Canada Goose Holdings Inc

TSX:GOOS

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. My name is Denise, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Canada Goose First Quarter 2021 Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Patrick Bourke, Vice President, Investor Relations. You may begin your conference.

[Patrick Bourke, Senior Director of Investor Relations]

Thank you, and good morning, everyone. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. After prepared remarks from Dani and Jonathan, we will take your questions. This call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement 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 implied in making these forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions is available in our earnings press release issued this morning as well as in the Risk Factors section of our most recent annual report filed with the SEC and Canadian securities regulators. These documents are also available in the Investor Relations section of our website. These 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. Our commentary today will include certain non-IFRS financial measures, which are reconciled in the table at the end of our earnings press release issued this morning and available on the Investor Relations section of our website. Please note that there was a missing line item and the reconciliation table for adjusted net income provided in our release this morning. The full reconciliation is provided in our MD&A and this missing item will be updated shortly on our website. With that, I will now turn the call over to Dani.

[Dani Reiss, Chairman, President & CEO]

Thank you, Patrick, and good morning, everyone. I hope that you're all doing well and staying safe. As you know, COVID-19 has changed the world in ways that we never could have imagined. We've seen countries locked down and economies put on pause, and only recently have they started to reopen. For Canada Goose, like everyone, we were forced to close, but restrictions have eased, and as of today, all of our factories and all but one of our stores have resumed operations. I have a long belief that adversity demands change, drives innovation and reveals winners. For Canada Goose, that has never been more true than it is today as we begin to see signs of recovery around the world heading into our most important seasons. We have met short-term adversity with deliberate and decisive action, and at the same time, we have rapidly accelerated long-term strategic projects. Last quarter, I spoke about our focus. With so many unknowns, we quickly responded by leaning into what we know to be true. And now with another quarter behind us, our approach has been galvanized. Where we face uncertainty, we have focused on discipline and flexibility, and when we see opportunity, we've accelerated our strategic plans. In terms of uncertainty, we've set our sights on 3 main areas: one, managing cash flow; two, approaching wholesale with purpose; and three, maintaining flexibility with production. Going into Q1, we set an ambitious target to reduce planned cash expenses and investments by $90 million. With a tight time line and a concentrated effort across every part of our business, we succeeded in doing so. In the quarter, the cash impact of temporarily losing our revenue sources was more than fully offset by this savings initiative. Swift action has also been taken with distribution. As you all know, the impact of COVID-19 on our wholesale partners has been significant. We made the call early in the pandemic to temporarily put our wholesale business on pause. This helped us maintain full price integrity in what became a promotional environment for many other brands. We are grateful for how collaborative our partners have been, and we are happy to see many of them on the road to recovery. However, as the future remains uncertain, we are taking a purposeful approach to wholesale. With physical doors now reopening, we are one of the core brands that our retail partners have indicated will drive their own recovery this fall. We expect the impact of our strategic and deliberate approach to managing this channel to play out in 2 ways: one, later shipments relative to last year, which was more in line with the just-in-time delivery model we are seeing across the channel and which is different from previous years. And secondly, a lower annual wholesale revenue. When it comes to manufacturing, our approach to production this year will be limited, flexible and deliberate. Specifically, we will be focusing on 2 areas, adding depths to our key top-performing core styles and building strategic newness and collaborations to drive brand heat and momentum. This assortment in combination with the already healthy initiatives position that we came into the year with will enable us to build, drive and fulfill demand while drawing down on our existing inventory to end the year with a lower inventory position relative to last year. You will hear more on all of this from Jonathan shortly. Now where we see opportunity, we are accelerating our strategic plans. The adversity that we face in the near-term will not distract us from where we are going. Despite the disruptions of the past 2 months, we've accelerated a number of key strategic initiatives that will do the following: one, enhance and expand our digital business; two, double our retail footprint in Mainland China; and three, set the stage for our expansion into footwear. The first area is digital. Over the past few months, we've seen the already rapid adoption of online shopping accelerate even faster. To address this shift in consumer behavior, we are accelerating investments in our in-house global e-commerce platform and omni-channel capabilities. This fall and winter, we will launch a cross-border e-commerce solution, expanding the international reach of our business. And following a very successful pilot in Canada, we will expand our mobile omni-channel capabilities to our U.S. stores, unlocking the potential of our inventory across both markets. Our vision is simple. We want Canada Goose fans to be able to shop with us wherever they are and whenever they want, and we want them to have access to our complete assortment. The next area is Mainland China, where we are concentrating our new store expansion this year, doubling our retail footprint in the region with 4 new stores. In June, we celebrated our first opening in Chengdu. Thanks to our digital insights, we knew demand in the region was strong going in, and the store is performing well relative to our expectations. Overall, the retail recovery in Mainland China is ahead of other regions. And so serving the world's largest luxury consumer at home has become increasingly crucial. We believe that our strategic approach to growing our Mainland China DTC business this year has us very much on the right track. The third area is footwear. We recently announced the appointment of Adam Meek as General Manager of Footwear & Accessories to lead our entry into the category. Adam comes to us with more than 20 years of global experience with a number of leading global brands. His entrepreneurial spirit and passion for product make him a perfect fit at Canada Goose. Now with Baffin's well-known reputation, Paul Hubner's decades of experience and Woody Blackford's leadership and global product strategy, we have all the pillars in place. We have taken a deliberate approach to this category. And now as we execute against our strategy, we expect the first expression of Canada Goose Footwear to be available in select markets as early as fall/winter '21 with a full commercial launch in the years to follow.I believe we have an incredible opportunity in front of us in footwear to bring a new perspective to the marketplace and to find the intersection of luxury and function in a way that's never been done before. And I look forward to sharing more with you in the seasons to come. To finish, I want to share some thinking around today's consumer. In times of adversity, people want products that have purpose, products that stand the test of time and products to help them survive. In a work-from-home world, people are gravitating to being outdoor and connecting with nature. We expect that to continue as we get into the fall and winter months, and we hit peak seasonal relevance. As well, now more than ever, people are placing their trust in brands to drive change and to help shape the societies in which they operate. By this fall, our Canada Goose Response Program is on track to deliver more than 2 million units of PPE for frontline workers, all manufactured at cost. And in June, we donated 20,000 sets of scrubs to the Mount Sinai Health Network in New York making our first international donation. I am proud of our team's work and all that we've been able to accomplish in support of the fight against COVID-19, both at home and now internationally. In summary, we have rallied through a near total shutdown of our business globally, and thanks to the relentlessness and passion of our people and the strength of our foundation, we are well positioned for the future. What we stand for as a brand has never been more relevant, and we are firmly in control of our destiny. Thank you all for joining us. And with that, I will turn it over to Jonathan to go over the details of our financial results.

[Jonathan Sinclair, CFO & Executive VP]

Thanks, Dani. Good morning, everyone. Thank you for joining us. Likewise, I hope you are all safe and sound. And one of the most challenging periods in our history, the first quarter was a strong confirmation of our agility and our strategy. We went back to basics. In an environment where cash is king, our challenge was how to maximize our financial flexibility and amidst all of the unknowns where what were our highest conviction opportunities for growth. We have answered these questions and taken swift action. Despite the loss of nearly 2/3 of our revenue, cash used by operations decreased by $110.4 million (sic) [ $110.5 million ] relative to the comparative quarter last year. We successfully achieved our target to reduce planned cash expenses and investments by $90 million in a short 3-month window. Total SG&A expenses decreased by 15.5%. Sales were supported by inventory already staged and payable terms were extended. Thanks to the initiative and resilience shown by our teams, we still expect to be meaningfully cash flow positive on an annual basis. Moreover, we have additional coverage from $329.4 million of cash on hand and undrawn borrowing capacity. There is also substantial latent liquidity through our evergreen inventory position. This will be complemented by the limited restart of production, which is designed to add commercial depth in top performers and newness to drive brand heat for full winter. By the end of fiscal '21, we intend to normalize inventory levels with the drawdown generating significant cash. We've also thought about where it's best to reallocate and accelerate our growth investments in today's environment. E-commerce, omni-channel and Mainland China are all long-standing pillars of our strategy. We have been building foundations around these for years, and the time to double down is right now. Adoption of digital shopping is rising. It is increasingly crucial to serve the world's largest luxury consumer base at home, particularly at a time when international travel is greatly restricted. As a result, these pillars are the biggest needle movers we are focused on this year. Moving on to our results in Q1. Total revenue decreased by 63.3% to $26.1 million. Starting with our full-priced DTC channel, revenue decreased by 70% to $10 million. This was due to temporary store closures, reduced operating hours and of course, lower traffic. In its lowest seasonal period, e-commerce was our dominant revenue source, and it was in line with the comparative quarter. In our wholesale channel overall, revenue decreased by 75.6% to $8.7 million. With the channel largely closed since March and in our slowest quarter, this reflects limited international distributor shipments, which have a longer lead time due to the additional layer of distribution. From a geographic perspective, with the majority of our business closed in North America and Europe throughout the quarter, Asia had the lowest revenue decline at 45.3%. Our DTC business in Mainland China was slightly positive year-over-year, with the decline being driven by large COVID-19 impacts on our 2 stores in Hong Kong, as well as lower wholesale shipments across the entire region. As you know from history, Q1 gross margin is a noisy number at the best of times. This was magnified by the large revenue decline we had this year. The important takeaway here is that the underlying full price economics of our DTC and wholesale gross margins have not changed. At a consolidated level, excluding the sale of PPE at cost and $4.3 million of net overhead from temporarily closed manufacturing facilities, gross margin was 47.6%. On a reported basis, it was 18.4%. With the suspension of production, all related overhead was expensed through cost of goods immediately whereas they are normally first allocated to units on the balance sheet and then show up in product cost as it sells through. With negligible revenue in both channels, small accounting adjustments also had outsized percentage margin impacts. In DTC, this was to the positive and in wholesale to the negative. Within wholesale, there was also the impact of distributor shipments being the dominant revenue source. We have bridged and quantified these ships in detail in our filings for your reference. Adjusted EBIT was a loss of $46.5 million compared to $25.9 million last year, while adjusted net loss per share was $0.35 compared to $0.21 last year. Lower revenue was partially offset by the 15.5% SG&A reduction I mentioned earlier. While some contributing factors are temporary, there are also significant permanent savings on a go-forward basis. Moving on to current trends. The recovery in Mainland China remains ahead of other regions. We are in a seasonally slow period, but the signs are encouraging. Consumers are returning to shopping in our stores and non-Parka products are resonating. Our first of 4 openings in this region this year in Chengdu has consistently been outperforming relative to our expectations. We have great brand momentum and runway in this region, and we are excited to begin expanding our footprint against that context. Unfortunately, Hong Kong continues to be a challenge. The flow of inbound tourism remains suspended. Tightening COVID restrictions given the latest wave have also impacted local traffic. As a result, our 2 stores there are still heavily impaired. In North America and Europe, reopened stores are seeing slow starts as a result of lower traffic in and around our locations due to the impacts of the pandemic. This is as expected and consistent with earlier experiences in Greater China. In e-commerce, we are in the late innings of our slowest period and we are on track in our preparations for peak demand. This includes the launch of a cross-border solution to expand international access and mobile omni-channel capabilities in our U.S. retail stores. Seamlessly opening up endless aisle inventory to brand ambassadors and in-store guests has great potential for both experience and for conversion. This follows a successful pilot in Canada last year, which we originally incubated in our Sherway Gardens store here in Toronto. Lastly, in wholesale, we are carefully and gradually turning our business back on. We have successfully taken a brand-first approach to managing the channel through the disruptions of the pandemic. That is going to continue.It is great to see our partners on the road to recovery and demand for our brand is strong, but operational and financial risks remain. We will continue to be cautious while focusing on DTC. This means lower wholesale revenue annually and latest shipment timing relative to fiscal '20, with more of an in-season model. In summary, there's no doubt that we've had the benefit of coincidence with the near total shutdown of our business globally in our smallest quarter. We did not take that opportunity for granted. We moved quickly to bolster what was already a strong financial position and we accelerated strategically in the right places. While uncertainties remain, our business and the world around it are clearly improving. We are heading into full winter, lean, flexible and focused. With that, I will pass over to the operator to begin the Q&A.

[Operator]

[Operator Instructions] Your first question comes from Ike Boruchow with Wells Fargo.

[Irwin Bernard Boruchow]

I guess just on the DTC channel, maybe Jonathan, can you talk about how many stores -- you talked about 4 in China. But just to clear up, how many stores are you planning to open this year? And then maybe at a higher level, has the pandemic or anything you've noticed in your retail operations over the past several months changed your longer-term thinking around what your retail footprint can look like?

[Jonathan Sinclair, CFO & Executive VP]

Sure. The -- from a fiscal '21 point of view, we're expecting to open 7 stores this year, 4 of them in China, 3 elsewhere. A couple here in North America and 1 in Europe. The -- from a longer-term point of view, we still see physical stores as an important part of our armory. But obviously, this is something that we're going to keep under constant review as the situation continues to evolve. What is clear is that the online world is becoming increasingly important, and that's core to our DTC strategy and indeed where it started.

[Dani Reiss, Chairman, President & CEO]

Yes, I'll just jump in. Thanks for the question. I think that -- there are couple of points I want to make that I think are important. One is to remember that our store footprint today is still a very modest and small store footprint unlike many other brands. And so we still feel that there's opportunity to open stores in Topshop locations around the world and as we get those opportunities to plan to. I also want to point out and one thing that I'm very excited about is the fact that we're focusing on store openings in China. I think that as we all know, global tourism is going to be affected this year and a lot of global tourists come from China. And I think this year, a lot of those tourists are going to take their vacations in country. I think everybody in every country is likely to take their vacations closer to home. And I think that the fact that we're going to be able to open 4 new stores in fantastic locations in China to service Chinese tourist in China, I think, is going to -- I think it will give us a ton of momentum going to the year -- going to our peak selling season and I'm very excited about what that can do for us.

[Operator]

Our next question comes from Jonathan Komp with Baird.

[Jonathan Robert Komp, Senior Research Analyst]

I just wanted to follow up the discussion about lower wholesale sales for the year in terms of your outlook. Could you maybe just deconstruct a little bit more what you're expecting within that assumption? Yes, just thinking through the shifts that you mentioned versus lower demand in total? And maybe you just touch on what you expect for your distribution or door count, given some of the closures and any intentional actions that you might take?

[Dani Reiss, Chairman, President & CEO]

Yes, thanks for question. And yes, so with regards to wholesale, as we earlier in view of the slowdown of wholesale shipments, and now we're slowly -- and we shut down the business in general. And now we're taking a very careful approach to reopening that. And so we have some very strong wholesale partners that we're very excited to work with. They're very excited to work with us as they see us as a company, as a brand that's going to help drive their business and drive their recovery. And we're going to take it step by step and day by day, and we are prepared for anything that comes our way. And we're prepared to lean in with the accounts that -- and the customers that are performing really well. We have enough inventory to chase orders as needed. And we also have the ability to continue with our own DTC. So we've got a number of levers open to us and we're actively managing the channel. And I think that's the most important thing for us.

[Jonathan Sinclair, CFO & Executive VP]

Inevitably, I think that it makes our model much more in-season relative to what we've seen in recent years. Historically, as you know, we've been shifting more and more to the left. And this year is going to be a shift back toward the right because of the environment we're in. Well, we're not providing a financial outlook, but presumably, the decreases in the first half will be smaller in the second half.

[Operator]

Our next question comes from Omar Saad with Evercore ISI.

[Omar Regis Saad]

I wanted to ask a follow-up on your manufacturing and supply chain, especially the commentary around you're going to be running at 1/3 capacity this year. Pre-COVID, you guys were kind of transitioning to do more vertical manufacturing, in-house manufacturing and building up inventories to make sure that transition went smoothly. Maybe you can help us update that narrative where you are on own production, the pullback you're obviously executing this year, and then where that leaves you in terms of newness? Do you have enough newness in the pipeline with only 1/3 production this year? And does that basically assume that the carryover kind of evergreen product from last year will be prevalent in stores online this year?

[Dani Reiss, Chairman, President & CEO]

Yes. Thanks for your question. And yes, I mean we're manufacturing. So what we are manufacturing right now as we restart our production, we are manufacturing a lot of the newness that we have planned for this year and there's a lot of exciting stuff coming up. We also have stage inventory that we manufactured last year for this year, which is -- which really has put us in a really fantastic inventory position, and we're very happy with the position that we're in because we have what we need. And we have the ability to be flexible and make more if we need to or to pull back if we need to. At the same time, our factories continue to manufacture PPE for the Canadian government. And we feel that's a very important mission as well. So overall, with regards to manufacturing, we feel that our flexibility and inventory position leaves us in a really, really good place.

[Operator]

Your next question comes from Adrianne Yih with Barclays.

[Adrienne Eugenia Yih-Tennant]

Great. One question was on e-commerce. Jonathan, I think you had said that e-commerce during the period was flattish to the comparable period. How do you think that performs relative to the prior year on a comp basis for 2Q and 3Q? And then where have you cut back on advertising? And where can you redeploy advertising dollar to drive that e-commerce business?

[Jonathan Sinclair, CFO & Executive VP]

So I think -- as we think about Q1, obviously, that was a relatively small area in the -- for e-commerce demand, and always has been, but I think it's more accentuated now in a buy-now-wear-now model. And so as our seasonal relevance grows, I think that's going to be very important for us. That's also where we're going to see the initiatives coming online, whether we're talking about cross-border or omni-channel. And that's going to make it a more important source of revenue as we go forward.

[Dani Reiss, Chairman, President & CEO]

Yes. And if I can just add a little bit to what Jonathan said. Obviously, with all those points, I think that also, for us, we were able to maintain our levels of e-commerce performance. And at the same time, we're also able to restate the whole price. And that's really important. I think that in times like this, some brands have attempted to dilute the value of their brand. And I think for me, the most important thing for a brand right now is to stay strong and to stick to your guidance. And we're a full-priced brand and many brands who are promotional. The main promotional brands became more promotional and we did not. And I think that to be able to do that in this environment and maintain our e-comm performance, I think is -- actually I think that's an excellent outcome, and I'm very happy with it.

[Operator]

Your next question comes from Sam Poser with Susquehanna.

[Samuel Marc Poser, Senior Analyst]

Can you -- I'm going to put 3 together. Do you have -- can you give us what -- can you give us some idea of how big your e-commerce business was last year? I know you don't generally do it, but we're in very unusual times just to help us out. Number two, to what degree do you foresee wholesale business? I know you don't want to guide, but what degree do you see the wholesale business down in the third quarter or the second quarter, excuse me?And could you give us sort of a more defined -- more definition of what you mean by purposeful wholesale growth?

[Jonathan Sinclair, CFO & Executive VP]

So the -- taking the wholesale piece first. I think that's pretty important to us as a business. But I think what we are expecting to see there is a transition to something of a more in-season model. This is not something that we've seen in recent years where it's been run on more traditional lines. And I think that piece is particularly important when it comes to the way in which we run that business. When it comes to what purposeful wholesale is about, we've always talked about wholesale as being brand accretive. And the importance of that is that we are, therefore, either reaching into locations which is critical for the brand to be in for distribution purposes or because it reaches locations where a physical presence is needed and where we aren't going to open our own stores.

[Operator]

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

[Kate Bridget Fitzsimons, Assistant Vice President]

I guess, certainly understanding you don't have a crystal ball. But I guess when you think about the productivity rebuild in your stores, looking out in the next, call it, 1.5 years. How are you viewing that just given the importance of global tourism to your store base? And I guess just an extension of that would be, when we look at channel margins, historically, retail margins kind of settling in at the mid-50s on an EBIT level, wholesale in the mid-30s. How comfortable do you feel with that profile over time, just given what is likely to be a slower productivity rebuild?

[Jonathan Sinclair, CFO & Executive VP]

Yes. I mean, it's important to think that many of our stores have only just reopened. Clearly, we had something of -- more of a track record in Mainland China. But outside of that, they're literally just reopened. And therefore, you're trying to read a track in a very quiet time in any normal year, not alone in the year like this. And as I said in my prepared remarks, we are seeing slow starts with significantly lower traffic in and around our locations. And they are -- and that traffic is at a fraction of normal levels. But then at the same time, I would say, we saw that in China as well earlier in the -- and that continued to build steadily since and is continuing to grow. So I'm -- from that point of view, I feel that the trajectory of the stores is very much as expected. From a margin point of view, once we are through this, I see no reason why it doesn't return to where it was because, honestly, the model remains the same and we continue to experience, even in these times, good sales density, just not at the levels that they were at prior. And therefore, the underlying model that produces high contribution margins at the channel level will return in our expectation.

[Operator]

Your next question comes from Michael Binetti with Crédit Suisse.

[Michael Charles Binetti, Research Analyst]

So just a couple of modeling questions, and I had a bigger question for Dani. On the gross margins in DTC, I know you reported 82.7%, but they were -- I think it was closer to 66%, 67%, if you exclude the duty recovery you mentioned from last year. So for a smaller quarter, I guess, that usually doesn't matter, but it seems a little bit lower than what we normally see out of the DTC, anything there that carries forward to the DTC gross margins in 2Q and 3Q that would be aware of? And then same on wholesale, the distributor shift was 1,000 basis points drag. I'm wondering if there will be any impact from that in 2Q and 3Q that you can foresee, just how you see the mix going forward. And then, I guess, Dani, on the footwear launch, obviously, it's a few years away here. But can you give us the size of the market you see, the TAM you see globally and what you're looking at and maybe what the unmet need or slice of the market is that you think Canada Goods can serve is so attractive that's unmet today?

[Jonathan Sinclair, CFO & Executive VP]

So thanks, Mike. Got a couple of very important questions, and these are relatively straightforward answers, in the sense that the underlying pricing model that exists in this business is no different this year than it has been in any other year. You have 2 factors affecting DTC margins in Q1. There's a little bit around product mix. You'll recall last year, it sort of leans in a little bit more to the newer categories, and that's no different. And therefore, that makes it a slightly lighter margin. But the fundamental is we're dealing with the law of very small numbers. And it takes next to nothing to move the margin several percentages in terms of accounting adjustments. So nothing to be concerned about there. And the same answer for wholesale in a different way in the sense that when you're only shipping predominantly to these distributors, the margins are bound to be lower. And that's what you're seeing. And then it bounces back later on. So the -- but the underlying economics and the underlying pricing model in the business is no different this year than it was last. And therefore, the margin should normalize.

[Dani Reiss, Chairman, President & CEO]

And I'll -- yes, to take your footwear question, I mean I'm very excited about footwear. And footwear going forward, we're very much doing it our own way. And as always, we always aim to make best-in-class products and this is no different. There are many relevant footwear brands in the world today with 8 and 9-figure businesses, so obviously category is very large, and we take the opportunity seriously. We're excited about it. I want to focus -- what I'm focused on is building the foundation for an enduring franchise in the long term as always. And so we're not looking to -- for this to generate large numbers or material numbers in the short term, but rather it's a long-term thing. But in the long term, I see it being very material. When we commercially launch, we'll have -- so therefore, we'll have a -- when we commercially launch, we'll have a limited office selection and the intention is to building a whole model and create a market for lasting success in this category.

[Operator]

Your next question comes from Oliver Chen with Cowen.

[Oliver Chen, MD & Senior Equity Research Analyst]

Your comments about non-Parka products resonating is interesting. What do you see happening there over time in terms of the consumer response now and how you're planning that? And are there implications for how you're overall average unit retails and/or margins may trend as you look at that really nice market opportunity? I would also love your thoughts on the cross-border expansion of e-commerce and how that interplays with the model as well as the timing and impact in inventory planning? It sounds like another big opportunity.

[Dani Reiss, Chairman, President & CEO]

Thanks, Oliver. Yes. Those are 2 big opportunities. And spring products and off-season products are performing very well. We have a lot of newness and we have good opportunity in the category. I think that we're seeing as a percentage of our overall sales, I think that it will -- I think that it has the opportunity to grow as a percentage of our overall sales and much like categories like Lightweight Down over time have -- we've started small and they've grown in to become material percentages. I think that these categories with the products that make the right products, I think they have the same opportunity. And we're very excited about it. I think that -- with regard to cross border also have a very good opportunity, and one where we're going to open up -- our wholly owned e-comm platforms are going to be opened up too in many other countries in the world this year, and the opportunity to drive that into realized revenue through these channels is to stay.

[Operator]

Your next question comes from Alexandra Walvis with Goldman Sachs.

[Alexandra E. Walvis, Research Analyst]

Two questions from me. The first, you mentioned some newness coming into the collections for the fall. I wonder if you could comment on anything more specific there, anything you're particularly excited about. Or perhaps how you see the volume of newness in that holiday period as it compares to prior years? The second question is a high-level question on how you're thinking about the strategic choices in the U.S. and Canadian businesses? How store spending is likely to be subdued probably for some time and how that's changing? How you're thinking about the business?

[Dani Reiss, Chairman, President & CEO]

I'll take the newness question. Alexandra, thank you for asking it. I think we've -- as every year, we've planned a lot of newness into our collection and a lot of exciting new styles and collaborations. Guest designers and reinterpretations of old topics, as well as new styles that are going to be coming in and new colors that are going to be coming in. And those are -- that typically drives a lot of strong consumer behavior with new consumers and also with existing customers that want to acquire the latest and greatest from us. So we're fortunate that because of our manufacturing flexibility, we're able to lean into that and manufacture the products that were designed for this year, and that we intend to merchandise in our stores. And we're very excited about it.

[Jonathan Sinclair, CFO & Executive VP]

Then when it comes to our business in North America. One of the important things to consider is that we are still relatively early in our DTC journey in North America. And we've deliberately built a business, not just around international demand, but also around domestic demand. And we are, therefore, obviously, leveraging the domestic consumer much more these times. And that's the focus of the work that we're doing, whether it's around omni-channel, with the end of style or whether it's around its outreach programs to consumers as we develop the businesses in the individual stores. We still have a very strong addressable market in North America, and that's something that we expect to continue to drive the economics of the business.

[Operator]

Your next question comes from Camilo Lyon with BTIG.

[Camilo Russi Lyon, MD and Lifestyle Brands & Wellness Analyst]

So you guys talked about the investments, you just mentioned the increased investments in omni-channel, end of style. I'm wondering if there are other initiatives you're taking on to specifically invest in market share gains, maybe more so than what your competitors are doing, whether on the advertising front since you're clearly maintaining full price, how do you plan to take advantage of your capital position to really go after market share gains? And then as a follow-up to that. I think, Jon, I think you talked about the SG&A cuts that you had in the first quarter, some of which were permanent. If you could just quantify how we should think about the permanent reductions as the year progresses, that would be great?

[Dani Reiss, Chairman, President & CEO]

Camilo, thank you for the question. I'm afraid I'm not able to give you too direct answer to this. I don't want to give away trade secrets, but we absolutely have plans to leverage our e-commerce platform and other assets that we have to drive revenue this year, and I think we're going to be able to do that. But being able to tell you exactly what those are would be an unfair advantage for our competition. So I can't quite go there today. But I'll hand over to Jonathan to answer the rest of your question.

[Jonathan Sinclair, CFO & Executive VP]

So I mean, I'd just build on one thing Dani said, which is the ROI is a clear focus for us in what we're doing in terms of our -- how we're repurposing our marketing investment. I think that's pretty important in all of this.

[Operator]

Your next question, sorry.

[Dani Reiss, Chairman, President & CEO]

Sorry, sorry, just hold a second, and we'll answer the last part of Camilo's question which was regards to SG&A?

[Jonathan Sinclair, CFO & Executive VP]

Yes. So the SG&A trend, that being down year-over-year is something that I think we'd expect to continue. Obviously, there are some onetime components. But we think it will be meaningfully down, perhaps not as much as it has been this quarter, but still being fully down as we go forward. This is something where we enjoy a high level of flexibility. And therefore, we're able to choose what we spend quite carefully.

[Operator]

Your next question comes from Mark Petrie with CIBC.

[Mark Robert Petrie]

Just given the increasing focus on the opportunities in Mainland China. I just wanted to ask you about your level of satisfaction with the operating partnerships there, both store and online? Also, how you think about your own infrastructure and operations and potential opportunities with that? And also how you've adjusted your marketing approach, given the shift in travel and shopping patterns?

[Dani Reiss, Chairman, President & CEO]

Thanks for the question, Mark. China, we're very excited. I mean, we feel that we've built China the right way from the start. We've built China in China with boots on the ground, in Hong Kong and Mainland China as well. And we've got great teams in both places. We have great partners in both places. And our results in China have proven that to be true. So we're continuing -- I continue to be excited as ever about China, like I mentioned earlier, the fact that many -- most of our new store openings are in China, which is further ahead in its recovery than elsewhere in the world and the world's largest luxury market, I think leaves us in great stead. And well, I forgot your last part of your question, our marketing dollars. Yes. I mean, I think that my general point and again, not to give away any trade secrets from a general point of view is times like this when a lot of people are hesitant and pull back on marketing. And I think it's an opportunity to build brand awareness and to lean into marketing. And I think that how we do that will play itself all out over the year. But we definitely are open and have all sorts of ideas and plans in terms of spending wisely and building our brand all around the world.

[Jonathan Sinclair, CFO & Executive VP]

I'd just add that we -- just going back to China, the quality of the real estate that we are acquiring, both in terms of the units themselves, the adjacencies and locations, are really quite exceptional. And for us to be achieving this relatively soon after our entry into that market is really testament to the brand strength there.

[Operator]

Your next question comes from Robby Ohmes with BofA.

[Robert Frederick Ohmes, Managing Director]

I was just curious if we could get your thoughts on -- I love the shift to domestic strategy, but I would love to just get your thoughts on -- no one hold me to it, but just do you think the size of the luxury market, in general, is changing for the intermediate term? And I'm just curious how you're thinking about what the luxury market could look like in the back half of this year and 2021? And then related to the domestic focus, could you give us some color on Canada versus the U.S.? And if there's any differences in what you've been seeing there?

[Dani Reiss, Chairman, President & CEO]

This was done with regards to the luxury market. I mean I think that our products are -- we make survival products. We make products to work on, function-first products that are lifetime investments. And at times like this, historically, we performed well because people have felt like they are buying in that and they're investing in a product that will last them for a long time, and we'll work, especially as mentioned earlier, thinking in this time where people are looking to go outside more, I think our products are perfectly suited for that. So as it relates to us, I don't think there's any -- I don't think the market is shrinking. And I think that it's growing. I don't think that...

[Jonathan Sinclair, CFO & Executive VP]

Yes. I mean, I think as we look forward as to how this is going to evolve, obviously, none of us really know. But I think the disruption this year is probably likely to be more marked than as we look forward. But equally, that's why we're having a focus on serving our consumer in their own market rather than serving them when they travel. I think when it comes to North America, we've seen good pickup in both north and south of the border in terms of Canada and the U.S. But I come back to the point, but that's with domestic consumption, not with international consumption in each case.

[Operator]

Your last question comes from Jay Sole with UBS.

[Jay Daniel Sole]

Dani, I just wanted to ask you about what you meant by production flexibility. The press release said that the company currently plans to produce roughly 1/3 of the fiscal 2020 output. Is there ability to produce more, if necessary, or less if necessary?

[Dani Reiss, Chairman, President & CEO]

Jay, thanks for the question. And the answer to your question is yes. We're absolutely -- we have the ability to make more or less. We have that possibility to change styles if we see one style doing better than other style. So we really do have a lot of flexibility here. And that's why we built our manufacturing the way we did and that's one of the competitive advantages that we enjoy. And so we'll use that to our advantage this year.

[Jay Daniel Sole]

Is there any way to sort of describe like the magnitude of the potential upside or if you want to flex it down this year, if you see certain trends?

[Dani Reiss, Chairman, President & CEO]

I'm just not able to specifically define the order of magnitude other than to say that we're -- I'm comfortable that we'll be able to manage whatever we need. This is an extremely flexible manufacturing model where frankly, turning the way up and down underneath it in times like this, it's a very straightforward process for us.

[Operator]

I would now like to turn the call back over to Dani Reiss for closing remarks.

[Dani Reiss, Chairman, President & CEO]

Great. Well, thanks so much. Thank you all, as always, for taking the time to be with us here today. We very much appreciate your interest, your support of our company in Canada Goose. Stay safe, first and foremost, be well, and we look forward to speaking to you again soon. Have a great day.

[Operator]

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