Canada Goose Holdings Inc

TSX:GOOS

Earnings Call Transcript 2024-Q4

[Operator]

Thank you for standing by. My name is John, and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose Fourth Quarter Fiscal Year 2024 Earnings Call. [Operator Instructions] I would now like to turn the call over to Ana Raman, Head of Investor Relations. Please go ahead.

[Ana Raman, executive]

Thank you, operator, and good morning, everyone. With me are Dani Reiss, our Chairman and CEO; Neil Bowden, Chief Financial Officer; Carrie Baker, President of Brand and Commercial; and Beth Clymer, President of Finance, Strategy and Administration.

We will make forward-looking statements on our call today that are based on assumptions and, therefore, subject to risks and uncertainties that could cause actual results to differ materially from those projected. In addition, the outlook that we provide today supersedes all prior financial outlook statements made by Canada Goose.

We undertake no obligation to update these statements, except as required by law. You can read about these assumptions, risks and uncertainties in our press release this morning as well as in our filings with U.S. and Canadian regulators. These documents are also available on the Investor Relations section of our website, along with our Form 20-F for fiscal 2024, in which you'll find additional information and new disclosures that we believe will strengthen your understanding of our business strategy, business model and performance.

We report in Canadian dollars, so all amounts discussed today are in Canadian dollars unless otherwise indicated. Please note that financial results described on today's call will compare fourth quarter results ended March 31, 2024, with the same period ended April 2, 2023, unless otherwise noted. Lastly, our commentary today will also include certain non-IFRS financial measures, which are reconciled at the end of our earnings press release. For today's call, Dani, Neil, Carrie and Beth will deliver prepared remarks, following which we will open the call to take questions.

With that, I'll turn the call over to Dani.

[Dani Reiss, executive]

Thanks, Ana, and good morning, everyone. Canada Goose reported a solid fourth quarter, growing revenue and adjusted EBIT by 22% and 51%, respectively, year-over-year. Our performance in the quarter surpassed our expectations and capped off an important year of execution across our strategic pillars. For fiscal 2024, we delivered $1.33 billion in total revenue, up nearly 10% over last year, and adjusted EBIT of $171.8 million. I'm extremely proud of the business we are building, of our rich heritage and craftsmanship, and the progress we've made towards transforming our business to achieve sustained rates of growth in the future.

The year included several noteworthy accomplishments and let me share some of those highlights. We expanded our global retail footprint to 68 permanent stores in our key markets, more than tripled the number that we had 5 years ago. We successfully expanded our product offering with our new sneaker line. And importantly, we implemented our transformation program to improve our operational infrastructure and set the foundation for our future growth. As part of this work, we've realized cost savings, lower inventory and simplified how we work, while reorganizing our management team and placing the right leaders in the right roles to improve collaboration, speed to market and the efficiency with which we operate.

While we accomplished a lot in fiscal '24, we didn't make as much financial progress as we would have liked. Some of this was due to external factors outside of our control such as the ongoing challenging consumer environment and the warm winter. But after a period of rapid growth in retail expansion, we also recognized that our resources were spread across too many priorities impacting our ability to deliver on our ambitious near- and long-term targets. To this end, our leadership team began our fiscal '25 planning process with the goal of operational excellence in mind.

We exited this process with the 3 strategic growth pillars we communicated last year intact. As a reminder, these were building a DTC network, driving consumer-focused growth and product expansion. We also emerged from that process with 3 critical operating imperatives for this fiscal year, which focused on us doing fewer things really, really well. These things are: number one, setting the foundation for the next phase of our product and brand evolution; two, implementing best-in-class luxury retail execution; and three, simplifying our business and the way we operate.

Our first imperative focused on product and brand is underway as we welcome our first-ever Creative Director, Haider Ackermann to our company. Haider is influential in the luxury space and will lead the evolution of our product vision as we've reached an inflection point in our brand's growth. When I met Haider, it was clear that he understood our heritage and our vision to be an enduring luxury brand that leads with function, craftsmanship and style. With Haider onboard, we intend to elevate the Canada Goose brand and take our offering to another level.

From our new design studio in Paris, Haider will be working closely across our teams to integrate Canada Goose values and vision in innovative ways over the coming seasons. While his first seasonal capsule collection will be available in the 2024 fall-winter season, his mark on our company is already visible with renewed excitement and energy across the entire organization. Yesterday, along with our announcement of Haider's appointment, we launched a new hoodie he designed benefiting Polar Bears International, a long-standing partner to raise awareness of the impact of global climate change.

This launch features an integrated marketing campaign with Academy Award-winning actor, producer, author and activist, Jane Fonda, with proceeds from the sale of the sweatshirt going to PBI to fund vital conservation research and education that they do. We are super excited to have Haider onboard and to see his vision unfold across our product portfolio. On our call today, we will discuss our fourth quarter results and accomplishments and share more details on our key operating imperatives for fiscal 2025, as we prepare the next phase of our growth.

Before I pass it over to Neil to discuss our financial performance, I want to thank our exceptionally talented and hard-working team. You are the backbone of our company, and we truly value your passion and your contribution. And to the investor community, we are still only a $1.3 billion Canadian revenue brand in this space with significant market potential, and we are just getting started. You will hear from us today that we have work to do, but also that we have a strong team in place, an incredible brand, and a plan we are all confident in delivering this year. We are super energized to unleash our potential.

[Neil Bowden, executive]

Thanks, Dani. Stepping into the CFO role at this moment is exciting, and I look forward to sharing more about the financial performance of this iconic brand today and on future earnings calls. I'll first provide a review of our Q4 financial performance and later discuss our outlook for fiscal '25. Revenue in our fourth quarter increased 22% year-over-year or 23% on a constant currency basis to $358 million. D2C sales of $271.5 million grew 19%, or 21% on a constant currency basis, over the same period last year. Our D2C performance was driven by strong retail sales in Asia Pacific, supported by healthy traffic in advance of Lunar New Year. And in North America, as online traffic increased in January, with the later onset of more seasonal weather versus last year.

Breaking this down further. First, from a sales channel perspective, store comps were relatively flat, while e-commerce experienced outsized positive performance, mainly on the strength of improved return levels this year compared to last year. Store sales represented over 70% of our overall D2C revenue both in Q4 and for the full fiscal year. Second, at the regional level, both North America and Asia Pacific delivered comparable sales growth in the mid-single digits during the quarter. This performance was noteworthy, especially in Asia Pacific as the region comped against a very good Q4 in fiscal 2023.

EMEA experienced a more promotional environment among both competitors and wholesalers, which challenged our D2C execution. A note on our sales per square foot. For the year ending March 31, average sales per square foot for stores opened for the full 52 weeks in fiscal '24 was $3,963 per square foot, which was relatively flat to the average sales per square foot of stores opened for the same period of time in the prior fiscal year. While this is a very strong sales per square foot baseline that we are proud of, it is below historical levels as higher sales per square foot in Asia Pacific during the fiscal year was offset by lower sales per square foot in both North America and EMEA.

You've heard us talk about the $4,000 per square foot threshold with regards to our store economics, and we expect to work towards this as a key performance indicator in our D2C segment as we improve the efficiency and execution of our retail operations. Carrie will share some of the detailed tactics that we expect will deliver results shortly. In Q4, wholesale revenue of $41.4 million was down 9% year-over-year or 8% on a constant currency basis. This reflected our strategy to tighten supply to wholesale partners in a softer wholesale business environment and the continued [ dwindling ] of partners that are not aligned with our brand positioning.

Q4 revenue in our Other segment was $45.1 million compared with $20.2 million in the same period last year. As a reminder, this segment comprises revenue from sales to employees, friends and family sales and third-party sales from our newly acquired knitwear facility. The year-over-year growth in this segment is primarily the result of additional friends and family sales conducted versus the fourth quarter last year, which is in line with our inventory management strategy, as Beth will detail shortly. Less of a factor, but still meaningful, was our employee sales program that was implemented this past fiscal year and allows our people to purchase product at a significant discount, empowering them to be brand ambassadors around the world.

Moving to a brief regional overview. In Q4, Asia Pacific was our fastest-growing region with revenue up 33% on a constant currency basis over the same period last year, supported by domestic shopping in Mainland China and Mainland Chinese tourists driving strong growth in Hong Kong and Macau, reflecting positive consumer response to our ongoing product planning and merchandising efforts. Online and in-store sales in the period were bolstered by our Lunar New Year marketing campaign and complemented by a longer peak selling period given the later date of Lunar New Year compared to last year.

We also saw a significant increase in tourists from Mainland China shopping at our Japan stores in Q4, contributing to double-digit sales growth in that country. Overall, Chinese clients increased spending with us both domestically and outside of their home market, reflecting the strength of our brand with this important consumer cohort and despite macro and economic pressures impacting that market.

North America revenue increased 24.2% on a constant currency basis over the same period last year, with each of Canada and the United States delivering more than 20% year-over-year growth on the strength of new stores in the U.S., D2C comparable sales across the region and successful execution of friends and family events. EMEA grew 2.7% year-over-year on a constant currency basis, supported by sales from our new stores and friends and family sales during the quarter, but continued to contend with pressured consumer spending and an intense promotional environment.

On product. Q4 provides a unique opportunity for our consumers to experience the full range of our product assortment. We started the quarter with strong performance from Heavyweight Down, owing to more typical seasonal temperatures as well as Lunar New Year. As the quarter proceeded in much of the world embraced spring, we saw significant growth in apparel, specifically fleece and sweats and our everyday collection, which includes windwear. These categories have increased materially over the past few years as we have broadened our offering.

Turning to gross profit. Our fourth quarter gross profit grew 22% year-over-year to $233 million, driven by higher D2C and other revenue, leading to 20 basis points of gross margin expansion. Q4 D2C gross margin increased 60 basis points to 73.9% due to pricing, favorable freight and duty and product mix, partially offset by an inventory adjustment related to our Generations business.

Wholesale gross margin rose 400 basis points to 39.6%, mainly due to raw material provisions taken in Q4 of fiscal '23 that did not recur this year, partially offset by a lower proportion of Heavyweight Down sales in our product mix during the quarter. D2C operating income increased by $14.4 million year-over-year in Q4 to $104.8 million. Operating margin, however, declined 110 basis points despite modest gross margin improvement due to the number of new store additions despite D2C comparable sales growth.

Wholesale operating income was $3.9 million with an operating margin of 9.4%, up $0.2 million and 130 basis points, respectively, over last year due to the improvement in wholesale gross margin, partially offset by operating deleverage on lower wholesale revenue during the quarter. Adjusted EBIT was $40.1 million, up from $26.6 million in Q4 last year due to higher gross profit, partially offset by higher SG&A spend.

The increase in SG&A spend was primarily due to costs associated with the expansion of our retail network. While SG&A costs related to our transformation program are excluded from adjusted EBIT, we wound down our consulting engagements and associated costs related to the program in Q4. We also took an $11.1 million severance charge as a result of the workforce reduction completed in March, which has been adjusted.

Finally, Q4 adjusted net income attributable to shareholders was $19.3 million or $0.19 per diluted share, with some EPS benefit realized through our active buyback program during fiscal 2024 when we repurchased approximately 7.8 million shares throughout the year, including 1.7 million in Q4 alone.

Turning to our balance sheet. At year-end, inventory was $445.2 million, down 6% year-over-year, driven by a notable decrease in finished goods and raw materials, offset by an increase in work-in-process as we onboarded our new knitwear facility. We ended the year with $584.1 million of net debt on our balance sheet compared with $468.1 million at the end of the fourth quarter of fiscal '23.

Our net debt leverage at the end of Q4 of 2x adjusted EBITDA was well within our acceptable range, down slightly compared to 2.1x at the end of Q3 but up from 1.7x at the end of Q4 of fiscal '23 due to lower cash levels on hand at the end of this fiscal year.

Now on to our transformation program. In February 2023, we shared a target of achieving $150 million of transformation program benefits. As a reminder, this target was a combination of hard cost takeout; store and marketing productivity, which means higher revenue and improved operating margin on that revenue; and future cost avoidance. In fiscal '24, we realized approximately $30 million of in-year benefits related to the transformation program that is captured in our annual results that we are reporting today, split evenly between cost savings, including headcount and productivity.

It is not lost on us, however, that while delivering $30 million of benefits is a significant achievement, we have also reported flat adjusted EBIT compared to our last fiscal year. This is simply not good enough. To build on these efforts and improve operating leverage, which is the ultimate goal of this program, we are rolling the work streams of our transformation program into the operating imperatives, Dani mentioned earlier.

We believe this will lead to lower SG&A as a percentage of revenue through measurable and observable cost reduction and improvements in our D2C comp sales. The first concrete step, which simplified our organizational structure and will lead to immediate improvement in the cost base was the reduction of our workforce at the end of fiscal '24. That wraps up the financial summary for our fourth quarter.

I'll now hand it to Carrie and Beth to discuss our 3 operating imperatives for the year, and I'll be back after that to share our fiscal '25 financial outlook.

[Carrie Baker, executive]

Thanks, Neil. As Dani mentioned, our 3 key operating imperatives for fiscal '25 are number one, product and brand evolution; two, best-in-class luxury retail execution; and three, simplifying our business. I'm excited to share more context on the first 2. So let's start with our product and brand evolution. Canada Goose is globally renowned for warmth and outerwear. Our opportunity and our aspirations, however, are much bigger. We are on a journey, one that delights our customers across all seasons, in all regions and enables them to thrive in any environment. We've already made great strides. Customers are increasingly choosing Canada Goose for different occasions and different climates.

Of course, we remain top of mind for protection from the cold, but now also for our lightweight puffers, sweaters, apparel, windwear and rainwear and, of course, footwear. Some of our best-selling products last year include our HyBridge knit jacket, the Huron hoodie and the Stormont zip sweater, indicating just how far we've come in expanding our share in the closets of our loyal clients and becoming a brand of choice beyond the Parka.

Our opportunity and task now is to drive this at scale. We also know we have an opportunity to make more significant strides on the style spectrum while retaining our heritage as a function-first brand. We've taken a major step forward in this with bringing Haider Ackermann on board, who we believe will help us bring fresh energy, style and a new boldness into our offering. At the same time, we're reshaping our approach to brand building and marketing. Our brand strength remains, and we are well recognized all over the world, but we have an opportunity to inject new energy and significantly grow our customer base as we attract new audiences and deepen our relationship with our existing customers.

This year, we plan to invest in our brand with a focus on big brand moments and bolder brand expressions to accelerate brand momentum, meaning we plan to execute fewer brand stories with greater impact. We've built this brand on a belief that it's more powerful to make impressions than buy them. And in that way, we're returning to our roots. What that involves is a multipronged approach from more tightly curating our social media content to beefing up our celebrity and influencer programs to creating disruptive experiences that can only be delivered by Canada Goose.

This is different from how we've executed marketing over the past few years, but it's an old family recipe that we know delivers. The campaign we launched yesterday with Haider, and cultural icon, Jane Fonda, is a great example of how we intend to show up this year. With a more tactical lens to drive new customer acquisition and repeat customer engagement, we're leveraging more targeted marketing activations through e-mail, direct outreach and curated in-store events that we started in earnest last year around things like NBA All-Star Weekend and Lunar New Year, which generated solid revenue and EBIT.

And our e-mail campaigns in Q4 generated 55% more revenue compared to last year's campaign as we scaled automated journeys, increased the frequency of communications and implemented greater personalization. We believe that digital marketing initiatives like these, plus our work to improve the content and speed of our e-commerce sites will be a tailwind to fiscal '25 revenue, but it's important to understand that we will be focusing most of our resources on our retail store network.

A big part of our brand evolution and showing up differently extends to our wholesale channel, which remains a vital part of our distribution network. We continue to reset and refresh our wholesale footprint to focus our efforts with partners that are aligned with our luxury brand positioning by first tightening the supply of inventory, which helps increase the exclusivity of our product and allows us to better control how our brand shows up to customers.

And second, by continuing to reduce the number of partners and number of doors within our larger partners. We will make significant headway on this front in fiscal '25. As Neil will describe more, we expect this activity to result in the decline in wholesale revenue next year. However, we strongly believe that this pullback will more effectively support our DTC growth in fiscal '25, better elevate our brand and regrow this channel in the future.

So let me now give some color and context to our second operating imperative, which is implementing best-in-class luxury retail execution. In Q4, we added new locations in Honolulu, Hawaii; Nanjing, China; and Melbourne, Australia; bringing our permanent store count to 68 at the end of March.

With only 7 years under our belt as retailers, we're proud of the speed and breadth of our retail expansion, particularly given the fact that we did it during a very disruptive global pandemic. But we also know we must get more out of the store network we have, which is why retail execution will continue to be a key area of focus.

As part of our recent org streamlining, our global store function was moved to Dan Binder, who has decades of luxury retail experience and now has end-to-end oversight over our global stores and sales planning and operations. With this updated structure, we are doing 3 things to increase the productivity of our global network.

First, we are slowing the pace of new store openings. We plan to open 3 new stand-alone stores this year compared with 14 out of the 17 permanent stores opened in fiscal '24 being stand-alone. In addition, in FY '25, we will open 4 concessions and convert 3 temporary stores to permanent. This change in pace is intentional, and this year allows us to focus primarily on driving sales productivity and comp sales growth in our current footprint.

Second, we are leveling up our retail operations and processes. You all know the saying, retail is detail. We are still a young retailer and learning how to perfect our operations alongside rapid product and geographic expansion. In fiscal '24, we started to introduce initiatives focused on enhancing merchandising planning, localizing product assortment as well as improving labor productivity and our returns process, all informed by our transformation program. We saw some benefits in our early phases of implementation, and we still have work to do across these areas and others to address the foundation of our network as well as the resilience so we are well equipped to compete even when external conditions are not favorable.

As a result, we expect to more profitably grow our sales as we better align product assortments by store to best serve their customers, better balanced team schedules with traffic levels and optimize the replenishment process to ensure we deliver the right products in the right place at the right time cost effectively.

The third area of retail execution is to elevate the customer experience. In luxury, experience is everything. Our Canadian warmth program is at the core of ensuring the in-store consumer journey feels distinctly luxury and Canada Goose to convert browsers into longtime repeat customers and brand advocates. Our focus in fiscal '25 is to embed this at scale across our network. Our goal is a more consistent execution of Canadian warmth achieved by stepping up our trading programs and implementing relevant and compelling incentives to generate conversion, cross-sell and upsell benefits. All of this work will take time; however, we believe we will unlock significant value this fiscal and cement best practices for years to come.

Now I'll pass it over to Beth, who will discuss our third operating imperative for fiscal 2025.

[Beth Clymer, executive]

Thanks, Carrie, and good morning all. I'll now talk about our third operating imperative. To simplify and focus the way we operate. We are doing this with 2 anchors: internal operating excellence and focused capital deployment.

First, achieving internal operating excellence. Put simply, this means we need fewer people working more effectively on fewer priorities and ensuring the results show up in our KPIs and in our P&L. As part of the org changes we made in March, we reduced our headcount, but it was about much more than just saving money. It was also about greater speed and agility. As we streamline the organization, we also got our structure right. We increased our spans of control. We combined teams that were working on overlapping tasks or silos have been making us less coordinated and less efficient.

For example, in our operations organization, prior to the March changes, we had 12 people at the VP level and above. While this part of our organization is obviously large and complex given our manufacturing footprint and our global supply chain, candidly, this was just too much management overhead and led to additional complexity and silo behaviors. Today, after the changes, we have only 6 VP in our positions in this function, a reduction of 50% and those leaders are working more cross-functionally, nimbly and effectively together to drive results. There are examples like this across the business.

Overall, we eliminated over 25% of senior management roles in our corporate organization compared to the total 17% headcount reduction. We've also eliminated meetings that aren't necessary anymore. Killed reports that took time, but weren't being used to drive the business. All of this is about simplifying how we work. We are also narrowing our focus on initiatives we believe will drive more impact.

Some examples we've already shared today including opening fewer stores and dedicating the resources we've freed up to retail execution, also making fewer and more focused marketing bets. We're using data more rigorously to ensure we're making progress against these initiatives and driving accountability through the organization. Fewer people working more effectively on fewer priorities and driving the results, that's operating excellence.

Second, we plan to deploy less capital expenditures in fiscal '25. Specifically, we're investing in a very selective group of new stores and a priority set of technology investments that bolster our retail operations, such as intelligent order management as well as in the data architecture that supports our efforts to be a more data-driven organization.

We also plan to rightsize our inventory levels this year. Our inventory position is unique in a very positive way. We're vertically integrated for a large majority of our products. We carry high-quality evergreen inventory and our products are sold at full price in our mainland stores, and they're actually sold for more in the second or third year than they were in the first.

That means we have lower obsolescence markdown and margin risk. These are great strengths, but it also led us over the past few years to probably build more inventory than we should have. We wanted to be prepared to meet the demand if it occurred and we knew the inventory would hold its value. In fiscal '25, we'll shift that. Focus on increasing our inventory efficiency, bringing up working capital and improving cash conversion. To do this, we are temporarily reducing production levels. First, with our third-party contract manufacturers and also at our own manufacturing facilities.

We're also continuing a responsible build-out of an exit inventory strategy. Over the last year, we have thoughtfully used friends and family sales to exit slow-moving and discontinued inventory. As a full-priced brand across our mainline stores, this is an environmentally friendly and brand-led way to exit discontinued styles and broken size runs.

We'll continue to leverage these in fiscal '25. We expect these 2 efforts, plus achieving the sales goals that Neil will outline to help us improve our inventory turns from approximately 0.9x in fiscal '24 to above 1 in fiscal '25. We've accomplished a lot in fiscal '24 and so far in fiscal '25, simplifying and focusing the way we operate, and we look forward to sharing more on this over the course of the year.

I'll now pass it over to Neil to wrap it up with our outlook for fiscal '25.

[Neil Bowden, executive]

Thanks, Beth. To start, for fiscal '25, we are resuming annual financial guidance, which was our practice prior to fiscal 2021. We believe that an annual view rather than quarterly offers better insight into and understanding of our evolving D2C model in the context of the seasonal nature of our business. It is also another example of simplification. While our business planning requires a detailed focus on every consumer who visits our retail stores and every jacket that we produce in our manufacturing facilities, our business is planned over the annual cycle as we maintain a relentless focus to deliver throughout our peak season, even as demand for our products expands beyond this time frame.

It is a key objective for the entire Canada Goose team to prepare for and execute on this massive opportunity, both from a consumer and revenue perspective. Our outlook for fiscal '25 continues to expect pressure on consumer spending due to the higher interest rate environment and geopolitical uncertainty. Also, while the team is focused on executing our operating imperatives, we acknowledge the change is hard and as a result, expect the benefits of our work to be reflected gradually in our KPIs over fiscal '25 with more meaningful impact in the years ahead.

With this in mind, in fiscal '25, we anticipate total revenue to grow in the low single digits year-over-year, with an approximate 25%-75% split between the first half and second half of the fiscal year, respectively. We expect our D2C business to drive top line growth, primarily due to low single-digit D2C comparable sales growth, largely driven by our efforts to strengthen our retail operations as well as incremental revenue from our new stores you've heard about, the majority of which we plan to open ahead of our peak selling season.

Specifically, we plan to add 10 stores to our permanent store count, which includes 3 new stand-alone locations, 3 conversions from temporary stores and 4 concessions. Therefore, while we expect to incur less capital expenditure related to new stores this year, we also expect less of an incremental top line impact from this cohort on a per store basis. While we expect overall unit sales to grow in fiscal '25, we anticipate a continued shift in our product mix towards our emerging categories. Also benefiting revenue growth is an average mid-single-digit price increase over last year across our D2C and wholesale channels in line with fiscal '24.

We expect revenue growth driven by these factors to be largely offset by a year-over-year decrease in wholesale revenue of approximately 20% as we tighten the supply of inventory to our wholesale partners with a reduced order book, await inventory levels in this channel to improve and continue rationalizing our wholesale accounts to elevate our distribution in that channel.

Consolidated gross margin percentage is expected to be similar to fiscal '24 as benefits relating to the continued shift to D2C and pricing are offset by higher production costs on lower planned output. As a result, D2C operating margin is expected to be relatively flat with the prior year and wholesale operating margin is expected to decline driven by lower revenue, further deleveraging fixed costs. Corporate costs are also expected to be down year-over-year.

Continuing with SG&A, the consulting fees and severance costs with respect to our transformation program of approximately $40 million in fiscal '24 will not recur from this year and while they are not adjusted in our metrics for either period, they are important to isolate. Annualized transformation program benefits of approximately $25 million are expected to flow through our P&L, which includes some headwinds for inflation and annual people cost increases. These are further offset by a planned bonus for senior management levels for fiscal '25, which we did not pay in fiscal '24 in light of performance against our expectations as well as key investments in our operating imperatives, particularly in our new Creative Director and Paris Design Studio.

Overall, we expect SG&A expenses after considering these factors to be flat in dollars compared to the prior year with an improvement as a percentage of revenue. When we add it all up, we expect adjusted EBIT margin to expand by approximately 100 basis points compared to fiscal 2024. Finally, we expect adjusted net income per diluted share to grow by a mid-teen percentage over last year with weighted average diluted shares outstanding of approximately 99 million for the balance of fiscal '25.

Finally, we are providing an update on our long-term financial outlook. Over the past year, business conditions have changed significantly, and we're operating in a more challenging consumer environment since our long-term outlook was shared in February 2023. As we've discussed today, we also recognize that there are foundational pieces of work we must continue, particularly around D2C execution and operational discipline, leading to improved top line performance and EBIT margin expansion.

Therefore, we believe it is prudent to remove our long-term financial targets. We continue to believe that Canada Goose has the potential to grow to significant scale, given our rich heritage, iconic brand and the considerable white space opportunity that lies ahead of us in terms of product, consumer and D2C expansion.

During fiscal '25, we expect to make significant progress on the operating imperatives you've heard about today. And at the appropriate time, when we have established a pattern of success with a clearer line of sight to build on that success, we plan to reintroduce long-term financial targets.

As Dani said, and I'll reiterate here on behalf of the Canada Goose management team, thank you to our committed group of people around the world who are passionate about Canada Goose and are relentlessly focused on delivering for our consumers every day so we can collectively reach our potential.

We'll now turn it back over to the operator to begin the Q&A.

[Operator]

[Operator Instructions] The first question comes from the line of Brooke Roach from Goldman Sachs.

[Brooke Roach, analyst]

As you evaluate the key initiatives you've identified today as well as the commentary that you provided about the benefits of the work to be expected gradually becoming more meaningful over time, can you provide some guardrails that you're currently thinking about the path and pace to stronger margin and profit improvement beyond FY '25 understanding that you're not providing an updated long-term guidance?

[Neil Bowden, executive]

Brooke, thanks for your interest and good to hear you. I think at this point in time, you've heard the commentary in the script that our focus is entirely on fiscal '25 and building in the operating discipline that's necessary for us to feel more confident about what the long-term margin profile could look like and the pace at which we would get there. And so I think at this point in time, we're going to just remain silent on fiscal '26 and beyond. Although without a doubt, the level of conviction in this organization at the management table, at the Board table is very high on what the potential is for this business, and we intend to pursue that.

[Brooke Roach, analyst]

Great. And just one quick follow-up. As you think about the opportunity for fiscal '25 revenue growth, you identified an opportunity for some improvement in sales in the year. Can you provide a little bit more color on how you think that sales growth might break down by geography? What are you expecting for the macro versus the Canada Goose initiatives that you've identified today for both North America, China and EMEA?

[Neil Bowden, executive]

Yes, sure. I'll start with the macro. And I think the data points that we would look at would be sort of what a bank consensus look like and look around at what our peers are saying. I think the view of sort of being a mid-single-digit growth for the luxury business is kind of the consensus. Our experience in China over the last -- and really in APAC over the last 3 months has been more or less in line with that, and as we noted on the call, against a pretty strong comp period.

And so we feel pretty good about the pace that we've experienced in terms of operating performance there in that part of the world. North America has been under a little bit more pressure. And as we noted, the market in Europe, at least as it relates to our business, continues to be pressured. And a little bit of that is the wholesale situation and what those businesses are feeling and how that's impacting the D2C business.

If we zoom out, we're looking at sort of mid-single digits growth on -- in total on revenue. The major components of that are that the D2C business will grow, and we think it will grow meaningfully. We see comps being somewhere in the low single digits, which pricing helps. Mix is a little bit of a negative. The big issue we're facing is as we normalize the wholesale business, it's a major headwind and it's a major headwind both on the top line as well as on EBIT. When we see our way through that, we'll be very -- we feel very good as a revenue story.

[Operator]

The next question comes from the line of Adrienne Yih from Barclays.

[Michael Vu, analyst]

This is Michael Vu on for Adrienne Yih. So related to the cadence of releasing new products, what is the strategy on a typical release? And do you release the product at specific stores or in specific geographies? And finally, what are the steps and strategies to roll out the product everywhere across?

[Dani Reiss, executive]

Thank you for your question. We -- this year, we have on top of our normal cadence of releasing products over time and the newness that we bring our new Creative Director, is going to infuse a whole level of new energy and excitement into our product line that started yesterday in fact when we launched our first product line, which is a PBI Hoodie for charity. And beyond that, we're going to see drops of his capsule collections into our retail stores in fiscal '24 and beyond that in every relevant period following.

[Michael Vu, analyst]

Great. And then as a follow-up, when adding additional SKUs into the product mix, do you have any internal targets? For example, like in FY 1Q '25 or FY '25, you saw a certain number of SKUs? Or is it more dependent on market trends rather than a specific number?

[Dani Reiss, executive]

Yes. I think that we look at the correct number of SKUs that we need to have for business and we always -- every time we introduce new product categories and product lines, it's not always new categories, but new products in general. Our target margin is in line with the rest of the margin for rest of -- for the business, in general.

[Operator]

The next question comes from the line of Oliver Chen from TD Cowen.

[Oliver Chen, analyst]

A lot of exciting announcements on Haider Ackermann, his DNA is from Paris and Belgium and Galiano, quite sophisticated. Just what was your vision for and why he's the best for this role? Also, and as you see the evolution of what he does, what might be earlier or later in terms of how you're thinking about the sequencing and also the non-Parka opportunity. Also just a follow-up, North America e-commerce, that number was quite robust overall. What's happening there in terms of conversion rates and what you're seeing with traffic and if you're happy with it?

[Dani Reiss, executive]

Thanks, Oliver. I mean, yes, I mean, we have talked a little bit about Haider. We are so excited to have him join us as Creative Director, and we're so excited to make the announcement yesterday. This was a search, which is a long time in the making. It took me probably somewhere in the vicinity of 2 years to find the right person and I met all kinds of people from all over the world through this time.

And I met Haider, he really struck me as somebody who shared my vision, who understood that Canada Goose is a function-first, quality, craftsmanship driven brand and something that he really felt that he could help elevate it to the next level, which is at this point in our journey, we feel as inflection point moment. He felt that he could really add to that, and he really wanted to, and this is something he found to be very exciting. We had certainly had a meeting of the minds on that. And we -- and so that's how we made the decision. And we're both super excited about the future and about all that has to come.

And this PBI, anecdote about this PBI hoodie that came out yesterday and one of the first things that we did when he joined us, was that we went up to Churchill, Manitoba, got to visit the home of the polar bears and Polar Bears International that we've been supporting for almost 15 years or over 15 years at this point. And Haider and I went up there, and he really got inspired by the landscape and by the bears and by the people and he said to me, "I'd like to design this hoodie and I'd like this to be the way we launch our partnership," and we roll with that. And we launched this product yesterday with tremendous commercial success on its first day and really, really excited for the future and what's to come.

[Carrie Baker, executive]

Oliver, let me talk to you about North America e-comm. So yes, e-comm is doing well, e-comm sales were up. Traffic, UPT, both up year-over-year, I would say, for North America, specifically, conversion remains an opportunity. So I think it's both in-store and online, but we're happy to see traffic up, happy to see UPT up, AUR up, but we'll obviously see an opportunity and that's a focus for us. And so that gives me comfort. Our brand is strong. We're getting the traffic. I think for us, the idea is how do we convert those into actual sales. I will just say something on e-com.

We -- there are going to be a lot of things that we're doing, whether it's site speed improvements, whether it's how we show up online is going to look a little bit different, now that we have Haider onboard and showing up -- helping us show up in a different way. But the most of our focus in terms of conversion and where are the majority of our initiatives and our investment is going to go is, in stores. We see that as really being the biggest driver of impact in revenue growth this year.

[Operator]

The next question comes from the line of Rick Patel from Raymond James.

[Rakesh Patel, analyst]

Congrats on the strong end to the year. A question on gross margins being plain flat year-over-year in fiscal '25. Hoping you can provide additional color on the increase in cost that you're seeing that are offsetting the positive impact from the mix shift towards D2C? And I know you're moving away from quarterly guidance, but curious if you can provide any color on the shape of gross margins as you move forward?

[Neil Bowden, executive]

Sure, Rick. Thanks for the question. As it relates to gross margin flat for the year, we've got obviously a benefit on the pricing, but as we take a look at the inventory levels and supply, we've been a little more surgical about planning our inventory build this year. And as a vertically integrated manufacturer, advantages around having flexibility are very significant. But at a time when we slow production a little bit, we've got to absorb some additional fixed costs. And so we're expecting that's going to be a little bit of a headwind for this year.

And that will work itself out as we sort of realign those production levels with what the -- it looks like as the years progress. As it relates to quarterly shape of gross margin, I'll frustrate you a little bit. In that, we're pretty clear about sticking to the annual profile. You can make assumptions about given the revenue guide, what that will look like, and I think more or less channels will be in line with where you'd expect over the year. And so I think that whatever your assumptions are for quarterly progression of revenue and channel split, the margins will follow.

[Rakesh Patel, analyst]

Also a question on D2C expectations for fiscal '25. Can you provide any additional insights on how we should think about comparable sales by region?

[Neil Bowden, executive]

Yes. I mean I think at a high level, comp sales by region sort of squares with our view of what the health of those markets are. And so Asia, Asia Pacific and one level down in China, we certainly are drafting off of a pretty decent Q4, and so we'd expect those -- that to probably be the strongest region, followed by North America, where there's clearly still some headwinds around consumer spending and specifically consumer luxury spending. I think in Europe, our expectations are a bit more moderated. But in all cases, we're anticipating to be slightly positive in comp.

[Carrie Baker, executive]

And just if I can add to that, I think one of the things that gives us confidence is that we're already seeing, I think, North America, in particular, our share of transactions from repeat customers is up year-over-year, and so we'd expect that to continue. And then specifically, when you look at the U.S. in terms of number of stores. So last year, we opened 16 versus 8 the year previous. So we have lots of opportunity to be driving those comps, and that really is our focus for the store team.

[Operator]

The next question comes from the line of Michael Binetti from Evercore.

[Unknown Analyst]

This is [ Jaclyn, ] I am on behalf of Mike. I would just want to ask on the SG&A leverage there. The guidance implied roughly about 100 basis points of leverage, but the D2C, given wholesale has guided down 20%, the mix shift is likely to be a headwind. So I just want to know what the puts and takes are and what's driving the leverage there? And on the wholesale guide down 20%, in terms of cadence, are we expecting this to be first half weighted and then improved second half into the year? How should we be just thinking about this? And just to clarify, I guess, you guys mentioned ASP is up across both D2C and wholesale, but revenue is only guiding up low single digits in the year. Does this imply that overall units is down?

[Neil Bowden, executive]

Sure. Thanks for your questions on the business. So I'll repeat what I said in the prepared remarks as it relates to how the EBIT margin is going to flow through. So we're expecting to be more or less flat in terms of operating margin inside the D2C channel, although the operating margin -- the operating segment -- operating dollars will increase, operating dollars. And so you're going to get a little bit of leverage out of an increase in the absolute dollars there. Wholesale, you're going to see some deleverage, 20% decline in the top line despite the fact that we will and have taken some measures around cost, we're not going to be able to fully offset that. And so we're expecting to see some deleverage in terms of the operating margin there.

And then as we noted, corporate costs will be lower than they were last year, which is really a flow-through from transformation program and some tailored and very surgical investments around some of the operating imperatives of the business. As far as the wholesale guide goes, our pattern of wholesale business on a quarterly basis is more or less established.

And so I would anticipate that -- to the extent that you're using that as a baseline, that 20% decline is a reasonable baseline, although we're not going to guide specifically on a quarterly or first half, second half basis. And then last, on the low single digits is volume impacted? I think in pricing dynamic, it's important to understand because we've suggested that we're going to be mid-single digits on pricing, that is positive, obviously, to the overall story.

But the mix within those categories is really critical to understand and specifically inside the D2C business where some holes -- some Heavyweight Down rather growth is expected, although very moderate, and we will continue to expect to see some of those other categories where we've seen really material growth, whether that's apparel and inside apparel fleece or whether that's accessories, footwear is starting to come on. And so on a unit volume basis, I'm not sure it's as relevant as how the mix is moving and how we're protecting that gross margin as the mix moves.

[Operator]

The next question comes from the line of Irwin Boruchow from Wells Fargo.

[Irwin Boruchow, analyst]

Neil, just wanted to ask about the DTC business. So I know we're not talking about anything beyond this year. But I guess at a higher level, you gave some of the metrics on how the business looked last year. Can you just maybe tell us like what are the KPIs you're really looking for as you kind of moderate growth, whether it's sales per foot, 4-wall margins, op margins, just -- basically, what are you looking for to see that you're ready to maybe start accelerating the growth again? Or conversely, what are you looking at to maybe make a decision down the road that maybe we need to call the fleet a little bit because it's not meeting expectations?

[Neil Bowden, executive]

Yes. I mean I'll just -- I'll stop right there at the last point that there's no consideration of calling the fleet, although as any good retailer will tell you that once you establish a strong performance track record, you want to ensure that everything in the fleet is delivering above that track record and that would be the patter I'd expect us to follow. As it relates to -- I'll speak about stores specifically because I think that's the nature of the question.

We certainly want to be driving top line because that in this business with such a healthy gross margin profile, that allows us to leverage. And so we want to have stores that are well above our $4,000 square foot productivity levels, we need comparable sales growth to be at least in the mid-single digits on a sort of a normalized basis and Carrie talked about a lot of the options around that. But none of that is great unless that translates into really healthy 4-wall EBIT. And so we know we have some work to do there around execution within our stores.

We're certain that as the product expansion occurs and we start to spread into some of the other seasons, there's opportunity there, but that's more of a medium-term situation. In the next 12 to 24 months, this has to be about what we do in the stores every single day and what we do in the support office is to ensure that they're best prepared to deliver.

[Irwin Boruchow, analyst]

Got it. And then maybe at a high level, just what are your expectations, specifically in North America, but obviously, by region, if you can? Just on the inventory backdrop for outerwear in general, maybe at the higher price point, maybe the mid-tier, just trying to understand like what are your expectations in terms of how competitive the category might look as you kind of get closer to the winter season? Are you -- does inventory look aligned when you look at other brands? I'm kind of just talking more big picture, not so much your specific business. Just trying to see, is that part of the reason for the wholesale pullback that you just kind of don't want to play in that channel, if that's what's going to go on? So just kind of curious what exactly your expectations are there?

[Beth Clymer, executive]

I'll take that one. This is Beth and Carrie may add on. Look, this is a competitive market for sure. And so we saw competitive intensity to be strong in fiscal '25. We expect that will be the same next year. That said, we, particularly in outerwear, have a real ownership position, and so we plan to continue to capitalize and leverage that strong brand strength we have in our D2C channels and in wholesale.

But to your question, specifically about wholesale, yes, that pullback is in large part to control the inventory that's in the channel and make sure our brand is being represented correctly and secure the inventory to be in our own D2C channels where we can deliver really the customer experience we want. But Carrie, anything you'd add to that?

[Carrie Baker, executive]

Yes. It's less about -- it's not really -- I mean, of course, inventory is a factor. But I mean, we still see massive potential in whether it's from price points that we're currently not serving a customer on particularly in outerwear. So again, Haider, his capsules will come in, we expect those to probably be at the highest end of our price points, but we also believe that there is other room to introduce other products. Again, we're not -- we have no interest in going down market.

As Beth said, we own this. We have a very ownable position and it's exciting for us to be able to really fulfill into that. But I think for us, the biggest focus is about the brand and how it shows up. So I talked about wholesale being a reset, but it's also a refresh. And so we want to make sure that our customer that walks into our store also has a similar experience in seeing the brand show up in the way that we want to, which -- that's our biggest focus to make sure and we think that is going to drive the health of that channel.

[Operator]

The next question comes from the line of Jonathan Komp from Baird.

[Jonathan Komp, analyst]

I want to follow-up, Neil. I know you're suspending talking about formal targets beyond fiscal 2025. But you did mention more benefits of the actions you're taking this year and the years to come. So just curious, as you think about the long-term margin profile of this business, is it still realistic to think back to the mid-20s at some point? And any sort of reference or context around really a credible path to get back there?

[Neil Bowden, executive]

Yes. I mean, I don't have any doubt that where we've been historically is a place that we can get back to. And that -- just to be really clear, that's mid-20s and we have started, obviously, to plot the path to get back to that level. But the first step in that path is about execution in our channels, particularly in our D2C channel in fiscal '25. I don't think there's a whole lot of complexity in terms of what the necessary things are. It's just a matter of us taking them on and executing against them in a really disciplined way, learning from things that perhaps don't go the way that we expected, course correcting and building on that. And so I appreciate that's not as clear of a bridge as you'd like, probably between today and where we're going to get to. But I think rest assured that when we feel confident about it, we'll share that, and we'll take you through that.

[Carrie Baker, executive]

And John, I'll add to that. There's 3 real places where we can get a lot more out of the assets in our business, of course, in our stores by driving productivity and our manufacturing facilities and our operations infrastructure and general supply chain, et cetera, and our corporate cost base. There's a lot of opportunity to leverage off of all of those as we drive growth. So to Neil's point, the execution to drive the growth in the areas where we have these existing assets is the focus, and then there's a lot of leverage that can come thereafter.

[Jonathan Komp, analyst]

And maybe just to follow up, as we think about building our models or rebuilding our models after this year, should we think your priority will be centered around the repairing margin fully first and foremost, over, say, getting back to double-digit growth or some higher level of growth rate or how should we think about prioritizing those 2 competing forces after this year?

[Neil Bowden, executive]

I think in order of priority, having a well-established track record on margin and vision that we can continue to grow that is number one. But we need scale in order to get to a sort of mid-20s level and scale will come when we're confident that we can build on the platform that we're going to establish here.

[Operator]

Ladies and gentlemen, this concludes our Q&A session. I would like to turn the call over back to Ana Raman for closing remarks.

[Ana Raman, executive]

Thank you, everyone, for joining us and listening to us this morning. As always, please reach out to me in Investor Relations if you do have any further questions. Thank you.

[Operator]

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