Canada Goose Holdings Inc (GOOS) 2019 Q1 法說會逐字稿

Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Canada Goose First Quarter Fiscal 2019 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Patrick Bourke, Senior Director, Investor Relations. You may begin.

Thank you. Good morning, and thank you for joining us today. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, Executive Vice President and CFO. For today's call, Dani will begin with highlights of our first quarter performance and then update you on the progress -- our progress against our key priorities. Following this, Jonathan will provide details on our financial results. 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. Each forward-looking statement made on this call is subject to risk 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 these forward-looking statements.

Additional information regarding these forward-looking statements, factors and assumptions appear under the heading 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 and is also available on our Investor Relations section of our website at canadagoose.com as well as the earnings press release that we furnished today under the heading Cautionary Note 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 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 non-IFRS financial measures provided by other companies.

Any non-IFRS financial measures referenced on this call are reconciled to the most directly comparable IFRS financial measures in the table at the end of our earnings press release issued this morning, which is also available in the Investor Relations section of our website at canadagoose.com.

With that, I will turn the call over to Dani.

Good morning, everyone, and thank you so much for joining us today.

We had a great start to fiscal 2019 and I'm happy to share some of those highlights with you. First, let me officially welcome our new Executive Vice President and Chief Financial Officer, Jonathan Sinclair, to his first Canada Goose earnings call. Since joining in late June, Jonathan has quickly immersed himself in the business and has become a valued business partner to me. He brings a wealth of financial and operational leadership to the table and it is great to have him on board as a key member of our executive team.

Back to financial performance. Our results were exceptional in what is by far our smallest quarter. That said, I'm really excited about the strength of our top line, which was driven by DTC, though not at the expense of wholesale, which grew as well.

Building on our momentum from the fourth quarter of fiscal 2018, we delivered great results in both channels, driving total revenue growth of 58.5%. In particular, DTC was a standout performer. In their second year of operation, Toronto and New York City stores continued to raise the bar in both financial performance and retail experience. The contributions of our 4 recently opened stores in Boston, Calgary, Chicago and London also continue to be very strong.

We have meaningful international tourist traffic this time of year as well as diehard local fans shopping preseason who are determined to get their perfect fit and style in their favorite color from our fall/winter 2018 collection. To me, this is a direct result of how we build demand ahead of supply and it is a great indicator of the year-round viability of our retail stores.

Our DTC business increased to 51.9% of total revenue compared to 28.5% last year. I'm thrilled to see this make our smallest quarter even more meaningful than it has ever been. It also reduced the loss impact of our corporate SG&A as we generated an adjusted EBITDA loss of $13.5 million, in line with last year, which was less than expected despite significantly larger overall investments. This is a great tailwind as we head into our busiest selling season.

On the product side, while people are buying their parkas early, we also continue to see strong momentum in our lighter weight category. Lightweight down continues to grow significantly and has come into its own as another cornerstone of our product offering. It offers so much versatility in terms of style and usability and there is a clear connection to the functional DNA, which makes our parkas so unique.

Windwear and knitwear also performed well and these 2 worlds came together in our new WindBridge styles, which were particularly strong sellers. Innovative and excellent craftsmanship, mixing nylon with ultra-fine Merino wool, these sweaters are a perfect articulation of our authentic and unique take on knitwear as performance luxury outerwear. That positioning is something I'm happy to see resonate as we continue to grow and evolve.

Recently, we were included in Deloitte's Global Powers of Luxury Goods report as the first-ever and only Canadian company to make it into their ranking of the top 100 luxury brands. We were also ranked as the fastest-growing on that list. I am personally particularly proud of this recognition and what it means for our brand.

At the same time, I recently got back from a trip to Greenland and to Pond Inlet. Pond Inlet is a small community located above the 72nd parallel in the Canadian High Arctic. Seeing our products continue to be used and trusted in environments like this, which they were designed for and inspired by, reinforces to me how unique this brand is and its ability to live comfortably in both worlds.

How many other apparel companies can say that they are loved in the coldest places on earth and the world's biggest cities and most influential fashion towns. We have cut through the noise by giving people something authentic to experience and that is at the heart of why we are loved in Canada and around the world. This differentiates us and makes us special and we are ruthless about protecting that at all costs.

Lastly, I am sure many of you are curious about how things are going in China. On the hiring front, we have made great progress and we are building out a world-class local team. Commercial preparations for our Tmall launch and store openings are also on track and, in the near-term, we will be ramping up market activation efforts. We have seen exceptional demand from Chinese consumers for years and we are very excited to bring our retail and e-commerce experiences directly to our fans there.

More broadly, across all of our markets, I continue to believe we are in the early stages of fulfilling our global potential. Our team is executing with passion and with discipline and we are resolutely focused on putting the right pieces in place for enduring long-term growth.

And with that, I will turn it over to Jonathan Sinclair to introduce himself and to go over our financial results with you in more detail.

Well, thank you, Dani. Good morning, everyone, and thank you for joining us.

Before I get into the financials, I'd like to take the opportunity to introduce myself and to convey how excited I am to take on this role. It's been such a pleasure getting to know our team since I started in late June and I'm looking forward to doing the same with our shareholders.

As a career retailer with an extensive luxury fashion and direct-to-consumer background, I have long admired Canada Goose, a brand which is loved around the world and which Canadians are proud to call their own. Whether it is rebuilding made in Canada apparel manufacturing, becoming the first truly global Canadian luxury brand or creating a world-class DTC business [from fractions for] years, I am so impressed with what Dani and his (technical difficulty).

And above all, they've done it the right way, bold long-term vision, disciplined investments (technical difficulty). When the offer to take this role came, it was a once in a lifetime opportunity and one of the easiest decisions I've ever made.

Despite all of the company's staggering accomplishments, this business is still just scratching the surface of its global potential. With a team of passionate people who are hugely committed, we have so much runway in front of us across all of our growth and I am thrilled to be part of the journey ahead.

With that said, I'll now move on to our financials. Before I go through the numbers in detail, I'd like to remind you that they are stated in Canadian dollars. As Dani mentioned earlier, we started the year on a high note with exceptional performance (technical difficulty) [more disposed] by value of the fiscal (technical difficulty).

Revenue for the quarter increased 58.5% to $44.7 million, 59.6% on a constant currency basis. And that's driven by strong execution across all of our channels. DTC was the standout performer with revenue up to $23.2 million from $8.3 million last year. That represents 51.9% of business compared to 29.5% (technical difficulty) last year. This was primarily attributable to strong performance across all existing and new retail stores, with particularly significant (technical difficulty) from our long established boutiques in Toronto and New York City.

Commerce also had a positive impact on the quarter year-over-year. Wholesale revenue grew to $21.5 million (technical difficulty) $19.9 million (technical difficulty) higher order volumes were the reason (technical difficulty) existing (technical difficulty).

Our consolidated gross margin expanded to 64% from 46.8% last year. This was primarily due to a higher proportion of DTC revenue and, to a lesser degree, as wholesale gross margin expanded.

DTC gross margin expanded by around 160 basis points (technical difficulty) from 74.7% last year. That's driven by product mix, particularly -- partially, sorry, offset by unfavorable (technical difficulty) DTC operating (technical difficulty) was $6.5 million, operating margin of 28%. This is a standout achievement compared to last year's loss of $0.3 million.

Shift to a positive operating (technical difficulty) was driven by strong retail store productivity as well as gross margin expand (technical difficulty) and a lower level of store preopening [costs] given both the timing of our opening program this year and the fact that we are getting more used to (technical difficulty) as compared (technical difficulty).

In our wholesale channel, we saw gross margin expansion of 50.7% from 35.2% (technical difficulty) year. This was primarily due to the mix of clients in the (technical difficulty) as well as accounting adjustments, which had a disproportionate impact to a seasonally small quarter.

We had a lower proportion of revenue from sales to international (technical difficulty), which carry materially lower margin (technical difficulty) sales to our other wholesale. This dynamic reflects a shift in the timing of the order book fulfillment and deliveries for certain accounts relative to (technical difficulty). We also benefited from lower unit cost due to favorable foreign exchange fluctuations and a lower level of inventory provision movement.

Also, operating income was $2.9 million, operating margin of 13.5%. And that compares with $1.1 million or an operating margin of 5.5% at this stage last year.

Gross margin expansion in the channel was partially offset by higher SG&A due to additions to headcount (technical difficulty), while sales in operations (technical difficulty) quarterly.

Unallocated corporate company expenses were $25.9 million and that compares with $13.4 million (technical difficulty) last year. This was driven by planned SG&A growth investments, including marketing, and corporate headcount and IT as well as higher professional fees and other costs relating to public compliance.

Unallocated depreciation and amortization was $3.4 million compared to $2.2 million for the (technical difficulty) last year and that's driven by a larger retail store footprint.

Combined, our channel operating incomes and corporate expenses resulted in operating (technical difficulty) an operating loss of $19.9 million compared (technical difficulty).

Turning to our adjusted EBITDA. We've delivered an adjusted EBITDA loss in the quarter of $13.5 million, in line with last year's loss of $13.6 million despite significantly larger SG&A costs. This really speaks to how DTC growth and strong off-peak retail productivity have made our smallest quarter more meaningful.

On a non-IFRS GAAP basis, we reported a net loss $18.7 million or $0.17 a share compared to a net loss of $12.1 million or $0.11 per share last year. Adjusted net (technical difficulty) was 17.6 -- $17.1 million or $0.16 per share compared to $13.3 million or $0.12 a share (technical difficulty) this quarter last year.

Before I wrap up, I'd like to take a moment to thank Dani and the board for the partnership and trust that they have placed in me. Canada Goose is a brand like no other with an amazing set of opportunities in front of it. It's truly an honor to be part of this world-class team and I look forward to our adventure (technical difficulty).

Now, I will turn the call back to Dani for some closing remarks.

Thanks, Jonathan.

As I said before, we are very pleased with our start to the year. We are enhancing our corporate infrastructure, increasing our manufacturing capacity and activating local markets and we are on track to deliver against all of our goals for (technical difficulty). As we head into the upcoming fall/winter season, we are excited to inspire our fan in new ways and bring more Canada Goose to the world. We look forward to updating you on our progress on our next earnings call.

And with that, I will turn it over to the operator to (technical difficulty) our Q&A.

(Operator Instructions) Your first question comes from Brian Tunick from Royal Bank of Canada.

Nice start to the year. Curious, I guess, 2 questions, One, I guess, was your SG&A growth spend in China significant in Q1? And how does that ramp up through the rest of the year?

And then the second question, I guess, is, I think last year, Q1 and Q2 both benefited from wholesale timing shifts, so just curious about anything we should consider regarding timing shifts in wholesale for this year's first half?

So Jonathan. I think from taking the first (technical difficulty) from a financial perspective [it's going to] build out, really wasn't a factor in our SG&A base in Q1. That's not in any way a reflection of us being behind. It's simply a function of the timing of expenses.

Dani said in his remarks, we're on track with our hiring, our office opening and our commercial preparation. In Q2, there will be significantly higher marketing, higher expense in terms of headcount, facilities and store opening costs -- preopening costs flowing through our P&L, and that's going to be ahead of the revenue from Tmall and our 2 retail stores that will come online (technical difficulty).

When we look at wholesale timing versus last year, in broad -- overall, we are very much in line with what we experienced last (technical difficulty). As I said, there's something of a mix going on, but that's just how the customers want to take it. There's not a -- no underlying shift in demand (technical difficulty).

Your next question comes from Michael Binetti from Crédit Suisse.

Congrats on a nice quarter. Can we get a little bit of guidance on the gross margin by channel for this year? And then, longer term, I guess, Dani it was in the framework of the longer range guidance that you gave us last call.

Which channel from here do you see the most gross margin opportunity in from these already high levels and maybe just some thoughts on the puts and takes drivers from here in the 2 different channels?

So I think if we talk about the drivers of gross margin in the quarter, first of all, and then sort of look forward from there, we've seen good improvement in our DTC gross margin in the quarter -- 150 basis points, that driven largely by product mix, but it's -- fundamentally, it's a good [sentiment].

I think if you look at wholesale gross margin, I would say that this -- that the shift in the period is something that is not representative of what you'd expect to see over time. So relative to last year, we had a smaller proportion of channel revenue coming from lower margin distributor sales and that's a function of later planned deliveries for certain accounts, but not a shift in demand.

You have favorable FX movements there. We have lower inventory provisions. All of those play a role, but in the uptick of a very small quarter, it doesn't take a lot to disrupt the margin number. And they're really quite temporary factors. So there's not a fundamental step change in our wholesale gross margin (technical difficulty).

Recognizing that there are moving parts and variability over time, you should look to fiscal '18's wholesale gross margin of 46.9% as a much more relevant starting point to frame your expectations (technical difficulty) '19.

As we look at the margin opportunity for the business, I think you'll see as we see the development of the DTC channel continue, that will alter the mix on what's in favor of the (technical difficulty) and, therefore, there will be a mechanical shift in the reported gross margin of (technical difficulty) beyond the natural improvement that one might expect through wholesale and (technical difficulty).

In the DTC business in particular, if you just look at it on its face, we're well into the mid-70s on the gross margin and we're launching new categories that probably are going to have a new -- a different gross margin mix.

I know you guys are trying to stay focused on that. But how should we think about what the natural limits are for that business and where you think it's -- where you think that settles out longer term based on the product planning you have?

I'll jump in. I think that we -- our intention as we develop new products and bring more products to market is to keep them in line with where we're at right now. At this point, there are no new products. Like in our spring line, in our knitwear line, we're happy with their margins. They're also not [really] enough to really affect the overall gross margin at this point in time. And our objective is as we grow those businesses (technical difficulty). So I hope that answers that question fully.

I think back to your previous question where you were asking about the DTC shift, I mean, I think our direct-to-consumer business is really -- has really performed extraordinarily well. We're really, really happy with it. And as we've said since day one, wholesale is still a very important part of our business.

That said, we continue to feel that we have a long way to go in terms of increasing our DTC business and the fact that we're able to do that and continue to grow that as a percentage of our sales while also growing wholesale at a modest rate, that will increase our overall margins in that (technical difficulty).

Your next question comes from the line of Ike Boruchow from Wells Fargo.

I guess, a question for Dani. So does the strong performance of the stores, especially from a profitability and productivity standpoint in this off-peak period in Q1, does it change your perspective at all on maybe how many stores you'd like to open and operate for the Canada Goose brand when you think about the business longer term?

Ike, thanks for the question. And no, no, it doesn't at all change our perspective. To me, actually it reaffirms how effective our plan has been and our approach has been. We've -- it's been very important to us to put the right stores in the right locations and take advantage of great opportunities, but to be really disciplined in doing that.

And I think that the reason why our stores have -- one of the reasons why our stores have been as productive as they have been is because we've executed that strategy really well and I think it's important to us that we continue to execute that strategy and that's our plan.

Got it. And then, I mean, I'm sure the answer is yes to both of these questions, but if you had to frame up your ability to maintain the levels of profitability that you have in this seasonally low period, are you more happy with that piece of the DTC business with these incremental stores you're opening or are you more happy with the comp sales or the productivity you're seeing?

It's very good to see that you're seeing the operating profit kind of stabilize even though you have an extra 4 or 5 fixed cost stores in the business in a really low volume period. So just curious how you balance the view on sales and profitability.

Ike, the answer is you're right. The answer is yes to both of those. They're both exciting, encouraging and great leading indicators of what we hope is to come.

Congrats, everyone.

Your next question comes from Mark Petrie from CIBC.

I wanted to ask about the strength in Canada. Once again, the growth leader on a dollar and percentage basis. And I understand that it's a small quarter, but we also saw that trend last year.

And so, I guess, kind of 2 things. First, what does that growth tell you about the brand? How consumers mature through the brand, given that it's your most mature market and most deeply penetrated market? What do you see in your product mix?

And then, I guess, second and sort of related, you called out strength in your well-established stores, specifically Yorkdale. How has the shopper evolved in Canada? And, I guess, I know those stores see significant spending from tourists. Do you see some of that at risk as you expand access in China later this year?

Yes. Thank you for the question. I take it in a way you answered your own question in that the -- our customer in our stores, our (inaudible) stores and why Canada has grown so strongly (technical difficulty) is because of tourist business.

And Canada, any home market, in our case Canada, is the -- is usually the most common place to purchase the product and so that's why we [set off] to a (inaudible) and there's no doubt that is contributing to the strength of the marketplace.

And so far, we don't expect that to change. And all the (technical difficulty) we don't actually. I think that as we continue to grow our awareness globally and especially as we continue to build into markets like China, which is so huge with so much white space, I actually -- I mean, I certainly don't expect traffic to slow down and I've heard stories of that type of traffic increase going on.

And do you see any difference in adoption of windwear or knitwear or some of your newer products? Do you see any different adoption of those products in Canada versus other geographies?

No. By and large, no. I mean, there are small differences regionally across regions here and there, but nothing dramatic or material. I think that, for us, we are very disciplined with how we grow new product categories.

I think that's very important. We don't want to make huge bets in one year, year 1 or year 2 of a new product. We've seen all of our new products grow year-over-year for a number of years, all of our new categories, and that's what we want to see.

When you look back at something like lightweight down, which today is material, [a lot] of our business 7 years ago is when we started building it. It took us 6 years to build that business into what -- anything close to what it is today. So we look at knitwear. We look at wind (technical difficulty) products in the same way as we (technical difficulty) lightweight down (inaudible).

Your next question comes from James Allison from Barclays.

So my understanding from your commentary in the MD&A is that you made a decision to allocate more Q1 shipments to North America versus rest of world compared to last year. Is that related to the lower distributor sales you've spoken about or is there something else driving that?

No. It's purely a factor of when the [funds] once -- the wholesale and distribution partners want to take inventory. Nothing -- there's nothing else driving it. It's purely that. That's what's behind it.

And...

(technical difficulty). We supply as soon as they are ready.

And do you feel like that's because they ended last year with a higher inventory position? I know there were some like strong restocks in fiscal Q4.

Yes. No, not at all. That's not the reason. I think it's important to remember and we try and always emphasize we're a seasonal business and (technical difficulty) need to be looked at on an annual basis (technical difficulty) quarterly basis. And so there's nothing to read into -- that you're trying to read into there. There's nothing to be read into that.

Okay. And then just quickly on the DTC gross margin, can you provide a little bit more color around the favorable product mix? My understanding was that the spring wear held kind of a lower margin. Was that because you're -- I know you mentioned in the commentary you'd sold more kind of winter wear earlier ahead of the key buying season in some of your DTC stores. Is that the primary driver there?

The key thing behind the (technical difficulty) mix is just around the fact that we continue to sell jackets in a mixture of lightweight down and (technical difficulty) through the period. So that helps the margin alongside the introduction of the spring season.

And for sure, we're really selling all of our products through all of our stores and there's a lot of fans trying (technical difficulty) of our brand who are coming in early to make sure they get their fall '18 style of choice before it's sold out because they've probably been burned before.

And at the same time, we have lots of tourist traffic. At the same time, there's a spring season and great news from product as well. So I think all of those reasons speak to why the stores have been performing really well.

Your next question comes from Oliver Chen from Cowen and Company.

This is Ross on for Oliver. Just thinking about kind of the off-season composition of your sales by category. I guess, are there any other category call-outs that you would have for this past quarter?

And then kind of the corollary, we'd love to just hear any thoughts on the non-outerwear category, so like knitwear and accessories, from here in terms of product innovation pipeline looking forward?

In terms of our -- we continue to innovate and create new products. And certainly, our spring is going to continue to evolve and we're going to create great new styles and we have great new stuff coming up in the next spring season and the same goes for knitwear as well. And all of those product categories are performing well and growing as each to themselves in their -- as categories. Our stores are certainly helping drive that growth.

Your next question comes from Jonathan Komp from Baird.

Dani, I want to follow-up on your comment, what you always make about viewing the business annually and not quarterly, but I wanted to ask. I know Q1 is such a small portion of the year, but is there anything that you take away from the results that changes your confidence at all for the full year?

Or maybe said differently, is there anything -- the inverse of that, is there anything that concerns you about the upside potentially, just given the open nature of your guidance when you look out for the year?

Jonathan, thanks for the question. No. I mean, no. Nothing changes my confidence in it. I am extremely confident in our year. I remain extremely confident. It's hard for a quarter to make me more confident because I'm excited about the year and I think that we've a lot of great things to come.

It's great that -- it's great to see our carefully selected retail stores perform as well as they did in the -- in our weakest period. That really -- that's a very encouraging sign and I fully expect we're going to continue to -- our brand to continue to be strong. There's a lot of demand for our brand and so I'm feeling very good.

Okay. Great. And maybe just a follow-up related to the inventory position. I know, at least on a year-over-year basis, you've ramped the growth rate and the inventory a little bit the last few quarters, including Q1 -- at the end of Q1.

Just how should we read that? Is that a function of being light on inventory last year? Is it more a reflection of your sales outlook or other factors at play?

I think the way to look at the inventory is we're coming out of a quiet quarter. It's our lowest quarter of the year. We are getting ready for the wholesale shipments that come in Q2 and Q3 and (technical difficulty) of the business in Q3 and Q4 from a DTC point of view.

So to be honest, it's an entirely natural process. What's different is that we have all stores coming onstream this year versus last year. So ultimately, beyond the business growth, what we're also doing is making sure that the inventory is there to meet demand.

Your next question comes from Simeon Siegel from Nomura Instinet.

Congrats on the strong start to the year. Dani, nice to hear about the ongoing strength in the Toronto and U.S. stores. Any color you can share on your go-forward site selection for anything new in U.S.? Maybe thoughts on city locations versus malls? I know you mentioned Short Hills last quarter.

And then, as the sales strength continues in the business, essentially as demand continues to outpace supply, does anything change in terms of how you're thinking about allocating product between either direct and wholesale or geographies?

With regards to stores, I mean, we have nothing new to announce beyond the stores we've already announced. And you mentioned Short Hills and we've also announced Vancouver, Montreal and the 2 stores in China for this year.

And we continue to have our target cities beyond there, where we'd like to be. And we have a large funnel of cities and as we find and identify the right real estate locations, we'll plan those into our strategy for future years. And we -- I think there's a lot of great opportunities out there.

I think that in terms of product allocation, I mean, we have a -- internally, we have a long-term planning process and we marry our expected growth with our supply chain and our ability to produce products. And I'm confident that we have the production capacity to make the units that we're going to need to meet the demand.

And we're in a great position where we do have the ability to pull different levers to put the products where we feel is the most appropriate place to put them. And we've always done that and that's been one of the strengths of -- and one of the benefits of having global brand and global demand.

Your next question comes from Meaghen Annett from TD Securities.

Just going back to the lightweight down offering. Dani, you'd mentioned that the category is growing. There's another quarter or so in the product offering. So can you just talk to maybe the penetration of that category as a percent of sales and also your plans for further expansion just in your 3-year outlook?

And then, just as kind of a follow-up. Is there any kind of target you'd have in mind for the size of the category, just given where you are now 6 years into building that business?

Yes. Indeed, we are very excited about lightweight down. Yes, I mean, I think that over the coming seasons, you'll see us continue to build that category with some new exciting styles and innovations for sure.

In terms of a percentage of sales, we don't break out percentage of sales by product category and -- nor do we really get into target size specifics. I think that we certainly see it growing. We see it growing quickly and our customers is really resonating with them. And I'd say that rather than look at specific targets, the sky is the limit and we're looking to continue to make best-in-class product and continue to grow the category with strength and with responsibility.

Your next question comes from Alexandra Walvis from Goldman Sachs.

My question was on the gross margin impact from -- you called out lower jacket costs per unit and I wanted to dig into that a little more. How much of that was coming from mix? Or are there some impacts there on supply chain efficiencies and on like-for-like products? And I wonder if you could give us a little bit more color on that one.

I think you'll find that the gross margins are being driven on the one hand by efficiency in the product development, but also by helping to drive low unit (technical difficulty). So I think whilst we don't break it out, you can assume that there's a good contribution (technical difficulty).

And then on the higher SG&A in the wholesale business, you talked about higher headcount as being among the investments you were making there. Can you help us to understand some of the decision-making that went behind those investments?

So as we scale the business and as we make sure that the in-structure if you like is (technical difficulty), this is something we're doing in wholesale alongside DTC, alongside the rest of the organization to make sure that we are in a strong position to maintain the growth (technical difficulty) we're seeing and obviously to drive the operating leverage that's in line with our EBITDA margin guidance.

So that's sort of -- it's quite a broad thing. It's nothing specific to wholesale. It's a general investment (technical difficulty) that is ongoing to make sure the business is fit for the size (technical difficulty).

Your next question comes from Robert Ohmes from Bank of America.

I just had a question really on, Dani, you mentioned that people are buying parkas early. I was hoping you can maybe -- I don't know if you can help us, but how should we think about how that affects the seasonality of the business over time?

So for example, could you see first half D2C continue to grow at this much higher rate than back half D2C for several more years? Or do you foresee a time where you're going to see your D2C business growing at similar rates in the first versus the back half?

I mean, I'm not, I think, that -- want to speculate on what is going to happen in the future quarters and what those percentages are going to be. What I can tell you anecdotally, is that people have been buying Canada Goose products early for years and that's part of why -- people have come to know that if they wait too long, they won't get what they're looking for. And that -- I think that I've guided to look at previous years to try and come up with any sort of a -- what you think is going to happen in the future.

And just a follow-up, just structurally on the e-commerce side of the D2C business, are you guys -- as that business grows, do you see -- do you have like a backlog because you -- there is such high demand and you run out of products.

Are you guys able to sort of see that, oh, we have orders that have put in that we haven't fulfilled yet and those are building on the online business and we're going to ship those out. So it's almost, even though it's D2C, there's a little bit of a kind of a wholesale timing?

Yes, sure. We're not -- as you know, we're not afraid to be sold out and we don't think that's a bad thing for a business. Our e-commerce business is performing very well and it continues to do so. And so we're watching everything appropriately and (technical difficulty).

Great quarter.

And your final question for today will come from Camilo Lyon from Canaccord Genuity.

Dani, clearly, great results on the DTC, but my questions were -- this question is on wholesale and, more specifically, on the orders that you received earlier in the year. Given the strength that you've already seen in this quarter, is there any change to that initial order pattern that you've received from your wholesale partners?

Thanks, Camilo. And thanks for the question. No, there's no change. I think on the -- there's a small timing difference. It was obviously a very small quarter and the numbers we're looking at and the base is small. And so, no, I don't think that's indicative of any -- of future quarters. As you know, we don't look as a business quarterly that we (technical difficulty) expectations for wholesale growth are the same as they were.

Okay. All right. That's great. And then my second question is really on the experience or components that you've started to implement in your stores, specifically the cold room. I know that it's early days in that initiative, but it certainly creates this experiential offering that's pretty unique.

I was wondering if you could share any sort of early reads that have come out of that. Has it driven increased traffic or conversion or basket size or anything you could share from a metrics perspective on what that strategy has done or what you hope it will do?

I think experience is very important. I think that -- and I have heard, I know -- I mean, anecdotally that the cold rooms that we have and the stores that we have them in; and the reactions from people have been great and now they've been a great addition to the experience that we provide in the store. And hopefully, we're going to look to create more of that kind of an experience as we go forward.

In terms of direct metrics, we don't have any direct metrics that I can share today about what that drives. I mean, the intention is to -- I'd say that, yes, we don't put those -- we don't -- the experience has to be a great experience for the sake of being a great experience. And I think that if we create that great experience then the brand will remain strong and the metrics will continue to be strong as well.

Would you -- is it fair to say there or think that, that could help de-seasonalize the business to some degree in these earlier noncore quarters?

I'm sorry. I didn't quite catch that (inaudible).

Take the seasonality out of the business. So have these first quarter and fourth quarter be bigger quarters because you're creating that winter-like sort of environment in these rooms?

Yes. I wouldn't attribute our sales in any given quarter to cold rooms or any of our experiential features in our stores. I would attribute them to the strength of our brand.

I have no further questions. I turn this call back over to the management for closing remarks.

Great. Well, thank you, all, again so much for joining us on our call today. We very much look forward to speaking with you when we report our second quarter results down the road. So thanks, again.

Thanks, everyone. This will conclude today's conference call. You may now disconnect.