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Canada Goose Holdings Inc
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Good morning. My name is Marianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Third Quarter Fiscal 2018 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to [ Patrick Burke ], Senior Director, Investor Relations. You may begin your conference.
Thank you. Good morning, and thank you for joining us today. With me are Dani Reiss, President and CEO; and John Black, CFO. For today's call, Dani will begin with highlights of our third quarter performance, and then update you on the progress against our key priorities. Following this, John 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 risks and uncertainties that could cause actual results to differ materially from those projected in such statements.Certain material factors and assumptions were considered and applied in making forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions, appear under the headings Cautionary Note Regarding Forward-Looking Statements and Risk Factors in our annual report on Form 20-F, which is filed with the SEC and the Canadian securities regulatory authorities. And it is also available on our website at www.canadagoose.com under Risk Factors in our final prospectus filed on June 28, 2017, and in the earnings press release that we furnished today under the heading Cautionary Note Regarding Forward-Looking Statements. The forward-looking statements made on this call speak only as of today, 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 at the Investor Relations section of our website at www.canadagoose.com.With that, I will turn the call over to Dani.
Thank you, Patrick, and good morning, everyone. Fiscal 2018 has been an exceptional year so far, and I'm excited to be sharing the results of our strong third quarter with you. This is our biggest and most important quarter, and we have delivered on all fronts. In fact, we have delivered results that have exceeded expectations for each of the last 4 quarters, and that is something we are all extremely proud of. I'm especially proud of the way our team has executed, particularly in light of the tremendous pace of growth and change within the business. We embarked on a number of significant new initiatives in fiscal 2018, including expanding our retail stores and e-commerce sites, growing our wholesale business globally and adding new product categories, all with compelling results. This has led to an increase in revenue of 27%, gross margin expansion to 63.6% and 32.2% growth in adjusted net income per diluted share on a year-over-year basis in our most material quarter. I see this as a powerful validation of our brand and our ability to deliver on our strategy. We accomplished what we said we would and then some. So let me give you some context and share a few highlights from the business, starting with product. First and foremost, people love our products because they work. Customers across regions and climates have responded well to the innovation and quality of the product in our fall/winter line. Whether it's a classic down-filled parka as protection from the bomb cyclone or a packable lightweight jacket that offers greater flexibility while keeping out the damp chill, we saw strong sales in both core and new styles across our men's and women's businesses. For example, our classic expedition parka is a style we have offered for decades yet sales continue to increase year-over-year. At the same time, we continue to see growing demand for our lightweight down product, another testament to our increasing relevance in more temperate climates and our ability to successfully expand our product range.As I've mentioned before, more and more people today see outerwear as a prominent part of their wardrobe. They don't just buy one fall or winter coat anymore. They're looking for a variety, different colors, silhouettes and fits. And in introducing over 30 new styles in our fall/winter line, we are successfully meeting that demand as we broaden and diversify our product offering. Another example of this is our Fusion Fit, which has been a clear winner this year. We introduced Fusion Fit in 2014 to address the diversity of body frames around the world. And while it has been growing steadily since it launched, in fiscal 2018, we saw significant unit growth for this fit. Accessories have also been a focus this year, and we introduced pieces more suitable for the urban explorer, including leather and lightweight options, which resulted in positive traction from consumers. Overall, our continued focus on diversifying our product line and giving consumers the choice and variety they're looking for is working really, really well. Some other interesting highlights from the season come from parts of the business that today are relatively small, but they're meaningful to the brand overall and are potential future growth opportunities. Our youth, kids and baby business doubled this season, which, to me, shows that people trust us to provide the same protection that they enjoy for the children in their lives. Additionally, as a long-time partner of Polar Bears International, I'm proud of how our PBI collection, which represents 14 styles, continues to perform, growing by approximately 60% this year. For each PBI jacket sold, we donate $50 back to the organization to support their dedication to conserve polar bears and their habitat. As we continue to enhance and expand our product offering, our promise to consumers has always been that we will make best-in-class product, and I believe that, that is the most critical part of our success. As an authentic brand that makes function-first products, people continue to trust Canada Goose to deliver.Moving on to geographic growth. Expanding internationally is an important part of our growth strategy, and our team is doing a fantastic job in executing. We grew revenue significantly in all of our geographic segments this quarter. In addition to robust growth in our home market, Canada Goose is also a highly sought-after brand in Asia, Europe and the United States. In fact, over the past year, we've had customers from 87 different countries in our 6 company-operated retail stores. When you look at our penetration level in Canada, which continues to grow at a very healthy rate, it is clear that we continue to have a compelling opportunity to drive growth by expanding access to our product around the world.Looking at our opportunity in China in particular, we continue to see enormous demand in that market. Over the past year, we have been learning more about the marketplace and finalizing our strategy. In many ways, it's a market we already serve well through existing wholesale channels. Also, in our stores and online, we've experienced exceptional demand from Chinese tourists, students and dual residents, which has helped inform our understanding of the end market opportunity and how to best meet those needs. Today, our strategy is set, and we are already executing on our go-to-market strategy in China, working diligently to get the right wholesale, e-commerce and store pieces in place. Recently, we launched a small cross-border online pilot, and we are excited to see how that performs. And of course, we'll make any other material announcements about our China strategy when the time is right.In terms of distribution, wholesale continues and will continue to play a central low role in market development, giving us a complementary level of diversity and an ability to have a strong visible presence in cities where we don't plan to open our own stores. In this channel, it's about quality over quantity, and we are focused on deepening our relationships with the retail partners who best showcase our brand and can deliver an exceptional experience at full price. This quarter, through improvement in both sales planning and production capacity, we consistently delivered inventory earlier in the season, which was in response to retail requests. This better positioned our retail partners, particularly during the holiday season.We also deepened our collaboration with our partners, world-class retailers such as Barneys, Nordstroms and Saks Fifth Avenue in the United States and the Rinascente and Harvey Nichols in Europe, to create beautiful campaigns in advance to tell our story in earlier-stage markets where consumers may know our product but not the full story. As you know, we celebrated our 60th anniversary last fall, and we leveraged that milestone to deliver immersive experiences that reinforce our unique position in the industry. Through creative content, pop-up shops and outdoor cinema events, we showcased our 60-year heritage, our roots in outdoor exploration and a relationship with the film and entertainment industry, which helped increase brand awareness and affinity as well as drive traffic.In our DTC channel, we are now operating 6 retail stores and e-commerce in 11 markets. Looking at our financial results, it's clear that this channel has performed well, which is driven by a strong contribution from both new and existing sites and stores. In less than 4 years, we have successfully grown from 0 to $197 million of revenue, which represents 38% of sales on a trailing 12-month basis.Our e-commerce business is strong and dynamic as we meet the customer where they live. We continue to grow significantly in all of our major markets, and we're relentlessly iterating and improving our online experience, balancing brand storytelling and -- with product information and functionality that drives conversion. By adding new payment methods, new navigation and more dynamic photography, our focus is on ensuring we continue to deliver a premium experience for consumers everywhere.The 7 new European sites we launched have performed very well, and we saw strong results across a wide range of developed and earlier-stage markets. We continue to learn a lot about customer preferences in each of these countries, and we see great traction with our lightweight down products in more temperate climates like the U.K.It is also clear that many of our fans still value physical personalized shopping experiences. Despite the doom and gloom that we've heard about -- from the industry, bricks are not dead. To succeed, you have to have a strong brand and value proposition, you have to be able to deliver, and Canada Goose does. Across the board in very different markets, desire for our brand has been exceptional. It is still early days. But every store, including Yorkdale in Toronto and Soho in New York, has exceeded our expected performance expectation. Canada Goose has always been an authentic experiential brand, and our stores are the destinations that enable people to discover what that means firsthand.In addition to financial performance, what excites me about DTC is how it is bringing us closer to our customers. The direct engagement data we get from this channel is incredibly valuable, including what products are selling when and who is buying. Our stores give us the opportunity to provide high-touch service to ensure customers find their perfect product. In return, we also get to learn about how people discover new products, how they respond to our 60-year heritage and what they want to see from us next.When you look at the pace of growth across our business this year so far, it is important to recognize the critical contributions from our operations team. I'm often asked if we have the manufacturing capacity to support our planned growth. I want you to know that we do -- for the next year and for well beyond that. Building manufacturing capacity is a core competency at Canada Goose, and we have been doing so for many years. We invest aggressively and continuously, and it is deeply embedded in our strategic planning process. This year, across our manufacturing facilities, we expanded our sewer training program, secured additional space and introduced a number of lean and flexible manufacturing principles to increase efficiency while maintaining our high-quality standards. Finally, I'd like to recognize our team and how much I appreciate their continued energy and passion to deliver against our growth strategies. So far, this has been another amazing fiscal year, and it's because of all of you.I'd also like to specifically thank our CFO, John Black, who's informed me of his intention to retire at the end of the year. In the past 4.5 years, John has played a critical role in the growth of our business, and the company has achieved many exciting milestones under his leadership, including successfully transitioning to becoming a public company. On a personal level, John has been a trusted partner to me and friend, and I know he'll be greatly missed here at Canada Goose. He isn't going anywhere just yet, though. John will continue as CFO until the appointment of his successor, Jonathan Sinclair, who's expected to start sometime mid-year, and he will remain in a senior role until the end of the year to support Jonathan and ensure a very smooth transition. Jonathan is currently the Chief Financial Officer and Executive Vice President of Business Operations at Jimmy Choo. He's an accomplished business leader and seasoned financial executive with a wealth of experience with luxury brands and direct-to-consumer operations. We have gotten to know each other quite well, and I look forward to having him on my side going forward as a strategic business partner.And with that, I will now turn over to John Black to review our financial results with you in more detail.
Thank you, Dani. Good morning, everyone, and thank you for joining us. As Dani mentioned, we delivered a strong performance in the third quarter with a 27.2% increase in revenue and a 32.2% growth in adjusted net income per diluted share. Before I go through the numbers in detail, I would like to remind you that our results are stated in Canadian dollars. For the quarter, revenue increased by 27.2% to $265.8 million, up from the prior year by 28.3% on a constant currency basis. This was driven by growth across all channels, geographies and categories. Direct-to-consumer, or D2C, revenue grew from $72 million to $131.6 million, including the strong performance from our 4 new stores which opened during the quarter. as well as continued strength from our existing e-commerce sites and stores. As a percentage of total revenue, D2C was 49.5% compared to 34.4% last year. Wholesale revenue decreased by 2.1% to $134.2 million. As we mentioned last quarter, we pulled forward approximately $18 million in revenue from our order book that were originally planned for the third quarter to the first half of the fiscal year, driven by requests from our retail partners to receive shipments ahead of the peak selling season. Consolidated gross margin expanded approximately 610 basis points to 63.6% from 57.5%. This was primarily driven by an increased proportion of higher-margin direct-to-consumer revenue. Our wholesale channel saw gross margin expansion of approximately 320 basis points from 47.8% to 51%, driven by a lower material cost and a greater proportion of revenue attributed to higher-margin winter products.Within our direct-to-consumer channel, gross margin expanded approximately 30 basis points from 76.1% to 76.4%. The impact of lower materials cost was less significant in this channel relative to wholesale as a result of the higher selling prices. SG&A was $76.8 million or 28.9% of revenue compared to $62 million or 29.7% of revenue in the third quarter of fiscal 2017. The $14.8 million increase in SG&A was driven primarily by operating costs to support the growth of our direct-to-consumer channel. Combined, these activities led to an adjusted EBITDA of $94.7 million compared to $66.1 million, which represents year-over-year growth of 43.2%. With regards to tax expense, the effective tax rate in the quarter was 27.2% compared to 26.6% in the third quarter of last year. The increase in tax rate was primarily driven by the nontaxable unrealized foreign exchange gains and the timing of taxable income in jurisdictions with different statutory tax rates.I would like to touch on the tax reform recently enacted in the United States. It's important to note that we operate in a number of jurisdictions, and the majority of our taxable income is not in the United States. In isolation, the reduction in the U.S. corporate tax rate is beneficial, but there are a number of other considerations. We now expect our combined annual effective tax rate to approximate a low mid-20s range -- a low to mid-20s range in fiscal 2018. As you know, there are a lot of moving parts driving effective tax rates and they can change significantly and unexpectedly. On an IFRS basis, for the quarter we reported net income of $62.9 million or $0.56 per diluted share based on 111.6 million weighted average diluted shares compared to last year's reported net income of $39.1 million or $0.38 per diluted share on 101.8 million weighted average diluted shares. On an adjusted basis, we reported net income per diluted share of $0.58 for the quarter compared to $0.44 per share in the same quarter fiscal 2017. Purchases of property, plant and equipment were $19.9 million compared to $15.2 million in the third quarter of fiscal 2017. Spend was primarily driven by the expansion of our corporate head office, investments in manufacturing and preparations for new store openings.Now turning to the balance sheet. Working capital was $155 million, an increase of $10.6 million versus the third quarter of fiscal 2017. Total debt net of cash was $80.6 million compared to $162.7 million in the third quarter of fiscal 2017, pro forma our initial public offering.As you can see in these numbers relative to last year, the growing contribution of our direct-to-consumer channel, which has a shorter cash conversion cycle, has made the seasonality of our working capital and leverage levels less pronounced. Before wrapping up, I'd like to take a moment to address the announcement this morning and Dani's comments regarding my retirement at the end of the year. It has been a great honor to be part of Canada Goose, and I'm so proud of the many accomplishments of our team -- of the many accomplishments our team has achieved. I can't think of a better company or group of people to work with. I also want you to know that I remain deeply committed to both my role -- my current role and the transition support thereafter following the appointment of Jonathan Sinclair. Jonathan's track record as a business leader and financial executive speaks for itself. He's a great addition to our team, and I look forward to working with him closely to ensure a smooth transition.Now I would like to turn the call back to Dani for some closing remarks.
Thanks, John. Clearly, we are all very pleased with our financial results this quarter and year-to-date, and we trust that you are, too.Before we became a public company, the advice that many people gave me was that our first year was an important year to build credibility with our shareholders and other stakeholders. We know that every year is important. As we approach the first anniversary of being a public company, I am really proud that we have continued to run our business as we always have, executing a bold vision for the long term with discipline, which has enabled us to deliver great results. I'm excited about the season ahead, and I look forward to sharing our full year results with you on our next earnings call. And with that, I will turn it over to the operator to begin the Q&A session.
[Operator Instructions] Your first question comes from Mark Petrie with CIBC.
Hoping you can just give some more color about the performance in DTC and specifically of the new stores, but also the existing stores and how performance tracked after such strong openings last year.
We're really happy with how DTC has worked -- has performed. We -- all of our channels, all of our stores and our online sites have exceeded expectations, and we continue to be excited about how they perform and about their future prospects.
And I guess, maybe what are your most important learnings from the DTC strategy so far? And how does that affect your plans going forward in terms of types of stores, types of markets and maybe the pace of store openings that we can expect?
Well, we've learned a lot. I think that we learned that people still value -- people still value experiences in store. We've learned that bricks are not dead. And at the same time, our e-commerce is very strong. So we've been very happy with both of those. I think that you could expect that in terms of how that changes our plans, I don't feel that our plans are materially changed at this point. I think you can expect us to continue to methodically, carefully and with the right discipline continue to open stores and access to our product in different markets at a similar pace that we've been going so far.
Mark, the other thing I'd add is that with respect to your question about what are the learnings, we -- the biggest learning is that it validates our assumption. I mean, the stores exceeded our expectations, and we're also very pleased with e-commerce. So we feel good about where we're sitting.
Your next question comes from Ike Boruchow with Wells Fargo.
I guess my question would be when we look at the quarter, it's obviously really great growth. But I'm just curious, it seemed like many partners kind of ran low on product and your own e-comm site was running out of stock on some key items towards the end of December. So I guess, Dani, I think you touched on this, but how constrained was the business just simply from a supply chain and capacity standpoint this holiday? And maybe based on the wholesaler demand that you have, is there a way to think about maybe potential sales that were left on the table or demand that you couldn't fulfill just simply due to capacity? Just kind of curious how you would kind of discuss that.
Yes. I think that we think about this differently than many companies. That's how I feel about it. I mean, we're not afraid to be sold out. We're not afraid of -- we don't think that it's important that we have all of our styles in stock all the time and have a never out of stock program. We plan our business carefully at the beginning of the year, both for our own D2C channels and in our wholesale channels. And it's -- this is exactly what we're -- we -- it has unfolded -- it unfolds the way we expect it to unfold. So being sold out is -- to me and I think to our company, being sold out is a good thing, and it shows that there's lots of demand for our product. And we're not afraid to be sold out. As you can see, I mean, our results speak for themselves. We're able to grow and -- at the same time as maintaining the desirability of our product.
Got it. And then despite that, I mean, the margins, obviously, were fantastic in the quarter and looks like your margins are going to come in really strong for this fiscal year. Are we still confident with -- I think you targeted -- at the start of this fiscal year, you told us your annual target was 75 basis points of annual EBITDA margin expansion. Just any comment on that. Do you still feel confident with that trajectory moving into next fiscal year?
We're really happy with our performance at the moment. We'll -- we only address guidance on an annual basis not a quarterly basis, so look forward to talking about that next earnings call.
Your next question comes from Lindsay Drucker Mann with Goldman Sachs.
I was curious if you could comment on how your conversations with your customers are going as it relates to the fall 2018 season. Maybe just any thoughts on what their carryover inventory looks like and how your fall order book is shaping up.
Yes, thanks, Lindsay. I mean, what do I tell you? That we're really happy with both. We're -- obviously, as I mentioned earlier, our business is very carefully planned. We have very strong relationships with our wholesale partners, and conversations are going great. And we're very happy with where our order book has come in for next fall and -- as we were last year. And we're equally happy this year with that, and we're feeling really good about next season.
Great. And maybe you could touch on -- as you think about the areas outside of your core assortment where you're investing in to grow, whether it's sort of the lightweight products or some of the stuff outside of the parka or Fusion Fit, what are some of the categories where you expect to see a big shift in terms of their increase in your overall mix? Like what would be the focus in terms of incremental categories that you're growing for the fall season coming up?
We continue to focus on diversifying our core and on lighter-weight categories, accessories, knitwear are all things that are important to us. These are strategic -- I think it's important to continue to hammer home our strategy, which is not to -- we're not looking at these categories, especially new categories like knitwear, as categories that are going to drive material growth. We're not relying on them for the growth of this business. We believe that the growth that we expect to see is going to come from the broad product assortment that we currently have, the 200-plus styles and the geographic opportunities around the world. And we're going to continue to focus on making sure we deliver the right expression of knitwear and other light categories to the marketplace. And those categories, I think, we can look -- you can look at to be more material sometime down the road.
Your next question comes from Brian Tunick, Royal Bank of Canada.
I guess maybe turning to spring. Can maybe, Dani, you talk about sort of number of new styles? Some of the metrics maybe you just shared about holiday, maybe talk about some of the things you're excited about this current season now. I think last year, you launched the lightweight product in a limited amount of wholesale partners. Maybe just talk about the expansion of wholesale for the spring products. And then maybe, John, on the wholesale gross margin, can you maybe talk about what raw materials had that impact favorably on the gross margin there? And should we expect that to continue for the next year?
Thanks, Brian. Our -- so spring knitwear for spring. This is our first spring season with knitwear. It's in stores now, and we're excited about it. Our initial customer reactions we're excited about, and we think it's going to do well. I think we'll share some more color with you on the next earnings call about how that all went. But we are feeling really good about that. And I think that's your first question. To your second question with regards to wholesale gross margin, I mean, yes, there were lower materials. We had lower material costs. And also, our product mix played a role in that as well with more higher-margin styles, more volume from those.
And regarding your question on materials, Brian, there were some different suppliers we brought in. They've been working well, so slightly lower cost. There was a currency impact that impacted the cost of materials in Canadian dollar terms. That was part of the process. On an overall basis, though, the -- generally speaking, the materials and the overall cost of sales, we're not seeing any significant movement up or down in the cost of production per unit.
And then, Dani, how about spring outerwear? Anything you want to add to that conversation?
I think that last -- well, yes. I think last year, I think our assortment is -- continues to get better every year, and I expect to see that, that will be -- that will come through in our results, and we'll find out. The stuff is just hitting the floor now. But last year was -- we added lots of new styles. And really, the right -- I described it the perfect expression of Canada Goose in the spring, and I think that this year -- I know that this year we've built on that, and it's just in stores now. So excited to see how that continues to perform.
Your next question comes from Oliver Chen with Cowen.
Regarding the new styles and as you seek to broaden and diversify the line, what are your thoughts about inventory management and supply chain and striking that right balance? And also, how should we think about your inventory versus sales trend and modeling that in the next few quarters? That would be really helpful. At then also, I would love your thoughts on awareness and the opportunity to build awareness in the United States and an update on the strategies you're focused on and how you're thinking about the different kinds of markets. Because some markets, I'm sure you have lots of awareness. And how do you think more broadly about those markets where you have bigger opportunities?
Well, thanks for your last -- I think -- I'm not quite sure how many questions there were there. But I think that to address the last one first, I think that our sales growth speaks to the growth of awareness across multiple markets, many markets in the world. Inventory is something that's always been very important to us that we manage really well, and I think that's something that we'll always have -- manage really well. I think that one of the strongest parts of our business model is that we have a lot of classic -- core classic styles that are always -- that never go out of style. And so even to the extent that we may have carryover, we -- whatever that is, that we have very, very minimal amount of discontinued inventory, and that's been true for many, many years. And we continue to work towards that and monitor that.
Dani, do you think breadth versus depth is a topic in terms of how the portfolio develops and how you should manage that between key items versus new items? And also, the customer journey as the customer looks to you as more of a lifestyle brand, what's on your mind?
I think what's most important for us is that we bring the right products to the market, and that means that every product we make is a best-in-class product. Our customers trust us, and they know that when they see a Canada Goose product, it's going to be a best-in-class product. And we will never want to let them down by producing something that didn't meet those standards.
Your next question comes from Camilo Lyon with Canaccord Genuity.
Just wanted to delve deeper into the geographic comment that you had in your prepared remarks, specifically Asia and the demand you're seeing from that region and the consumer. Can you just talk about the China strategy? You alluded to doing some work and some strategic analysis of your entry into the market. Is that -- should we expect a store presence in fiscal '19 in China? And how you're thinking about entering that market from growth at e-comm and a DTC perspective?
Sure. I mean, our China strategy is underway. We've finalized it. It's underway. We don't have anything material to announce at the moment. We expect, for sure, that there'll be -- that it'll impact the business in fiscal '19 somehow. And when -- it's -- until we have anything concrete to share, we can't share anything concrete, but we're really excited about the strategy, and we know that we have a lot of demand in China. And personally, I think it's a super exciting opportunity, and we're taking it very seriously.
Okay. Shifting gears a bit, can you talk about the demand you've seen postholiday and your desire and your capability to meet that demand and if you've been getting any reorders that you've been able to fulfill?
Yes. We've had some reorders, for sure and as we usually do. As you -- you'll note that we -- you recall that we shifted $18 million last quarter into the quarter before it. And this quarter, we're only $3 million behind last year. So effectively, we generated $15 million this quarter of reorders, which I think we're very happy about. And the reorder business is strong and continues.
And just to be clear, that's continued into January as demand from our perspective has not ebbed whatsoever?
I think we'll talk about January next quarter when we talk about January. But historically, you can look back to last year. And historically, we continued to have -- our stores continue to sell product in the fourth quarter.
Your next question comes from Jonathan Komp with Baird.
I wanted to follow up a little bit on the inventory question, but more ask about your current capacity. And just wondering as you look forward to the year ahead, given the pretty big increase in the unit demand if you'll be able to fulfill what you see going forward. And if you could just kind of tie in a current update in terms of your overall utilization for your company-owned capacity.
Yes. We're very confident that we're going to be able to deliver against all of our demand for next year and future years. Building manufacturing capacity is a core competency of ours. We have long-term financial plans, and we also have long-term manufacturing plans that go along with that. And I think you've seen us open facilities and build capacity as we need to. We've hired 700 people in the last year. Most of them are in the manufacturing side of the business, and we're going to continue to do that. We do that through -- we get around the challenges of finding skilled labor by opening our own training schools and teaching people how to be able to manufacture this product. And so this is something that our operations team are experts at, best in class, and we're absolutely confident in our ability to meet demand.
And Jonathan, just to your point about the in-house manufacturing, it's really unchanged from our previous conversations. Approximately 70-30.
Okay, great. And then just one other broader question. I know, Dani, you mentioned you've had your stores open for a while now. You've seen customers from almost 90 countries, yet I think you only sell direct really globally in about 37 countries. So how do you view that opportunity and kind of the balance between wanting to address more of that market versus not kind of getting ahead of yourselves based on the experience you've seen in your stores?
I think it just speaks to the long runway that we have and what's important. We want to make sure that we build this business in a careful, thoughtful and disciplined way, and we see that as a testament to just how much opportunity there is. And there's opportunities in so many different ways. Geographic is one of them. And -- but we will continue to be disciplined about it. We don't want to -- we're not going to stop being disciplined because we're excited.
Your next question comes from John Morris with BMO Capital Markets.
A couple of quick ones here. I just wanted to make sure. I'm pretty sure you guys already are. But as of the last call, you hadn't actually been selling the knitwear through wholesale yet. I assume you're doing that now. Correct?
We did actually sell knitwear through wholesale in a very limited way in fall. Not -- it wasn't everywhere, but it was through a few select partners. And that continues for spring.
Yes, good. I figured, yes. Two other quick ones back-to-back here. You already got a question on China, but maybe, Dani, if you can share with us a little bit more color about this -- the cross-border pilot. What that is precisely, how well it's working so far and I guess, what your next step would be beyond that. How does that kind of unfold? And then the other one really is also thinking globally here, to the extent that you can talk about it, plan for new country websites as you look ahead next year.
Yes, for sure. I think -- so with regards to the China pilot, I mean, it's a small initial pilot project, which is valuable for us to learn more about the market. And the more we can learn and spend a lot of time learning lots of things, the better. There's lots of examples of Western brands that have built meaningful businesses in China, and we feel that we can be one of those as well. And it's important to remember, in a development market like this, it's a long-term initiative, and we're focused on getting the execution right. And so the pilot is something which is going to help inform that, and we look forward to letting you know how that goes. With regard to new sites and new sites around the world, I think that it's our objective to ultimately cover the world and have our product available anywhere in the globe where our consumers may live. And look forward to sharing more with you on that as we develop our plans for next year.
[Operator Instructions] Your next question comes from Simeon Siegel with Nomura Instinet.
Dani, do you expect the earlier shipment timing this year to impact the way you'll ship business next year? So just would you expect the seasonality of wholesale revenues to change at all going forward? And then sorry if I missed it, but did you give any update on how the new e-comm launches and store openings compare to the initial launches? I'm just wondering if you're seeing any quicker sales ramp now than before as the brand awareness and appreciation grows.
Sorry, I forgot your first question when I was listening to your second question. Can you ask the first one again?
Sure, Dani. Does the seasonality of wholesale change at all? The way you'll book the revenues, the way you'll ship them?
Right, okay. Yes, I know, understood. I'll go back to a reminder that we look at our business on an annual basis and not on a quarterly basis. And so overall, this year, we were able to ship earlier, and that was great. And perhaps we'll be able to do that next year as well. Either way, it's not going to impact -- it may impact quarter-to-quarter next year. It's not going to impact a full 12-month cycle, and I think that's the most important thing to take away from that.
Okay, great. And then are you seeing any change in the launches? Are they going faster as you have stronger brand awareness?
We are very happy with the way our new stores have performed, and we're also very happy with the way our [ newest ] 2 stores have performed.
Your next question comes from James Allison with Barclays.
Dani, can you talk a little bit about the initiatives that you're rolling out across your manufacturing sites to increase efficiencies? Like -- or can you give a sense of how meaningful it might be to growing your margin?
I'm not going to get into the specifics of how we're doing that. That's proprietary information. But -- and state secrets, if you will. But we continue to focus very heavily on our manufacturing efficiency and on building our in-house capacity. And it is certainly a core competency and something which I'm very confident in.
Okay. And from a mix perspective, has the response to your newer products, knitwear in spring, resulted in a reduction in the percent importance of your core parka for the winter and fall season?
Not -- no. I would say no, it has not. We don't want it to. At this point, we're not looking to our new product -- new categories that we get into are strategic, and we look to them down -- to be material down the road, but not material out of the gate. I'll point you to -- I'll give you an example. I'll point you to our lightweight down, which we launched in 2012. And today, it makes up a much more significant component of our business, and it's growing very quickly. But that was 6 years ago that we launched it. And I think that you should -- I would encourage you to think about knitwear the same way. And we feel that's the right way to approach new products and not to count on them for -- to make or break our year.
Your next question comes from Robbie Ohmes with Bank of America Merrill Lynch.
Just a quick follow-up question. I think you guys are still relatively underpenetrated on the West Coast, right, versus the East Coast in the U.S. Can you remind us kind of the multiyear strategy to bring that West Coast penetration up?
I think a lot of that has to do with product and the development of lighter weight products, developing them, windwear and rainwear as well. We are definitely growing in that part of the world, and we expect to continue to be able to grow for years to come.
Your next question comes from Omar Saad with Evercore ISI.
Great quarter. Nice results. Can you talk a little bit, Dani, as we try to figure out kind of the growth in underlying demand from consumers for the brand, maybe talk a little bit about some of the inventory shortages in your own stores and in the wholesale channel and online. If you can't give us an exact number, but talk qualitatively about the sales and what the kind of revenue growth trend would be if you guys weren't being so disciplined on inventory and were willing to chase sales a little bit more aggressively.
We're not -- I think the thing that's very important, firstly, to understand our business is that we are not a commodity product. We don't want to and we won't commoditize our brand and the products that we make. And I think that others have done so by ensuring they're never out of stock. And in doing so, they also ensure that there comes a time when nobody wants to buy their product anymore. And I think that we don't view this year as having any inventory shortages whatsoever. We -- in fact, we feel that our performance has been spectacular, and we're very happy with how it's done and working on our next year at this point.
So maybe -- that's helpful. Really helpful, Dani. So maybe do you guys have a target kind of out-of-stock ratio that you look for? And does that stay pretty even year after year?
No, we don't have targets like that. We don't manage it in that way.
Is it fair to say the out of stocks were similar year-over-year, the percentage out of stocks?
We don't measure it in that kind of way.
Your final question comes from Meaghen Annett with TD Securities.
Just wanted to follow up on the learnings from the expansion of the DTC channel. So clearly, the results are validating your strategy there, but are there any regions that you're thinking about altering your style offerings in or the planned offering as we go into '19, '20? So I just wanted to get an idea of how those learnings will really affect the mix of product going forward.
Well, I don't like sharing our secret. I think that we have different regions in -- from which we can draw product both for wholesale and for retail. And so we're able to respond whatever the different demand is from any given region in a relatively flexible and robust kind of way, and I think that's -- that sums up how we respond to that. So yes, we will learn from different regions what products are most important and allocate inventory to those warehouses that service those customers to reflect that.
There are no further questions at this time. I will now turn the call over to Dani Reiss for closing remarks.
Yes. So thanks, guys. Thank you very much for joining us today and for being on this call. I -- and we really look forward to speaking with you in a few months when we report our year-end results. Thanks again. Talk soon.
This concludes today's conference call. You may now disconnect.