Earnings Call Transcript - GOOS Q1 2021

Operator, Operator

Good morning. My name is Denise and I will be your conference operator today. At this time, I would like to welcome everyone to the Canada Goose First Quarter 2021 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would now like to turn the call over to Patrick Bourke, Vice President, Investor Relations. You may begin your conference.

Patrick Bourke, Vice President, Investor Relations

Thank you, and good morning everyone. With me are Dani Reiss, President and CEO; and Jonathan Sinclair, EVP and CFO. After prepared remarks from Dani and Jonathan, we will take your questions. This call, including the Q&A portion, includes forward-looking statements. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Certain material factors and assumptions were considered and 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 filed with the SEC and Canadian Securities regulators. These documents are also available on the Investor Relations section of our website. These forward-looking statements made on this call speak only as of today and we undertake no obligation to update or revise any of the statements. Our commentary today will include certain non-IFRS financial measures which are reconciled in the table at the end of our earnings press release issued this morning and available on the Investor Relations section of our website. Please note that there was a missing line item in the reconciliation table for adjusted net income provided in our release this morning. A full reconciliation is provided in our MD&A and this missing item will be updated shortly on our website. With that, I will turn the call over to Dani.

Dani Reiss, President and CEO

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

Jonathan Sinclair, EVP and CFO

Thanks, Dani. Good morning, everyone. Thank you for joining us. Likewise, I hope you are all safe and sound. In one of the most challenging periods in our history, the first quarter was a strong confirmation of our agility and our strategy. We went back to basics. In an environment where cash is king, our only challenge was how to maximize our financial flexibility, and amidst all of the unknowns were what were our highest conviction opportunities for growth. We have answered these questions and taken swift action. Despite the loss of nearly two-thirds of our revenue, cash used by operations decreased by $110.4 million relative to the comparative quarter last year. We successfully achieved our target to reduce planned cash expenses and investments by $90 million in a short three-month window. Total SG&A expenses decreased by 15.5%, sales were supported by inventory already staged, and payable terms were extended. Thanks to the initiative and resilience shown by our teams, we still expect to be meaningfully cash flow positive on an annual basis. Moreover, we have additional coverage from $329.4 million of cash on hand and undrawn borrowing capacity. There is also substantial latent liquidity through our evergreen inventory position. This will be complemented by the limited restarted production which is designed to add commercial depth in top performers, and new listings to drive brand heat before winter. By the end of the fiscal '21, we intend to normalize inventory levels, with the drawdown generating significant cash. We've also thought about where it's best to reallocate and accelerate our growth investments in today's environment. E-commerce, omni-channel and Mainland China are all long-standing pillars of our strategy. We have been building foundations around these for years. And the time to double down is right now. Adoption of digital shopping is rising. It is increasingly crucial to serve the world's largest luxury consumer base at home particularly at a time when international travel is greatly restricted. As a result, these pillars are the biggest needle movers we are focused on this year. Moving on to our results in Q1, total revenue decreased by 63.3% to $26.1 million. Starting with our full price D2C channel, revenue decreased by 70% to $10 million. This was due to temporary store closures, reduced operating hours and, of course, lower traffic. In its slowest seasonal period, e-commerce was our dominant revenue source and it was in line with the comparative quarter. In our wholesale channel overall, revenue decreased by 75.6% to $8.7 million with the channel largely closed since March. In our slowest quarter, this reflects limited international distributor shipments which have a longer lead time due to the additional NAV distribution. From a geographic perspective, with the majority of our business closed in North America and Europe throughout the quarter, Asia had the lowest revenue decline at 45.3%. Our DTC business in Mainland China was slightly positive year-over-year with the decline being driven by large COVID-19 impacts on our two stores in Hong Kong as well as lower wholesale shipments across the entire region. As you know from history, Q1 gross margin is a noisy number at the best of times. This was magnified by the large revenue decline we had this year. The important takeaway is that the underlying full-price economics of our DTC and wholesale gross margins have not changed. At a consolidated level excluding the sale of PPE at cost and $4.3 million of net overhead from temporarily closed manufacturing facilities, gross margin was 47.6%; on a reported basis, it was 18.4%. With the suspension of production, all related overhead was expensed through cost of goods immediately, whereas they are normally first allocated to the units on the balance sheet and then show up in product cost as it sells through. With negligible revenue in both channels, small accounting adjustments also had outsized percentage margin impact. In DTC, this was to the positive and in wholesale to the negative. Within wholesale, there was also the impact of distributor shipments being the dominant revenue source. We have bridged and quantified these shifts in detail in our filings for your reference. Adjusted EBIT was a loss of $46.5 million compared to $25.9 million last year, while adjusted net loss per share was $0.35 compared to $0.21 last year. Lower revenue was partially offset by the 15.5% SG&A reduction I mentioned earlier. While some contributing factors are temporary, there are also significant permanent savings on a go-forward basis. Moving onto current trends. The recovery in Mainland China remains ahead of other regions. We are in a seasonally slow period, but the signs are encouraging. Consumers are returning to shopping in our stores and non-parka products are resonating. Our first of four openings in this region this year in Chengdu has consistently been outperforming relative to our expectations. We have great brand momentum and runway in this region, and we are excited to begin expanding our footprint against that context. Unfortunately, Hong Kong continues to be a challenge. The flow of inbound tourism remains suspended. Tightening COVID restrictions given the latest wave have also impacted local traffic. As a result, our two stores there are still heavily impaired. In North America and Europe, retail stores are seeing slow starts as a result of lower traffic in and around our locations due to the impacts of the pandemic. This is as expected and consistent with earlier experiences in Greater China. In e-commerce, we are in the late innings of our slowest period and we are on track in our preparations for peak demand. This includes the launch of a cross-border solution to expand international access and mobile omni-channel capabilities in our U.S. retail stores seamlessly opening up endless aisle inventory to brand ambassadors and in-store guests has great potential for both experience and for conversion. This follows a successful pilot in Canada last year, which we originally incubated in our Sherway Gardens store here in Toronto. Lastly in wholesale, we are carefully and gradually turning our business back on. We have successfully taken a brand-first approach to managing the channel through the disruptions of the pandemic. That is going to continue. It is great to see our partners on the road to recovery and demand for our brand is strong, but operational and financial risks remain. We will continue to be cautious while focusing on DTC. This means lower wholesale revenue annually and later shipment timing relative to fiscal '20 with more of an in-season mode. In summary, there's no doubt that we've had the benefit of coincidence with the near total shutdown of our business globally in our smallest quarter. We did not take that opportunity for granted. We moved quickly to bolster what was already a strong financial position, and we accelerated strategically in the right places. While uncertainties remain, our business and the world around it are clearly improving. We are heading into fall/winter lean, flexible and focused. With that, I will pass over to the operator to begin the Q&A.

Operator, Operator

Your first question comes from Ike Boruchow with Wells Fargo. Your line is open.

Ike Boruchow, Analyst

Hi, good morning, everyone. Thank you for the question. Regarding the DTC channel, Jonathan, could you clarify how many stores you're planning to open this year? You mentioned four in China, but I'd like to get a clearer picture. Additionally, has the pandemic or any observations from your retail operations in recent months influenced your long-term outlook on what your winter order book might look like? Thank you.

Jonathan Sinclair, EVP and CFO

Well, good morning. From a fiscal '21 point of view, we are expecting to open seven stores this year, four of them in China, three elsewhere, a couple here in North America and one in Europe. From a longer-term point of view, we still see physical stores as an important part of our armory but also this is something that we're going to keep under constant review as the situation continues to evolve. What is clear is that the online channel is becoming increasingly important and that's core to our DTC strategy and indeed, where it started.

Dani Reiss, President and CEO

Hey, Ike, thanks for your question. I think that there are a couple of points I want to make that I think are important. One is to remember that our store footprint today is still a very modest and small footprint unlike many other brands. And so we still feel that there's opportunity to open stores in top shelf locations around the world, and we use those opportunities to plan to. I also want to point out, and once again, I'm very excited about the fact that we're focusing our store openings in China. I think that as we all know, global tourism is going to be affected this year and a lot of global tourists come from China, and I think this year a lot of those tourists are going to take their vacations in country. I think everybody from every country is likely to take their vacations closer to home, and I think that the fact that we're going to be able to open four new stores in fantastic locations in China to service Chinese tourists in China, I think it is going to give us a ton of momentum going into the year.

Operator, Operator

And your next question comes from Jonathan Komp with Baird. Your line is open.

Jonathan Komp, Analyst

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

Dani Reiss, President and CEO

Yeah. Thanks for the question. In wholesale, earlier in the year, we slowed down our wholesale shipments and now we're slowly and cautiously reopening it back. We have some very strong wholesale partners that we're very excited to work with. They're very excited to work with us and they see us as a brand that's going to help drive their business and drive their recovery. We're prepared to lead with the chance to allow our customers to perform really well. We have enough inventory to chase orders as we did and we also have the ability to manage our own DTC. We have a number of levers open to us and we're actively managing the channel, and that's the most important thing.

Jonathan Sinclair, EVP and CFO

Inevitably, I think that it makes some of them much more in-season relative to what we've seen in recent years. Historically, we've been drifting more and more to the left. This year is going to be a shift back towards the right because of the environment we're in. While we're not providing the financial outlook, but presumably the decrease in the first half will be smaller in the second half.

Operator, Operator

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

Omar Saad, Analyst

Thank you for taking my question. Good morning. I wanted to ask a follow-up on your manufacturing and supply chain, especially the commentary around you're going to be running at a third capacity this year. In pre-COVID, you guys were kind of transitioning to do more vertical manufacturing, in-house manufacturing and building up inventories to make sure that transition went smoothly. Maybe you can help us update that narrative where you are on production, the pullback you're obviously executing this year? And then where that leads you in terms of newness? Do you have enough newness in the pipeline with only a third production this year? And that basically assumes that the carryover kind of evergreen product from last year will be prevalent in stores online this year? Thanks, guys.

Dani Reiss, President and CEO

Yeah. Hey, thanks for your question. As we restarted our production, we are remanufacturing a lot of the newness that we have planned for this year and there's a lot of exciting stuff coming up. We also have staged inventory that was manufactured last year for this year, which really has put us in an excellent inventory position, and we're very happy with that because we have what we need and we have the ability to be flexible and make more if we need to or to pull back if necessary. At the same time, our factories continue to manufacture PPE for the Canadian government and we feel that's a very important mission as well. Overall, for us manufacturing, we feel that our flexibility and inventory position puts us in a very good place.

Operator, Operator

Your next question comes from Adrienne Yih with Barclays. Your line is open.

Adrienne Yih, Analyst

comp:

Jonathan Sinclair, EVP and CFO

As we consider the first quarter, it is clear that there has been a relatively minor change in e-commerce demand, although this has always been the case, it seems to be more pronounced now. We are increasingly mobile, and as our seasonal growth evolves, this will be crucial for us. This is where we will also see our initiatives take shape, whether in cross-border efforts or omni-channel strategies, which will significantly enhance our revenue as we progress.

Dani Reiss, President and CEO

If I can add to what Jonathan mentioned, I believe that despite all the points raised, we successfully maintained and improved our e-commerce performance. At the same time, we continued to sell at full price, which is crucial. In challenging times, some brands chose to weaken their perceived value, but it’s essential for a brand to remain resilient and true to itself. We are a full-price brand, and while many others shifted to promotions, we did not. Achieving this while sustaining our e-commerce performance in the current environment is a significant achievement, and I am very pleased with it.

Operator, Operator

Your next question comes from Sam Poser with Susquehanna. Your line is open.

Sam Poser, Analyst

Good morning. Thank you for taking my question. I have three inquiries. First, could you provide some insight into the size of your e-commerce business last year? I understand that you typically don't disclose this information, but these are unusual times. Second, what is your outlook for the wholesale business? I realize you don't typically provide guidance, but how do you expect the wholesale sector to perform in the second quarter? Lastly, could you clarify what you mean by purposeful wholesale growth?

Jonathan Sinclair, EVP and CFO

Taking the wholesale aspect first, I believe it's very important to our business. We expect to see a shift towards a more in-season model. This is different from recent years when we've followed more traditional practices, and this shift is particularly crucial for managing that part of our business. Regarding purposeful wholesale, we have always viewed it as beneficial for the brand, emphasizing its importance in either accessing key locations for brand distribution or reaching areas where a physical presence is necessary, especially as we look to open our own stores.

Operator, Operator

OK. Your next question comes from Kate Fitzsimons with RBC Capital Markets. Your line is open.

Kate Fitzsimons, Analyst

Yes. Hi, guys. Thanks for taking my question. I guess, certainly understanding you don't have a crystal ball, but I guess when you think about the productivity rebuild in your stores, looking out in the next, call it, year-and-a-half, how are you viewing that just given the importance of global tourism to your store base? And, I guess, just an extension of that would be when we look at channel margins, historically retail margins kind of settling in at the mid-50s on an EBIT level, wholesale in the mid-30s, how comfortable do you feel with that profile over time just given what is likely to be a floater with lower productivity rebuild? Thank you.

Jonathan Sinclair, EVP and CFO

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

Operator, Operator

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

Michael Binetti, Analyst

Thank you for your assistance. I have a couple of modeling questions and a broader question for Dani. Regarding the gross margins in direct-to-consumer, I noticed you reported 82.7%, but I believe it was closer to 66 or 67 if we exclude last year's duty recovery. For a smaller quarter, that typically shouldn't matter, but it appears lower than the usual figures from D2C. Is there anything that might affect the direct-to-consumer gross margins in the second and third quarters that we should consider? Additionally, for wholesale, I noted a 1,000 basis points drag, and I'm curious if you anticipate any impacts from that in the second and third quarters as well. As we look ahead, how do you see it progressing? Lastly, Dani, regarding the footwear launch, while it’s still a few years out, can you share the market size you anticipate globally and what unmet needs you believe exist that make introducing the service particularly appealing?

Jonathan Sinclair, EVP and CFO

Thank you, Mike. I have a couple of important questions. The answers are relatively straightforward since the pricing model in this business remains unchanged compared to previous years. There are two factors impacting margins in Q1. One factor is the product mix; last year, it leaned more towards newer categories, which results in slightly lower margins. The core issue is we're working with very small numbers, and minor adjustments can significantly affect margins, so there's no cause for concern. The wholesale situation is similar but in a different context. When shipping primarily to distributors, margins are naturally lower, which is what you're observing, but they will recover later. Overall, the fundamental economics and pricing model this year are consistent with last year, so margins are expected to normalize.

Dani Reiss, President and CEO

And I'll take your footwear question. And I'm very excited about footwear. We're going forward, we're very much doing it our own way. As always, we aim to make best-in-class products and this is no different. There are many relevant footwear brands in the world today with eight, nine-figure businesses, so obviously category is very large, and we take the opportunity seriously. I'm focused on building the foundation for an enduring franchise in this category over the long term. We're not looking to generate large numbers or material numbers in the short term, but rather for the long term. Anyway, long-term I see it to be very material when we commercially launch it so that when we commercially launch, our limited, our focused selection and intention is to build a pull model and create a market for lasting success in this category.

Operator, Operator

And your next question comes from Oliver Chen with Cowen. Your line is open.

Oliver Chen, Analyst

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

Dani Reiss, President and CEO

Thanks, Oliver. Those are two significant opportunities. Spring products and offseason products are performing very well. We have introduced many new items, and there's substantial potential in this category. I believe that as a portion of our overall sales, this will grow over time, similar to other categories that have experienced growth. We started small, and these have become significant contributors. I think these product categories offer the same potential, and we are very enthusiastic about it. Regarding cross-border opportunities, we also see a great potential. This year, we are going to expand our wholly-owned e-commerce platform to many other countries, and the potential to drive revenue through this channel is very exciting.

Operator, Operator

Your next question comes from Alexandra Walvis with Goldman Sachs. Your line is open.

Alexandra Walvis, Analyst

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

Dani Reiss, President and CEO

I'll address the question about newness. Thank you for asking, Alexandra. Every year, we incorporate a lot of new elements into our collection, including exciting new styles, collaborations, guest designers, reinterpretations of old fabrics, as well as new styles and colors. These typically drive strong consumer engagement, attracting both new customers and existing ones looking to get the latest offerings from us. Thanks to our manufacturing flexibility, we can produce the items we've designed for this year and plan to showcase in our stores, and we're very enthusiastic about it.

Jonathan Sinclair, EVP and CFO

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

Operator, Operator

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

Camilo Lyon, Analyst

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

Dani Reiss, President and CEO

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

Jonathan Sinclair, EVP and CFO

I want to build on what Dani mentioned, which is that ROI is a key focus for us regarding our marketing investments. I believe that's quite significant to our overall strategy.

Operator, Operator

Your next question comes from Mark Petrie with CIBC. Your line is open.

Mark Petrie, Analyst

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

Dani Reiss, President and CEO

Thank you for your question, Mark. At that time, we feel confident that we are on the right path. We have established teams in both Hong Kong and Mainland China and have strong partnerships in these regions. Our performance in China supports this confidence. We are actively engaged there, especially as most of our new store openings are occurring in China, which is ahead in its recovery compared to other parts of the world and is the largest luxury market globally, putting us in a good position. Regarding your question about our marketing expenditures, during times when many are hesitant to invest in marketing, we see it as a chance to enhance brand awareness and increase our marketing efforts. Our strategy for this will unfold throughout the year, and we have various ideas and plans to spend wisely and strengthen our brand worldwide.

Jonathan Sinclair, EVP and CFO

If I just add that what, just turning back to China, the quality of the real estate that we are acquiring both in terms of the units themselves, the adjacencies, the locations are really quite exceptional. Achieving this relatively soon after our entry into that market is really a testament to the brand strength there.

Operator, Operator

Your next question comes from Robbie Ohmes with BofA. Your line is open.

Robbie Ohmes, Analyst

Good morning, everyone. Thank you for taking my question. I am curious about your perspective on the shift to a domestic strategy. Do you think the size of the luxury market is changing in the intermediate term? What are your thoughts on what the luxury market could look like in the latter half of this year and in 2021? Additionally, regarding the domestic focus, can you provide some insights on the differences between Canada and the U.S. and any trends you have noticed in that regard?

Dani Reiss, President and CEO

This is different from the luxury market. I believe our products are survival-focused and designed for functionality, serving as long-term investments. Historically, during times like these, we've done well because consumers feel they are purchasing durable products. Given that more people are looking to spend time outdoors now, our offerings are ideally suited for this trend. Therefore, I don't see the market contracting; if anything, I believe it's expanding.

Jonathan Sinclair, EVP and CFO

Yeah, and I think as we look forward as to how this is going to evolve, you know, obviously, none of us really know. But I think the disruption this year is probably likely to be more marked than as we look forward, but equally, that's why we're having a focus on serving our consumer in their own market problems.

Operator, Operator

Your last question comes from Jay Sole with UBS. Your line is open.

Jay Sole, Analyst

Great, thank you so much. I just wanted to ask you about what you meant by production flexibility. The press release said that the company currently plans to produce roughly one-third of the fiscal 2020 output. Is their ability to produce more if necessary or less, if necessary?

Dani Reiss, President and CEO

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

Jay Sole, Analyst

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

Dani Reiss, President and CEO

I really thought it would have specifically defined the order of magnitude. Other than to say, I'm comfortable to manage whatever we need.

Jonathan Sinclair, EVP and CFO

This is an extremely flexible manufacturing model where, frankly, turning the weight up and down underneath it in times like this is a very straightforward process for us.

Operator, Operator

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

Dani Reiss, President and CEO

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

Operator, Operator

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