Canada Goose Holdings Inc. Q4 FY2021 Earnings Call

Good day and thank you for standing by. Welcome to the Canada Goose Q4 2021 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Patrick Bourke, Vice President, Investor Relations. Please go ahead.

Thank you and good morning everyone. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. After prepared remarks from Dani and Jonathan, we will take your questions. This will be limited to one each to allow as many as possible to ask questions within the allotted time. This call, including the Q&A portion, includes forward-looking statements. These forward-looking statements are 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 these forward-looking statements. Additional information regarding these forward-looking statements, factors and assumptions is available in our earnings press release issued this morning, as well as in the Risk Factors section of our most recent Annual Report. These documents are also available on the Investor Relations section of our website. Forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of these statements. Our commentary today will include certain non-IFRS financial measures, which are reconciled in the table at the end of our earnings press release issued this morning and again available on the Investor Relations section of our website. With that, I will turn the call over to Dani.

Thanks, Patrick, and good morning everyone. We entered this year in uncharted territory with a simple plan in place to do everything we could to support people during this time of uncertainty and to put our business in the best possible position for a strong recovery this year and beyond. In an unprecedented and difficult year, we moved key strategic initiatives forward. And I'm very excited to share those highlights and our results with you here today. To begin, Canada Goose has shifted from recovery to growth beyond pre-pandemic levels. Not only did we finish the year with a record fourth quarter, but we've positioned our business well going into next year. And now with two strong growth quarters behind us, we feel very confident about the runway ahead and a return to continued meaningful growth. Our fourth quarter showcased the true strength of our global digital business with triple-digit growth. Our global e-commerce revenue increased by 123%, driven by high double-digit or low-triple-digit growth in all major established markets, including Canada, the United States, Mainland China, and the U.K. Not to mention the strong performance in our earlier stage markets like Germany, France, and Ireland. This year, we accelerated our digital strategy. We accomplished in months what was planned over years. This approach was a response to a shift in consumer behavior, driven by COVID, but it is underpinned by our focus on advancing our strategic plans in order to accelerate continued growth. This achievement has had incredible implications across our business and I look forward to continuing to update you on our achievements across this very important channel in the future. Looking ahead, we will continue to execute against our long-term growth strategy with 10 new store openings expected for fiscal year '22. In North America, we plan to open in South Coast Plaza, a premier shopping destination in Southern California. In Europe, we expect to open three new locations, including two in Germany and another in the U.K. And in Asia Pacific, we plan to expand our retail network, adding six new permanent stores. We continue to be encouraged by the performance of our existing Asia Pacific network. In the past three years alone, we've built more than CAD250 million worth of business, a tremendous feat by any measure and a testament to the strength of our brand in that region. Lastly, in terms of consumer sentiment, all of the research we are seeing shows a growing and positive shift in brand sentiment and trust. We believe this is a result of a number of factors, including the important progress we've made under our human nature platform and our commitment to keep the planet cold and the people on it warm. We continue to execute against our commitment to address environmental, social, and economic challenges and we are extremely proud of the progress that we've made so far. Building on brand relevance and consumer demand, Canada Goose exists at the nexus of culture and fashion. For decades, we've been a coveted brand across influential arenas, including film, entertainment, and sport. This year, we bolstered that tradition by announcing a multi-year partnership with the NBA, which made Canada Goose the outerwear partner of NBA All-Star. We continue to focus on driving brand heat with consumers. This multi-year partnership is a significant milestone for us. In the coming years, we will develop exclusive design collaborations in partnership with the NBA for players and fans alike. This quarter, we continued to focus on driving meaningful change that is fundamentally important to today's consumer. Through our product innovation strategy and focus on sustainability, we are making an impact. 2020 was the year we gave consumers the first glimpse of our more sustainable product to date, the standard expedition parka. This quarter, we also launched the Cypress and Crofton to Board new spring styles, featuring recycled fabrics. Not only do these offerings resonate incredibly well with consumers, they are blueprints for our sustainability-driven collections moving forward and key drivers of our expanding multi-seasonal offer. We've also made progress towards building vibrant communities and maintaining healthy and respectful workplaces. As a leader in the Canadian manufacturing industry, we offer meaningful work and valuable job skills for thousands of people, both in Canada and abroad. As vaccinations ramp up and global supply chains continue to increase, we have entered a new, more hopeful phase in our global fight against COVID-19. In an effort to remove barriers and ensure equitable access, we are offering all employees paid leave to receive COVID-19 vaccinations. I'm proud to do our part to ensure that all Canada Goose employees have actual access to that vaccine. That said, for many, barriers remain, and our thoughts are with all those who have been affected by COVID, including those communities and countries who are at earlier stages in recovery. Looking ahead, I'm very excited for the upcoming commercial launch of Canada Goose footwear. As you know, we've taken a very deliberate approach to this category, which has been many years in the making. And now, with the launch set for later this fall, we have an incredible opportunity in front of us this year and beyond. We plan to bring a brand new perspective to the marketplace, and I look forward to sharing more details of our vision for that with you this fall. In summary, we have demonstrated strong current momentum and confidence in our long-term growth potential. I'm incredibly proud of the way the team has executed under such difficult circumstances and the strides we've made across all of our strategic initiatives, while remaining steadfast in our commitment to strengthening our communities, protecting our planet, and working towards a better future for generations to come. Our business has moved well beyond recovery, and we look forward to continuing to deliver meaningful growth this coming year and for the long term. As we plan to cross the CAD1 billion threshold as a brand for the first time this year. And with that, I'll turn it over to Jonathan.

Morning, everyone. Thanks for joining us. I really hope everyone is well. The fourth quarter represents a step change in our performance and an excellent finish to fiscal '21. From where we are today, just 12 months ago, we were facing a near-total shutdown of our business globally. We've navigated a year like no other, and we're coming out stronger on the other side. Reflecting on our results and our path forward, there are three key things that stand out: Firstly, we have transitioned from recovery to growth beyond pre-pandemic levels. Secondly, we are purposefully investing for the long term. And thirdly, we are confident in our potential for meaningful growth in fiscal '22. So let's start with top-line metrics. Total Q4 revenue was CAD208.8 million. Looking at the pre-pandemic comparative base, this is still 33.7% higher than two years ago. It is a strong reaffirmation of our strategy in a challenging environment. E-commerce led the way, driving our outperformance. Global revenue increased by 123.2% relative to last year. We have outstanding growth rates in all of our major markets. Mainland China and Canada were both in the high double digits, and the U.S. more than doubled. In Europe, the U.K. and Germany both nearly tripled. As expected, demand timing was later this winter. This was due to the shift to buy now, wear now shopping, which we discussed throughout the year. Supported by a wide range of operational improvements and investments, this made Q4 the high watermark for our online growth in fiscal '21. This was complemented by resilient retail revenue performance, despite outsized headwinds due to a number of factors. Nine stores in Canada and Europe, representing 32% of our footprint, were closed for an average of 8 weeks in Q4. These closures included a number of our most significant locations globally. Those closures were also weighted to our most productive time in the period, namely January and February. Our stores in Mainland China continue to be a bright spot. Our decision to concentrate openings there has paid off. In the seasonally smaller quarter, wholesale revenue was CAD33.3 million. This was ahead of an expected decline, so the absolute dollar amount is clearly small. We experienced an uptick in final reorders to finish the full winter season, and the performance of our spring collection has been encouraging. Looking at our top-line performance from a geographic lens, this illustrates why you see a brand with truly global growth and truly global potential. In the earlier stages of recovery from the first wave, Mainland China was the only growth engine. Now we are at a point where other markets are following its path. Revenue in the United States increased by 59.3%, while Europe and the rest of the world came in at 46.7%. Each of these regions has a long runway. They are important components of our global potential, given the elevated and prolonged retail closures in Canada, including Greater China, a revenue decline of just 6.9% is also an encouraging result. Moving from Q4 to our plans going forward: we are purposefully accelerating growth investments in several areas. We believe that the time is right to open more stores and drive our agenda even harder, thanks to the financial resilience and strong cash flows of our business. The only constraint we have is our discipline—discipline around execution, discipline around returns, and discipline around strategic value. You see this when you look at fiscal '21. In a year with unprecedented challenges, we still had a consolidated gross margin of 61.3%, adjusted EBIT margin of 14.7%, and free operating cash flow of CAD222.9 million. This gives us an immense level of capacity and flexibility. So let's discuss marketing. You'll recall that we sharply pulled back spending in the early stages of the pandemic. Our business was largely shut down, and consumer attention was understandably elsewhere. We then accelerated brand and demand building in the back half of fiscal '21 to great effect, and you've seen the results. For fiscal '22, we are planning to carry this through with increased marketing as a percentage of revenue while returning to a normalized level of investment. We believe this is the right thing to do, given our commercial momentum. The next area of investment is continually improving our digital consumer experience, from site establishment to virtual appointments. We have a packed agenda of initiatives we are excited to launch in the coming year. While the pandemic has accelerated our digital strategy, it has also reaffirmed our retail store model. In all markets during re-openings, we have been very encouraged by the return of local traffic and the strength of our conversion rates. This tells us that our consumers still deeply value physical experiences and personal service. With a selective focus on only the best locations, we have continued to generate strong levels of operating profitability and capital returns. Looking ahead, we currently plan to open 10 new stores in fiscal '22, all in premier locations. Of these stores, six will be in Asia, three in Europe, and one in the United States. I'm particularly excited for us to be coming to South Coast Plaza in Southern California. This is one of the top luxury malls in the U.S. and one of the most productive malls in the country. It is also the perfect market for our growing lightweight offering. Lastly, regarding investments, this fall-winter we will launch Canada Goose footwear, as we continue to develop as a lifestyle brand. Our focus in year one is to maximize awareness and demand with the focused and tightly controlled clinical product. This requires a significant level of upfront investment, and it will not be immediately profitable. We strongly believe that we must put the full weight of the business behind seeding this pivotal category. This is the right first step toward commercial and financial success at scale in the longer run. Moving on from our investment plans, let me share some color on how we're thinking about fiscal '22 and Q1. We are confident about the year ahead. That said, we remain in a disrupted and dynamic environment. The return of tourism, historically an important factor for our sector, remains some way off. Given stable economic and operating conditions, we currently fully expect to exceed CAD1 billion in annual revenue in fiscal '22. We are continuing to lean into DTC globally to drive our growth. This assumes the channel approaches 70% of total revenue. While we don't know today how much of the pandemic digital shift will be permanent, we believe we have the right foundations in both e-commerce and stores to capture demand and serve the consumer, whenever and wherever they choose to shop. In wholesale, we are assuming annual revenue is in line with fiscal '21. The channel has re-based to a new normal. Significant brick-and-mortar pressures remain in many markets. We have continued to edit out undifferentiated doors during the pandemic, as we have been doing for many years. Our approach to volumes remains very controlled. We're excited to concentrate more of our business with our best-in-class strategic partners going forward as we come out of the pandemic together. From an inventory perspective, our current position is well matched to our expectation of significant revenue growth in fiscal '22. It also gives us the right level of commercial flexibility for upside in the season, given the current uncertainties around store supply chains and shipping. We believe that being a domestic manufacturer at scale with a staged evergreen offering is highly advantageous. In terms of gross margin, the expected DTC mixture will structurally drive our consolidated level higher. At a channel level, the mid-70s for DTC and the mid to high 40s for wholesale remains the right levels for our business over the longer run. From a cost perspective, we are currently planning annual SG&A to have a growth rate in the low 30s. This reflects the suite of investments I described earlier, as well as variable costs not incurred last year due to shutdowns and lower levels of commercial activity. In terms of adjusted EBIT margin, we expect improvement relative to the 14.7% we're reporting for fiscal 2021. A full margin recovery is dependent on the return of international traffic, which represented roughly half of our retail store business prior to the pandemic, as you may recall. Our planning assumes that tourism in major global shopping destinations will not be meaningful this year. Until that changes, we believe that our adjusted EBIT margin is likely to remain in the mid to high teens. Let me round this out with some commentary around Q1. This factors into our current expectation of exceeding CAD1 billion in annual revenue. We are assuming DTC revenue to be roughly 2.5 times last year's level. We have more retail stores in operation, but we continue to face headwinds in Canada and in Europe for the stores that are open, and the absence of international traffic is also more impactful at this time of year. E-commerce continues to generate robust growth, while it's not at the level of Q4, it is currently around the 54% growth rate we achieved in fiscal '21 as a whole. This is a buy now, wear now! channel. It is, however, a much smaller net mover at this time of year. In wholesale, we expect revenue to be roughly double last year's level. And in the other segment, which was driven by PPE manufacturing last year, we do not expect any meaningful revenue. In terms of gross margin, we currently expect to see mid-70s level in DTC and a low 40s level in wholesale. This is in line with what we had in the comparative quarter in fiscal '20, prior to the pandemic. Lastly, on the expense line, we expect SG&A and D&A combined to have a low 70s growth rate. This is well above our expected annual level due to the fact that our operations were largely shut down at this time last year. In closing, we have navigated through a challenging year. We came out stronger than ever. We have grown beyond pre-pandemic levels. We are investing with purpose for the long term. Our brand is strong. We continue to innovate with best-in-class product. We are optimistic for the year ahead. And we are confident that our strong momentum will continue. And with that, I'll pass back to the operator to begin the Q&A.

Your first question comes from the line of Ike Boruchow. Your line is open.

I guess, Dani, just a question: the e-commerce acceleration through the year, especially Q4, is pretty impressive. Can you just talk to what exactly is driving that within your business? And then maybe bigger picture: Where do you expect e-commerce penetration as a percent of direct-to-consumer sales to go, maybe this year or multi-year down the road? Thanks.

Yes, sure. Thanks, Ike, and great question. There are a couple of factors at play here for sure. The first is obviously the massive shift in shopping behavior that has been driven by the pandemic. In this particular quarter, mandatory retail closures were more prevalent in a number of markets, and that affected our performance as well. The second factor is the later increase in purchasing that we saw, and we've seen more immediate buy now, wear now shopping during the pandemic. Since winter is our season, that made it tough for us; we saw the acceleration in previous quarters. Even towards the end of Q3, we observed it growing stronger, which we indicated during our last call. Q4 just continued that trend, and we had been investing heavily to capture all that demand and meet our consumers wherever they want to shop with us. In many cases, that turned out to be online, and we were absolutely able to deliver on that. I think our investments in digital made throughout have really paid off. In terms of the percentage, for us, it's not really about reaching a certain level of digital penetration. Our strategy is to drive overall DTC mix forward, however the customer wants to shop. We believe it would be naive to think that will not change again over time. It's important to be available to consumers, whenever and however they want to shop. So for that reason, both channels—retail and online—are really important.

Your next question comes from the line of Jonathan Komp with Baird. Your line is open.

One follow-up clarification, thinking about the DTC margin as e-commerce penetration increases. I believe that is a more profitable channel even versus retail. So does that help in terms of thinking through the margin recovery relative to the retail traffic levels, just given the higher e-commerce penetration? And then my broader question, Jonathan, just thinking through the margin impacts you highlighted, any way to quantify some of the investment areas, as well as some of the external pressures from factors like labor or freight. What are you expecting there in the outlook? Thank you.

So thanks. I'm going to answer those in two parts. Let's take the question around DTC and the component margins. In normal times, we enjoy similar margins from the stores and from online. But at the moment, with headwinds in terms of traffic in the stores, clearly, the online margin is higher. But overall, that strength of the DTC performance is still producing a mid-40s operating margin, and that's well above the level we see in wholesale. Therefore, you're right to the extent that DTC grows faster, that will positively impact our margins and give us more scope for investment. Secondly, to address your question on freight and labor, to some extent, this is more of a gross margin question and it plays into the algorithm margin. We always talk about the tailwinds and headwinds of gross margin and the need to keep it in balance. So for sure, like everyone else in the sector, we've seen disruptions to shipping routes and higher freight costs. As we look at that dynamic landscape, we believe we're positioned well thanks to our pricing power and high gross margins, as well as our staged inventory and domestic production. Obviously, we watch the situation closely and proactively plan around it. It helps that our average unit selling prices are quite high, but if there is an adverse change with significant impacts, we would update you. Right now, though, we're feeling pretty confident about our position.

Your next question comes from the line of Michael Binetti with Credit Suisse. Your line is open.

So Dani and Jonathan, I guess, just wanted to jump in. You talked a bit about the tourists, which has obviously been a huge part of your business. You're opening a store in Southern California, so you're clearly not walking away from that focus. Can you help us think about numerically how the lack of tourism impacted fiscal '21? I know, Jonathan, you've told us a few times that it impacted your store's business prior to the pandemic. I'm just trying to think about it. It sounds like you didn't account for much tourism in the guidance this year, but if I look at what I think you're telling us, you expect this year to be with wholesale flat and DTC getting to about 70%, it looks like you're maybe targeting CAD750 million of direct-to-consumer revenue, which is significantly above where you were in fiscal 2020, without even having tourism baked into your numbers. So I'd be curious how you think about how much that impacted you last year and to help us think about what the upside could be if we do start seeing tourism come back this year? And then Jonathan, I just wanted to get a bit more clarity on the strategic rationale behind the acceleration of growth investments that you discussed. Obviously, it's a significant opportunity as you spoke about, but why now and why so significantly? I'm curious to hear your thoughts on why the time is right.

Thanks, Michael, for that question about tourism. Your observation is a good one, but we've not assumed a return of tourism in this year. The return of tourism to pre-pandemic levels, whenever that will happen (and nobody can predict that), definitely offers material upside to our business because it represented such a large percentage of our sales, and they are completely incremental. There was a time when we believed that will be again at some point in the future. But regarding this year, as we look at the year to come, we are not planning on tourism returning in fiscal '22. It is encouraging to see that we can grow through these times in the absence of global tourism at the rate that we're growing, and I’m very excited about the return of global tourism to just add to that.

I think tourism is a spring waiting to go. As and when it returns, that really will bring us back. When it comes to the investment rationale, we're seeing great demand strength globally, and we have experienced payback from the investments we've already made, as we've reported back to you. We've never seen demand like this. The digital shift in particular has pulled forward years of digital growth and consumer expectations may be evolving. So we need to stay in front of that, and investing into that right now seems pivotal.

Your next question comes from the line of Oliver Chen with Cowen. Your line is open.

You've made nice strides in the multi-seasonal product. Where do you see that mix going over time? And how will it impact the seasonality you experience? Also, we're looking for the footwear, we just love your views on how that mix could evolve and what the strategy will be by channel? Thank you.

Thanks, Oliver. Yes, we've performed really well with our lightweight down product. We're very happy with how it's doing, and it's a super important part of our collection going forward. Our plans focus not only on lightweight down but also on profiting sectors in particular like recycled materials, like some of our more sustainable styles, and we're really pleased with their performance. I believe spring is a very important part of our future plans. I think the lifestyle brand component is something we're going to continue to grow at a meaningful rate; we’re very excited about that. Regarding footwear, I’m personally extremely excited about footwear. It's something that we've put a lot of thought into over many years and now it has come to fruition this fall, and I think the market will appreciate our interpretation on footwear as well. We will start with conservative offerings initially, and afterward, expand our proven products; ultimately, in the long run, it should represent a very material piece of business for this company. However, for this year, we wouldn’t consider it material at this time.

Your next question comes from the line of Megan Annette with TD Securities. Your line is open.

Can you talk a little bit more about your learnings with regards to brand awareness? What's your view on brand affinity today relative to pre-pandemic? Specifically in North America, have you seen any shift in consumer sentiment toward the brand in Canada and the US? Thank you.

Yes, thanks for the question. We are definitely seeing a positive shift in brand sentiment and trust for our brand. This quarter, we continued to focus on driving meaningful change, delivering results. We believe that the positive results are due to several factors, including the significant progress we've made under our human nature platform, which has been very well received and is essential for our future. Our commitment to keeping the planet cold and the people on it warm is sincere. This year, we released our second sustainability report, reaffirming our commitment to net zero emissions by 2025, and additional commitments around sustainable materials and packaging. We've been addressing environmental, social, and economic challenges and we are extremely proud of the progress made to date. One last thought: I believe the pandemic has highlighted the delicate balance between humanity and nature, and looking forward, I think it's difficult to envision many companies succeeding over the next 20 years if they aren't good for the world. Thus, it's our intention to lead efforts in transforming the apparel industry toward sustainability.

Your next question comes from the line of Omar Saad with Evercore. Your line is open.

Thanks for taking my question and for all the information and the update. It's great to hear the success of DTC and e-commerce. I'd love to ask a follow-up and get more detail around the wholesale side of the business. I know it's planned to be flat; maybe any more details around plans to rationalize or not going forward. Additionally, how do you view the wholesale.com side? Is there a role for the e-concession type models within the marketplaces that are out there? Thanks.

Yes, thank you for your question. On wholesale first, we have always taken a very controlled brand-first approach to wholesale. This includes letting down undifferentiated distribution with partners we can trust, and we do believe we have some strong wholesale partners. While wholesale remains important, our DTC business is growing faster. However, we continuously evaluate our wholesale distribution to make sure all our accounts are of high value. For example, in fiscal '21, we went from 2,100 points of distribution down to just over 1,900. We have been rationalizing for a while to ensure that we are working with like-minded partners and will always continue doing that. As for the potential of new business models with e-commerce wholesale, e-concessions are certainly on our radar. We're constantly exploring new models and ways to integrate with our partners, focusing on the best possible consumer experience. While we do not have concrete plans at this time, we continue to assess how consumer shopping habits are evolving.

Your next question comes from the line of Sam Poser with Williams Trading. Your line is open.

Thank you for taking my question. I wonder if you can dig into your marketing strategy. You're going to increase your marketing spend. I assume a lot of that will be digital and direct. Generally, when companies have done so, what kind of return on investment are you anticipating from increased digital marketing this year? Because many companies tend to see a good return relatively quickly when they ramp that up.

Yes, I think you're right to say that a lot of our investment will go into digital. We've seen and continue to see increases in growth driven by that investment, which gives us increased conviction over time. That’s where we put a lot of our emphasis to drive the business performance.

Your next question comes from the line of Camilo Lyon with BTIG. Your line is open.

Just two quick questions. One just on the wholesale guide: I was wondering, Jonathan, if you could help us articulate the components of what is the contribution from fewer doors versus what the order book was within that flat guide? And then just longer-term regarding footwear: I'm assuming that's going to be mentioned to your DTC channel first. How should we think about the price points of the offering and who are your key competitors that you would point to as benchmarks for market share perspective because you straddle both technical and fashion components of the market? So there seems to be a lot of opportunity there.

When it comes to the wholesale business, we've been successful over the years at controlling distribution and evaluating our partnerships based on brand value. The wholesale distribution serves a purpose; it provides a physical presence in markets where we directly cannot go, and it helps to build our brand credibility. However, with the reduction in wholesale locations from around 2,500 at the time of IPO to current levels, we see that as a gradual decline. We anticipate this will continue, leading to higher quality earnings through better distribution. As far as footwear is concerned, it’s still early days for specifics. We are super excited about the opportunity and see great potential in this venture. That said, we will focus on seeding demand and building brand awareness before it matures into a significant business.

Yes, I’d just like to add that I'm incredibly excited about our footwear products. Canada Goose is known for best-in-class products, and it is our goal only to offer best-in-class footwear when it hits the market.

Your next question comes from the line of Jay Sole with UBS. Your line is open.

Over the past couple of calls, not last year, but in the Q4 calls in 2018 and 2019, you gave a three-year view that included operating margin guidance. In 2018, you discussed a 26% EBITDA margin by 2021, and similarly in the '19 call as well. In light of the EBIT margin guidance you provided today, can you update us on your three-year outlook? When do you believe you can get back to that 26% EBITDA margin you previously discussed? Any clarity on how you see margins trending in fiscal '23 and fiscal '24 would be appreciated.

Thanks, Jay. As you are aware, we're not giving that medium-term guidance at the moment. However, I would say that we already see fiscal '22 as the beginning of margin recovery. The significant driver of improvement will be the chosen execution because stores drive sales density, and sales density in relation to a fixed cost base fundamentally drives profitability. International tourism recovery, along with the return of traffic to retail, will ultimately propel us back to our historical profit margins.

Your next question comes from the line of Robby Ohmes with Bank of America. Your line is open.

My question is just when you look at exceeding CAD1 billion in revenue guidance this year, which excludes the return of tourism, how should we think about the assumptions for the U.S. and Canada versus international and China? Additionally, I would be curious to hear how you think about the two-year growth rates for the U.S. and Canada this year compared to fiscal '20 or calendar '19? How should we be thinking about that?

When considering the exceeding CAD1 billion target, it's important to note that this figure does not arise from CAD903 million as an outcome since that reflected PPE sales. First off, you must factor that into your estimates. Also, looking at what occurred in Q4 gives you an idea of the underlying brand strength and direction of travel. We remain optimistic about our growth across all territories. Canada is somewhat established, but we believe there is ample room for growth. In North America, particularly the U.S. and Europe, we've seen significant momentum. Most interestingly, our eight to nine stores in Mainland China are still early in their journey, relative to the potential compared to other brands. Thus, we see a lot of growth potential in all our markets, likely driven primarily by Asia but with real opportunities in Europe and continued growth in North America as well.

Your next question comes from the line of Adrienne Yih. Your line is open.

Congratulations on the progress. My inquiry is actually about the supply chain. There's not as much focus on that for you because you do maintain much of it domestically. Are you seeing any raw material input cost pressures? Moving forward into the fall-winter season, with others in your industry, it seems they will likely need to raise prices. How do you think about the pricing environment moving into the fall-winter, should others take inflationary pricing up as well? How do you philosophically see your positioning in that kind of environment? Thank you very much.

When considering margin, we have to contend with input cost inflation alongside pricing power. Our brand ability enables us to increase pricing by mid-single digits year-on-year, presenting a tailwind for our gross margin. We seek to maintain a balance between cost inflation and selling price inflation. This has been our practice for many years, including during the pandemic. It assists that our average unit prices remain high, while proactive measures with our strong sourcing team allow us to effectively manage input cost inflation without exerting undue pressure on margins. Therefore, we are not anticipating significant selling price increases, nor do we foresee margin pressure within our channels, as we continue to maintain equilibrium.

Your last question comes from the line of Mark Petrie with CIBC. Your line is open.

Yes, good morning. I'd like to revisit the discussion around diversification and your assortment ramp-up. Could you comment on the lightweight down category's performance throughout fiscal '21, potentially across various geographies? What does this say regarding how the brand is evolving within new markets, particularly in China? Moreover, how should we think about the nature of footwear launching? Would you consider footwear to ramp more like spring rainwear or knitwear, or will it resemble the faster ramp-up seen in lightweight down?

Thanks for your question. We have seen strong performance across all geographies, and lightweight down is becoming a crucial pillar of our assortment that we will rely on in the future. As for how footwear is ramping up, it bears some similarities to our lightweight down offerings, as we are focusing on launching with a product type and strategy that reflects our established brand strengths. We have confidence in footwear becoming a material piece of our business over time, but for now, we will treat it as a sound strategy for our portfolio where we will invest in and grow our market presence. Thank you for everyone for joining us here today. Before we leave, I'd like to take a moment to touch upon our commitment to diversity and inclusion. At Canada Goose, we embrace diversity in all its forms and are striving to remove barriers to create an inclusive culture and an equitable workplace where everyone feels they belong. To further this, we created an Inclusion Advisory Council, a unifying body to act as thought leaders and advisors, along with managers who will be included within the internal community. We are currently in the process of hiring a leader of diversity and inclusion who will set the direction and drive our D&I strategy across the business. We are training our leadership teams to educate, guide, and champion diversity and inclusion strategies and initiatives. Thanks again for joining us today, and I really look forward to our next call.

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