driven by higher order values from existing partners and earlier shipment timing. In response to customer requests and supported by expanded capacity, we have fulfilled a higher proportion of our order book and reorder allocations relative to last year. It's great to see the wholesale perform so well this year, alongside our expanding DTC footprint. This reflects all the work our team has done with our best in class partners to elevate our storytelling, our presentation, and the customer experience. Tom Wright wholesale is a complimentary channel, which extends the reach and diversity of our distribution and it will continue to be an important driver of our business going forward. Consolidated gross margin expanded to 64.4% from 63.6% driven by the higher proportion of DTC revenue. DTC gross margin was 76.1% compared to 76.4%. This was due to sold inventory manufactured at higher labor costs related to the onset of the Ontario minimum wage increase, which handles the start of 2018. Wholesale gross margin was 47.7% compared to 51%. The flow through of the higher labor costs affected the channel more significantly due to the difference between wholesale and DTC selling prices. Purchase account adjustments related to Baffin and changes in product mix with a high proportion of newer product also impacted margin. I'd stress the point of comparison is also elevated relative to typical levels, due to a combination of one off material savings and favorable external factors which we also had the benefits all but earlier this year. On a more representative year to-date basis also gross margin is 49.2% compared to 48.2% last year. DTC operating income was a $141.4 million, an operating margin of 60.1%. This compares with $79.1 million last year or an operating margin of 60%. We're pleased to have maintained a strong DTC operating margin. Even as we absorbed incremental SG&A fees which relate to our operating partners in greater China. Wholesale operating income $65.1 million, an operating margin of 39.7% compared to $57.2 million or an operating margin of 42.7%. SG&A decreased as a percentage of sales on a larger quarterly revenue base. Unallocated corporate expenses were $61.3 million compared to $44 million. This was driven by planned growth investments in marketing, corporate head count and IT including our greater China operations. We also incurred high professional fees and other cost relating to public company compliance. Unallocated depreciation and amortization was $5.3 million compared to $2.4 million and that increases driven by the retail opening program and IT investments. Combined, this resulted in total operating income of $139.9 million, up $50 million from the $89.9 million last year. On a non-IFRS basis, adjusted EBITDA was $151.1 million compared to $94.7 million last year. Net income was $103.4 million or $0.93 per diluted share compared to $63 million or $0.56 per share. Adjusted net income was a $107.2 million or $0.96 per diluted share compared to $64.5 million or $0.58. Turning quickly to the balance sheet, we ended the quarter with a net cash position of $55.8 million and networking capital of $170.7 million. Relative to last year, networking capital has increased due to the consolidation of Baffin including inventory marketed for resell value and the planned and build of inventory for future growth in fiscal 2020. Now turning to all revised guidance for fiscal '19. With the majority of the fiscal year now complete. We have refined our guidance based on strength of our year-to date performance and current trends in the business. We currently expect annual revenue growth in the mid–to-high 30s on a percentage basis compared to what we said previously which is at least 30%. This assumes annual wholesale revenue growth in the mid-to-high teens. Adjusted EBITDA margin expansion of at least 150 basis points unchanged from last time and annual growth in adjusted net income per diluted share in the mid-to-high 40s is expressed as a percentage compared to our previous guidance of at least 40%. I would also note that the back half of fiscal 19 is more from -- Q3 relatives of last year. We build demand on annual basis and as investment thesis that was inevitably variability and buying patents for our products across years. This is playing out across all business as a general trend across channels geographies and customer demographics we've seen a high proportion of purchasing in the earlier a month of the season. You can really see this when you compare our Q3 growth right relative to last year, despite a larger base and a more mature DTC footprint, revenue increased by 50.2% this year compared to 27.2% increase a year ago. With significantly more purchasing occurring earlier, this implies a naturally lower rate of speed in both channels through the remainder of the fiscal year in a smaller shoulder quarter. By all accounts fiscal '19 will be our best every year, and by a wide margin. We have undertaken an ambitious expansion of our DTC footprint, and made significant investment in our platform for long-term growth. All of this while delivering exceptional results. On a global stage, our business has never been strong. And we are still just getting started. I look forward to speaking with you again on our next call to update you on our progress and outlook. And now, I will turn it back to Dani for some closing remarks.

[Dani Reiss:]

Thank you, Jonathan. The first quarters of fiscal 2019 have been amazing. And I'm feeling really, really good about the year as a whole, which as you know we look at our business on an annual basis. I encourage you all to check out a new brand initiative that we've started called, Project Atigi, which we launched in January. It's a truly amazing one-of-a-kind parka collection designed and made by Inuit seamstresses, and is an example of social entrepreneurship at its very best. And believe me, we are just getting started. I believe this project can and will be transformative. We are also excited about our upcoming spring collection, which is hitting the shelves as we speak, and there's a lot of consumer excitement about that. And with that, I will turn it over to the operator to begin our Q&A session.

[Operator:]

[Operator Instructions] Your first question comes from Michael Binetti with Credit Suisse. Your line is open.

[Michael Binetti:]

Hey guys, good morning. Congrats on a nice quarter. First, just a quick modeling question for Jonathan, and then I have a bigger picture question. But on the gross margin, Jonathan, I think that the different growth rates in the different businesses, moving the mix around makes it a little bit hard to forecast. But I think it would be helpful if you walked us through how you see gross margins evolving going forward in each channel. And I can be direct, I think a lot -- do you think a lot of the gross margin low-hanging-fruit is behind us at this point and more of the past, that EBTIDA margin expansion you laid out is from the SG&A side? And I guess secondly, I'm a little confused when I look at the inventory, up 75%, but you said sales were pulled significantly forward within the second-half of your fiscal year. It seems like there's quite a bit of inventory ready for the fourth quarter, but you're saying the growth rate is a little slow on a rate basis. Maybe you can help just reconcile those two.

[Jonathan Sinclair:]

Okay, so taking the gross margin question first. When we've talked about gross margin before and this is something that we very much continue to believe. There is forward potential in gross margin; however the factors that take this forward are around production efficiency, scale benefits. Those help to fund investment in new product, and also offset things like the increase in the Ontario minimum wage, increases in raw material costs, and so on. As a result, we expect to see gross margins advance within channel, so ignoring the channel mix point, within channel but by a small number of bips, not by huge leaps and bounds. And that that won't necessarily unfold in a liner way, it will be a little bit bumpy as it goes. But it's absolutely forward momentum in each channel in addition to the overall channel mix.

[Michael Binetti:]

Okay.

[Jonathan Sinclair:]

As far as the inventory is concerned, we -- you rightly observed, we've got more inventory than we had a year ago by a significant margin. What you have to be aware of is, of course, is we produce our inventory on a linear basis ahead of the planned growth for future seasons and for future years. So, what you see now is an inventory being built in advance of our fiscal year 2020.

[Dani Reiss:]

If I could add one thing to that, just to say, in terms of inventory we're right where we want to be. We're happy with our inventory [ph] position, and a lot of it, as Jonathan mentioned, is for next year. And also to point out that we do have more stores. So, in having more stores, by definition, we need more inventory to fill those stores. And that also adds to the increase of inventory level.

[Michael Binetti:]

Okay. And Dani, if I could ask just maybe on a more fun basis, on China, how's it going? This is the first big quarter there. What are you learning now that you're on the ground there, specifically how do you look at the opportunity there for physical stores and then the ramp in China on Tmall. Is the plan there to constrain supply into Tmall similar to wholesale and rest of world? Any kind of outlook there as you've had a little bit of time in the saddle now would be helpful.

[Dani Reiss:]

Sure. Yes, we remain really bullish and excited about China. We're really happy to be serving our fans in Greater China. And we know that we have a tremendous amount of demand in that marketplace. And that's been demonstrated, I mean there have been all sorts of reports of lineups outside of our stores in both Beijing and Hong Kong. And that's just an indication of how strong the demand is for our brand in China, and we intend to continue to expand there.

[Michael Binetti:]

Thanks a lot.

[Operator:]

Your next question comes from Oliver Chen with Cowen & Company. Your line is open.

[Oliver Chen:]

Hi. Thank you. Congrats on a great quarter. On the wholesale channel, as your product assortment continues to broaden and as you think about product opportunities and line extensions, how has the nature of orders been changing? And related to this is we're seeing competitors do frequency of monthly drops. What are your thoughts on balancing speed and novelty versus essentials as you think about that from both the merchandizing and supply chain sensibility? Would love your thoughts, particularly as you have seen so much success in wholesale, and if feels like there's a lot of floor space as well as comp opportunity within this channel?

[Dani Reiss:]

Yes, thanks, Oliver. We're really excited and happy with how well wholesale has been performing. And a lot of that is due to the fact that we're working closely with our wholesalers to create optimal environments within our wholesale doors to put shop-in-shops there, to make sure we have trained and educated brand ambassadors in the stores and in all the shops. And as we look at our merchandizing assortment and our merchandizing planning teams, definitely we want and we're achieving the outcome of the space is looking new and fresh on a regular basis. And I think that that's table stakes for us now and it's certainly a very important part of why we're performing so well.

[Oliver Chen:]

Okay. And on monthly drops and just straightification [ph] of the category, do you have any thoughts there? As well as, how should we model the evolution of your average unit retail as you continue to innovate in the new wearing occasions?

[Dani Reiss:]

I think that we're going to continue to plan on merchandizing in a similar fashion to the way we've always wanted, and it's been working really well for us. And we don't intend to introduce any radical shifts or changes to the diversification of product and the cadence of that diversification than we have to really or not. We're pleased with it.

[Jonathan Sinclair:]

And as you come to think about how average unit retail evolves, you should consider that we typically take price in the low to mid single digits. And that will impact on the average unit retail in channel.

[Oliver Chen:]

Okay, thank you. And just last modeling on the mix impact on the margin from new product as well as labor, how many more quarters will that be ahead, and what should we think about as we consider our within-channel margins in our models? And the new product mix impact, could you just elaborate on what that is so we understand how that may manifest? Thank you.

[Jonathan Sinclair:]

So we -- the point I was just making, we manage margins like we manage the business, on an annual basis. And therefore my comments from the earlier question really apply. We -- you need to take a longer-term view of margins on an annual basis. And on an annual basis we expect margins to expand slightly in channel. And that's true for both wholesale and DTC. You have the forward momentum, as I said before, of pricing and efficiency, and scale, and the manufacturing capacity that we're opening up funding the newness of the price increases, and resulting in a small forward momentum in margin over time.

[Operator:]

Your next question comes from Kate Fitzsimons with RBC Capital Markets. Your line is open.

[Kate Fitzsimons:]

Yes, good morning guys. Congratulations on a strong quarter. I guess when we look at the guidance for this year; the direct channel is going to land at just over 50% of sales. Dani, when you think about the strength of the stores in the ecommerce channel, do you think there's anything structural preventing that mix from moving higher? Some of your peers have direct channel penetration well into to 70s, so just your longer-term view on channel mix there would be helpful. Thank you.

[Dani Reiss:]

Yes, for sure. Thanks for the question. And yes, we -- I think still have a lot of runway to continue to grow our Direct to Consumer sale with a percentage of our overall revenue, and while at the same time still growing wholesale. Wholesale is still important to us. And we feel it's going to grow, and definitely as a percentage, to your point, we feel that DTC sales there's more runway to increase the percentage, no question.

[Kate Fitzsimons:]

Great. And then secondly, just when we think about the fourth quarter, certainly, Jonathan, understood your comments on the revenue expectations, but when we're looking at the EBITDA margins, just given the year-to-date trends, is there anything to consider in terms of 4Q expense shift impacting results? Thank you.

[Jonathan Sinclair:]

I think the best way to approach the guidance is really to think about in the round. We're confident in what we've said. We've got the peak selling season behind us. We've got a small shoulder quarter remaining, and therefore the majority of the fiscal year is complete. I think we've got a really high level of visibility that helps us give more precise assumptions. When you consider what's happened to the evolution of the train in the quarter, obviously we've got a larger number of stores. We continue to invest in building demand in the business, both for the current year and future seasons. And therefore that's all reflected in our cost base.

[Operator:]

[Operator Instructions] Your next question comes from Omar Saad with Evercore ISI. Your line is open.

[Omar Saad:]

Great, thanks for taking my question. Super quarter. It seems to us looking at the brand across channels and the product availability, given the stock-outs and the extreme demand, it seems like it's continually a supply-constrained brand, which is obviously a great situation to be in relative to demand, especially as a luxury brand made in Canada. But I wanted to kind of get your viewpoint, how do you think about allocating as you build inventory and add more own production and you expand your manufacturing base, made in Canada manufacturing base, how do you think about philosophically allocating incremental supply to your own channels, to your ecommerce channels, to new opportunities in Asia versus wholesale. I know there's not a lot of wholesale distribution expansion, it seems like it's a much more productivity gains and space gains within existing channels. But how do you think about that philosophically where you want to direct that incremental supply build given the supply constraints on the business relative to the demand? Thanks

[Jonathan Sinclair:]

So I think let's start with the question of supply constraint, and then talk about allocation, because the reality is that we continue to increase the proportion of our down product that we manufacture. And not only that, but we are also, as you heard today, continuing to expand our capacity both through the earlier opening of Winnipeg, which we'll continue to scale up and of course, the opening of our second Québec production facility. So honestly, we are laying in the capacity that allows us to deliver current and future growth. When it comes to our plans in terms of how we allocate products, we have ample inventory to meet the demand, both in wholesale and DTC. And you've seen us do that through this year, you've seen us building inventory this year that allow us to be very confident about next year in how we'll be able to continue to deliver growth in future seasons. So we don't see that as a constraint [indiscernible] for DCC.

[Dani Reiss:]

And if I could just add a little bit to that, Jonathan said you know, I mean, I've been doing this for 22 years and every year is different. Shape of our growth every year is different and just to point to the growth itself I mean, it's amazing to be in a position where there's perceived scarcity of our brand and there is a lot of scarcity, it's hard to find a product, but our year-over-year growth percentages continue to be as strong as they are and I think that those things together create a little bit of magic, which is why we continue to do so well.

[Omar Saad:]

Agreed, agreed. Is it fair to say that some of the inventory build at the end of the quarter that you're holding for next year for fiscal 2020 and the following winter, you know, that that's inventory you could sell now if you wanted to, but you want to build it for next year, is that the right way to think about your strategy there?

[Dani Reiss:]

Yes, I think it's the first statement, for sure. I mean, we would definitely -- when we started building inventory for next year even in this season and though in some cases, it's possible to pull forward and cannibalize some of that stuff for next year, we don't won't to disappoint our customers next year at all, so we don't.

[Operator:]

Your next question comes from Camilo Lyon with Canaccord Genuity. Your line is open.

[Camilo Lyon:]

Thank you. Good morning and I'll add my congrats on a great quarter. Dani, I was hoping you could give us some insights into how you're thinking about your regional growth opportunities. Your home market of Canada showed another tremendous growth rate in the quarter, I think it was up 38%, U.S. up 45% rest of the world, obviously, a big opportunity for you. I'm pretty surprised at how great these growth rates are in your very established market. So how do you think about the growth opportunities in that home market and maybe you can help us provide some shape around the composition of the future expectations of growth by those regions?

[Dani Reiss:]

Yes, we're very pleased with and very excited about our growth so far and future growth opportunities in all of our regions that we report as you can see in our results, we have continued to grow our business significantly in all of our geographies and as you mentioned including in our home market of Canada. And with that we're also pursuing a global penetration opportunity, and we'll continue to develop our brand and distribution both in North America and in Europe and in Asia. I mean, as you know China has a massive amount of white space for us as do all of our regions, Europe, and North America still do as well. And yes, we're just getting started in Greater China and we're very encouraged by the results so far, so can't wait to talk more about that next time we get together.

[Camilo Lyon:]

Is there anything that you're seeing that would suggest that there is a maturation that you're reaching in your home market?

[Dani Reiss:]

No, there is not.

[Camilo Lyon:]

Great, and then just my final question is on store openings for '20. If you could just remind us what you've got planned and what cities you'll be going into?

[Dani Reiss:]

You know, I can't wait to discuss next quarter when we announce our year-end results and you know, at that time we'll be talking about our plans for the future year and I'm really -- obviously, some of them are in great shape and I can't wait to discuss them with you at that time and I think it's going to be a lot of fun.

[Operator:]

Your next question comes from Robbie Ohmes with Bank of America Merrill Lynch. Your line is open.

[Robbie Ohmes:]

Oh, hi guys. My one question is could you give us some color on your tourist business? So I'd be curious if you've seen any changes in particular on the China tourist business in North America, as you've opened up in Asia, and then just generally what you've seen from your tourism customers? Thanks.

[Dani Reiss:]

Tourist business continues to be strong in all of our stores across all of our geographies and the opening in China has not negatively impacted our tourist's business anywhere else in the world.

[Robbie Ohmes:]

Terrific. Thanks so much.

[Operator:]

Your next question comes from Ike Boruchow from Wells Fargo. Your line is open.

[Ike Boruchow:]

Hey, congrats on a great quarter everyone. I have a higher-level question to start just I guess Jonathan or Dani; can you talk about the margin structure in China? I know it's early, but just kind of what you're seeing from the profitability maybe the contribution margin with Tmall or the initial margins on the retail doors there knowing the costs are a little bit higher, just kind of how that compares to the existing base of business you guys currently operate?

[Dani Reiss:]

Yes, I mean, what we said all along and what continues to be the case is that, we're having a great experience as Dani has said, we are very happy with how it's all performing. But of course, we do have to wear a slightly higher level of SG&A cost because we have partners' fees. Those partner fees very directly in line with revenue, and therefore, structurally, the margins are a little bit lower than they are in the rest of the world.

[Ike Boruchow:]

Got it. Then a quick follow-up, so on the -- understanding this is a full-year business, but as we look to model the fourth quarter. It seems like wholesale should be down. I know you guys talked about timing that maybe helped you in Q3. Jonathan any way you could quantify timing shifts or timing benefits to kind of maybe shifted out of Q4 and into Q3.

[Jonathan Sinclair:]

Well, I think it's -- what I would say is that the we've clearly built our capacity that's allowed us and I've been saying it pretty much since I've been here that's allowed us each quarter to get our products in front of consumers through the wholesale channel faster than we've been able to do previously. I'm responding to the request from our partners and also in the wholesale channel, and therefore we've exited Q3 with a pretty clean order book. As a result of which, Q4 as you correctly observe will be a bit smaller.

[Ike Boruchow:]

All right. Thanks.

[Operator:]

Your next question comes from Mark Petrie with CIBC. Your line is open.

[Mark Petrie:]

Hi, good morning, Jonathan. You mentioned the pricing sort of dynamic generally sort of low to mid-single digit but in the past you've acknowledged that there are some psychological barriers, particularly on some of your longer standing repeat products and some of your core markets, I guess, here in Canada in particular, and just wondering if today, you think that presents a bit of a barrier to that level of price increase, or if you're still sort of looking to that over the course of time?

[Jonathan Sinclair:]

Now, that's all factored in to what we're saying, we continue to be able to run a model, which allows us to take price in the low to mid-single digits and we benefit from the level of demand in the market with consumers generally such that we're able to convert that into revenue.

[Mark Petrie:]

And in Canada specifically, have you seen any sort of different reaction to the greater introduction of products over I guess the $1,000 mark as opposed to the products under a 1,000 that have been increased overtime?

[Jonathan Sinclair:]

Now, we continue to that -- what I guess said it applies to each and every one of our markets, it's we simply don't come up against that barrier.

[Mark Petrie:]

Okay, thanks.

[Jonathan Sinclair:]

It doesn't mean that we don't concentrate on sweet spots. Of course, we do, but we do not come up against barriers.

[Mark Petrie:]

Okay. Thanks. And I guess just Secondly recognizing that wholesale is an important part of your growth strategy and remains and healthy growth, how would you sort of characterize the opportunities from here in terms of refining both your mix of wholesale partners and how those partners support your brand, either in store experience or in terms of assortment that they carry, is there still an opportunity to sort of proven to drive growth or should we expect it to be relatively stable from here?

[Jonathan Sinclair:]

We are happy with our wholesale partners where they are right now. And we are always every year went through our process of in sometimes editing and sometimes adding a new entrance into the market that are that are brand enhancing as we continue to work and develop and strengthen presentations in our wholesale partners with brand ambassadors. We speak directly to our brand so that just elevates the brand and the brand perception around the world. And that's as part of building a global brand. And it's really important. So, we've -- we will be happy with the performance of wholesale this year. And from what we've seen for are early the indications for our wholesale orderbook next year or really happy with that as well.

[Mark Petrie:]

Okay, I appreciate the color. Thanks.

[Operator:]

Your last question is from James Allison with Barclays. Your line is open.

[James Allison:]

Good morning. Dani, in your opening remarks, you referenced researches you've done that reaffirms the strength with Canada use this brand. Can you share some of the color of the research like are you seeing brand recognition pick up in some of the white space in the U.S. and in Europe, and have you plateaued in Canada from a brand recognition standpoint?

[Dani Reiss:]

Yes, A great question. We have a dedicated in-house and sites team and they continually monitor a wide range of data related to the brand health and all of our key markets. And we use this to serve as an important input, both are tactical and strategic decision making. Since going public, we have significantly grown our brand awareness and affinity in the markets that we have prioritized. So examples of that could be London, Boston, Chicago, and this has reflected very much in the growth where we are achieving outside of our home market as well. For example, in Q3 and the states and the rest of the world our revenue grew by almost 45% and 75.4% respectively. So -- and we can continue to believe that our brand has a large amount of white space globally and our research confirms that. In Canada, we still -- Canada, is the market that loves Canada Goose. We're a brand that in Canada, we've become some kind of a national brand here, a point of pride for Canadians. And, as we continue to produce new styles and new colors and new collections, our core customer here in Canada continues to gravitate towards those.

[James Allison:]

And I guess connected to that, are you seeing increased interest for your U.S. retail partners to sell your product in some of the white space in the U.S. and I'm thinking of states in the West -- the western side or in the south?

[Dani Reiss:]

Absolutely. And, we continue to work with all of those partners that are best in class and expanding doors where appropriate and we will continue to do that.

[James Allison:]

Okay. Thanks.

[Operator:]

And there are no further questions coming up. At this time, I'll turn the call back over to management for closing remarks.

[Dani Reiss:]

Great. Well, thank you all very much for taking the time to be here with us today, really appreciate you being here. Appreciate your interest in Canada Goose and I'm really excited and I wait forward to updating you on our progress and I will look when we report our fiscal year end results and provide some insight into the year to come after that. So thanks a lot, and have a great day.

[Operator:]

Thank you. This concludes today's conference call. You may now disconnect.